What is a Short Sale?

A Short Sale is a request from the homeowner to their lender to sell the property when they do not have the ability to repay the debt in full at the point of sale.  This scenario occurs when the value of the home has declined below the amount that is owed on the property.

Example:            Loan Balance =                     $350,000
                             Market Value of Property =   $300,000
                             Shortfall Amount =               <  $50,000>

The lender will consider the homeowner’s request when a hardship is explained  and documented as to why the homeowner can no longer make the payments under the original loan terms.   The lender will then evaluate all the financial and personal factors involved and render a decision if a Short Sale is the best course of action; this is called a loss mitigation effort.

Remember, the lender is trying to recoup as much as they can in a default (non-performing loan) situation.  The goal of the lender is to try an obtain the best possible recovery of as much money  possible for their business; this is a loss minimizing situation. 

Please keep in mind that Short Sales are not permitted in many circumstances.  The lender typically only grants a Short Sale if they feel the situation is warranted and it appears to be the best alternative to an inevitable  foreclosure.

The above description is a simple explaination and many other factors and possible negotiations can occur during a Short Sale process.  All homeowner’s considering a Short Sale should consult their legal and tax professionals to evaulate their best course of action related to their inability to repay their debts and the disposition of their property.