What is a 'Short Sale'?

The basic answer to what is a short sale - when a borrower cannot continue to pay on the mortgage and the lender allows the borrower to sell the property for less than the balance owing on its mortgage. A short sale can be any property with a mortgage. If there is a mortgage balance that is greater than the market value of the property, that property is a short sale.


The property can also be a short sale if the accepted sales price is higher than the mortgage but not high enough to pay all of the closing costs and commissions. Moreover, in some instances involving 2 mortgages or mortgage with a HELOC, the sales price might be high enough to pay off the existing first mortgage yet insufficient to completely pay the balance due on the second mortgage/line of credit. If there is a shortage involved to close, it is a short sale.


A short sale is typically faster and less expensive for the lender. However, a short sale may not close in time to prevent a foreclosure since there could be multiple levels of approvals and conditions that may apply by more then one lender involved. Short sales have a high level of failure if not handled properly by a knowledgeable and experienced real estate professional who's done numerous amount of short sales.


On short sale a borrower has a chance to mitigate damages to their credit history, and partially control the debt. Abviously, foreseen better to the creditors when requesting another mortgage in the future then with a foreclosure.

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