Q: What is a Real Estate "Short Sale?"
According to Wikipedia:
"A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency."[2]
So let me give you an example on how this works:
The borrow is unable to repay the loan, is facing a foreclosure, and the current value of the home is less than the loan balance. Borrower may put the home up for sale, find the buyer, and request that the lender accepts the proceeds of the sale as the full repayment of the loan. The lender will consider whether this will net them more money than a foreclosure and whether they could get the money faster. If so, they may approve a short sale.
This process is neither simple nor easy (currently the short sale process is on an average taking 6-12 months), and there are multiple levels of approval the borrower must go through. The short sale also has a negative impact on a borrower's credit report.
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