Short Sale

Many buyers view short sales and foreclosure properties as real estate bargains. In a foreclosure, the property owner, unable to honor the loan agreement, loses the property to the lender. The lender resells the property to recoup losses. In a short sale, the property has not gone through foreclosure and the property owner, not the lender, is the seller. Short sale is a way to liquidate property when market values drop.

Identification

Real estate listed for sale by the owner at a price less than what the owner actually owes on the property is a short sale. The sale price is “short” of the balance due on the loan or loans on the property. Typically, a lender will require the homeowner to continue living in the property during a short sale.

Function

A short sale is a way for a property owner to liquidate real estate when they are unable to sell it for enough to cover the loan balance due. Short sales often occur when the market value has dropped. Before listing the property as a short sale, the property owner needs to get permission from the lender.

Warning

Even if the lender agrees to a short sale, it does not mean they forgive the unpaid amount. The lender can forgive the unpaid balance, or in some instances, issue a deficiency judgment against the seller after the short sale. Sellers consider short sales less detrimental to credit ratings than foreclosures, yet according to Experian credit reporting agency, how the lender reports the short sale influences the actual effect to the borrower’s credit rating.