A short sale in real estate occurs when a homeowner sells their property for less than the amount owed on the mortgage. This typically happens when the homeowner is in financial distress and can no longer afford the mortgage payments, and the property’s market value is less than the outstanding loan balance
. In a short sale, the mortgage lender agrees to accept the sale proceeds as full or partial payment of the mortgage debt, often forgiving the remaining balance. This requires the lender’s approval before the sale can proceed. The homeowner initiates the process by proving financial hardship to the lender, who then evaluates the property’s market value and decides whether to approve the sale
. Short sales serve as an alternative to foreclosure, allowing the homeowner to avoid the foreclosure process. For buyers, short sales can offer opportunities to purchase homes at a discount, though the process can be lengthy and complex, often taking several months to complete due to lender approval and negotiations
. Key points about short sales:
- The sale price is less than the mortgage owed.
- The lender must approve the sale and may forgive the remaining debt or pursue a deficiency judgment.
- The homeowner must demonstrate financial hardship.
- The process is often slower than a traditional sale or foreclosure.
- It helps homeowners avoid foreclosure and can offer buyers discounted properties
In summary, a short sale is a lender-approved sale of a home for less than the mortgage balance, used as a loss mitigation tool for financially distressed homeowners to avoid foreclosure.
