What is a “Short Sale”?

A short sale in real estate is used to either stall or avoid possible foreclosure on a home. Rather than purchasing the real estate from the seller you purchase it directly from the holder at a discount. The seller may owe $200,000 on the mortgage, but you offer $150,000 directly to the lender who accepts it as payment in full.

There are several reasons why holders of mortgages would be willing to accept these transactions. First, banks are not in the business of real estate, they are in the business of making money. Having excess properties on their books does not increase their income, it detracts from it. If the opportunity exists for them to mitigate these losses in the form of accepting less, rather than losing the entire amount, they will do it.

Second, note holders realize that they stand to lose a lot of money if the property is not sold, or goes to auction. Additionally, there are more fees involved in the auction process. It is definitely preferable for the mortgage company to take your offer and not have to deal with the property any longer.

Although foreclosures are prevalent, lenders are most willing to entertain a short sale when the property is in pre-foreclosure.


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