What is a short sale?

A short sale is when a home owner sells his or her property for less than the amount owed on their mortgage. In other words, the seller is “short” the cash needed to fully repay the mortgage lender. Typically, the bank or lender agrees to a short sale to recoup a portion of the mortgage loan owed to them.

Short sales are becoming increasingly rare as the economy improves. They were much more prevalent during the Great Recession, when many U.S. homeowners were “underwater” on their home loans; i.e., they owed more on their homes than the homes were worth in value.

How a Short Sale Works

In a real world, short-sale scenario, a home seller puts his or her property on the market, while formally designating the home for sale as a potential “short sale/subject to lender” deal to any potential buyers.

Once a buyer agrees to make a short sale offer, the homeowner contacts his or her bank, and completes an application asking for short sale status on the home. There is no guarantee the bank will green light the application, but a short sale does eliminate many hassles associated with the mortgage loan, such as closing the books on the homeowner’s loan, and the bank or lender gets a portion of their loan repaid.