What is mortgage short sale?


Mortgage short sale is the process of satisfying a debt with less than the amount owed.

For example, if a borrower bought a house for $130,000 with $10,000 down payment but later defaulted with payments. Meanwhile, he owes $120,000 to the first lender with late fees and interest. The property has depreciated in value and costs now $110,000. An investor steps in and offers $110,000. The first lender agrees to take the bid outside foreclosure as there are significant costs related with it and there is no guarantee a higher offer will come in.

The first lender thus agrees to a short sale as satisfaction of the mortgage debt.

This is how a real estate short sale allows for borrowers to satisfy their debt with less than the outstanding balance and to avoid foreclosure. Even though a short sale will hurt the credit score, it is still preferred to foreclosure.

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