Question:

Short Sale Definition in Real Estate

Answer:

The definition of real estate short sale is in fact a sale of a house in which the proceeds do not repay the mortgage debt in full.

The purpose of a real estate short sale is to avoid expensive foreclosure for the lender and get the borrower out of debt with the least possible credit history damage. Lenders have no interest in owning property as they have to pay property taxes and pay for necessary repairs and borrowers would be happy to walk out free of mortgage debt.

However, lenders may or may not agree to take the short sale as full debt satisfaction. In result, they could file a deficiency judgment for the remaining loan amount and the borrower's credit and capability of taking another home loan soon after the short sale will be damaged.

Beside foreclosure short sale, another way to avoid foreclosure expenses for the lender is to take a deed in lieu of foreclosure.

Short sales are very attractive to investors and homebuyers who are aware they could get more house for a below market price. However, for the borrower to convince the lender to accept a short sale and forgive the outstanding loan balance borrowers must exhibit a very good reason to seek a short sale and explain their financial distress in a hardship letter.

Also, the lender is about to be very meticulous about the sale to make sure the seller does not net any profit, so expect negotiations, scrutiny and lengthier sale process on the part of the lender.

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