What Is A Short Sale?

With the real estate market falling flat, and loans going into default at a rapid pace, there will soon be a bevy of homeowners in financial trouble looking to sell their properties. With hard times upon us, defaults will be ocurring every day. A large amount of people will be ready to throw in the towel, and don't know how to find a way out of their situation.

The good thing is, there is a strategy that sophisticated investors will use to buy distressed homes called a short sale.

A short sale is a home transaction where the market value of the home is less than the balance of the mortgage on the home. To complete the sale the lender accepts an amount that is less than the mortgage amount. The noteholder essentially agrees to that the final sales price of the home is the full payment for said property.

What is it about a short sale that would make a lender agree to take less money than what is owed on the home?

There are a myriad of reasons, but the largest reason is that the lienholder may decide that in the whole scheme of things, that it would be less expensive to accept a dollar figure under the note value than it would to spend the money to initiate a foreclosure proceeding on the property. If a bank winds up spending money for expenses that are related to a foreclosure, it is almost certain that the expenses for the court proceeding, etc., than it would be to sell the property for an amount less than what the loan is worth.

Not only that, no lender wants to get stuck with owning property. A mortgagor plies his trade by having money to loan, and when a company's money is tied up in assets like foreclosed properties, there is less capital to invest in loans.

Not only does it work for a loan company, the sale also works out well for the owner of the home in question. The distressed property owner can pay off the note and walk away from the sale without having to have been foreclosed on. This can allow the owner to move on without further damage to his credit profile. In several instances this can help the property owner avoid bankruptcy.

The buyer also is a happy camper because the property is purchased below market value. The short sale truly benefits all parties.