Real Estate Short Sale

A short sale is a sale of a home by a financially distressed homeowner for less than the amount remaining on the mortgage and on which the lender has agreed to forego the remaining debt, allowing the homeowner to give clear title.A short sale allows the seller to avoid bankruptcy, but the lender may post a negative item on borrower's credit report, which will lower the consumer's credit score, but not as much as foreclosure. Buyers benefit because they can buy property at a lower cost, and, surprisingly, the lender can benefit also; otherwise, the lender would never agree to it. The lender benefits because a foreclosure can cost as much as $50,000 in foreclosure proceedings and marketing costs, and it might be hard to get a better price through foreclosure, after expenses, when real estate prices are falling and there are already many foreclosed properties on the market.A lender would only agree, however, to a short sale if the lender believes that the homeowner is not going to be able to continue making payments, because it would be more profitable for the lender if the payments were continued. A short sale is also unlikely if there is a 2nd mortgage on the house, since it would require that the junior lender forgive all or part of the loan, which is unlikely.