What is a short sale? by Jon C.

A short sale is one way that people are still making money in the real estate market. It is hard to imagine anyone making money in real estate right now, but with short sales the opportunity is still there. The definition of a short sale is when there isn't enough equity in the home to cover the loan payoff. Lenders agree to short sales to avoid a larger potential loss that can come as a result of foreclosure or bankruptcy. When the home is sold by a short sale, whatever the person who owned the property receives for the sale will go to the bank. The lender is agreeing to take a loss so the seller isn't allowed to receive proceeds from the sale. Of course the lender will get to choose whether or not they will accept the short sale. In most cases the real estate short sale will be done so the people who own the home will not lose it to foreclosure, but many times a homeowner can be current but have a valid financial hardship. When a bank does accept a short sale it will be because they deem they will lose less money that way, than following through with a foreclosure or bankruptcy. One thing that has made lenders more likely to agree to a short sale is the losses they have taken during to the crash in the housing market. Many people had loans that were worth much more than the house; it was too hard for them to keep up. Most lenders have pre-set criteria that a short sale must meet in order to accept the short sale. Depending on whether the mortgage note is owned by a private investor or a large financial institution dictates the size and likelihood of a short sale offer getting accepted. Make sure if the lender has agreed to the short sale, and agreed to wipe the balance, that you are aware of the negative credit consequences or deficiency judgments that can be issued against you. Lenders can many times try to get you to agree to sign a promissory note to pay back the forgiven debt. A good short sale negotiator can help you negotiate your way out of this.