Short Sale Definition

You’ve heard about it and you are looking for a short sale definition. Everybody’s talking about the newest way to prevent foreclosure, but not everybody understands exactly what it is.

A real estate short sale is when a third party or homeowner negotiates a discount on the payoff amount due to a mortgage company.

This happens when a homeowner owes more money to banks and/or lien holders than what the property can currently sell. In order to sell a property that is "upside down" in equity, the bank must agree to accept less than what is currently owed on the property.

This typically is done for a homeowner who is behind on mortgage payments and facing foreclosure. It is best when a homeowner is 90 days late (sometimes less) on their mortgage and has no alternative to settle up and not enough equity to sell fast.

Short sales can also be done as an exit strategy for a homeowner who is not delinquent but just staying afloat and anticipating a delinquency. It can be more difficult when a homeowner is not behind on payments, but as of recently banks are taking the potential for a default into consideration.

Many people are under the false impression that they will owe the bank the money forgiven when doing a short sale. There are two ways a bank can attempt to recoup some loss, one is by a deficiency judgement, and another by a promissory note. Both of these can be avoided most of the time if you know what you are doing. Many real estate agents who don't know the real short sale definition aren't pros at negotiating short sales don't even ask (because they don't know) and get their clients stuck with owing the bank the forgiven debt. It is more often than not that a bank will let a homeowner walk having to deal with the tax consequences and no promise to pay or judgment.

Seek out an expert when negotiating a short sale, it can be the difference between owing 10's or 100's of thousand of dollars to the bank down the road and owing nothing.

I don't even consider a discount with a defeciency or pomise to pay a true short sale. If you don't know, now you know.

Here is a link to a great short sale definition from Wikipedia.com:

Wikipedia's Definition of a Short Sale

Mortgage companies take big losses when they foreclose on a home and will many times do anything to avoid it. A short payoff is a viable alternative to taking the house back and it is becoming very popular.

Taking the time to learn how to short a mortgage loan can open up a huge untapped market that is growing by the day. Now that you know how to define a short sale, look for our educational resources for those interested in learning more.

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