What Is a Short Sale and Who Does it Benefit?

What Is a Short Sale and Who Does it Benefit?

By Brian O’Connell | The Street

Homebuyers looking for a good deal on a property purchase can get a price break on a short sale – if they understand the short-sale process completely.

What Is a Short Sale?

A short sale occurs when a home owner sells his or her property for less than the amount owed on their mortgage – thus the seller is “short” the cash needed to fully repay the mortgage lender. In this instance, the bank or lender agrees to the short sales in order to recoup a portion of the mortgage loan owed to them.

Short sales are becoming increasingly rare as the economy improves. They were much more prevalent during the Great Recession, when many U.S. homeowners were “underwater” on their home loans; i.e., they owed more on their homes than the homes were worth in value.

How a Short Sale Works

In a real world, short-sale scenario, a home seller puts his or her property on the market, while formally designating the home for-sale as a potential ”short sale/subject lender” deal to any potential buyers.

Once a buyer agrees to make a short sale offer, the homeowner contacts his or her bank, and completes an application asking for short sale status on the home. There is no guarantee the bank will green light the application, but a short sale does eliminate many hassles associated with the mortgage loan (primarily, it closes the books on the homeowner loan) and the bank or lender does get a portion of their loan repaid.

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