What is a Short Sale

In today’s economy with so many foreclosures, there are still a number of homeowners that don’t know what a short sale is and a number of agents that don’t fully understand a short sale or how to use it to build their business.  The technical meaning of a short sale is an agreement with a  lender to accept less than the amount owed by a borrower via a sale of the property to a third party. 

As a loss mitigator, my definition of a short sale is an alliance between a buyer, seller, Realtor, and negotiator to persuade the lender to take less then what’s owed on the property in a sale to a third party.  The reason I’ve formulated my own definition is because from my experience, if the buyer, seller, Realtor, and negotiator (loss mitigator) aren’t on the same page, then a short sale will be impossible.  It is simply a waste of time and our company usually passes on these types of situations.  But if all parties are on one accord with an experienced negotiator, then a short sale may be feasible if the other criteria are met. 

Facing a situation in which the property value decreased and can’t be sold for the amount owed on the mortgage, the lender may make a deal to sell the home for whatever it will get on the market. If the sale price is less than the amount remaining on the mortgage, then the lender will get the proceeds and discharge the remaining debt.

Even though the delinquent mortgage will still have a negative impact on the seller’s credit rating, at least short sellers avoid credit reports showing “debt discharged due to foreclosure”.

Having a foreclosure on your credit report is the worst strike, after bankruptcy, and can reduce your credit score by more than 250 points. Instead, short sales show up on a credit report as a “pre-foreclosure in redemption” status and can result in a credit score reduction of 100 points or less. After the sale, the mortgage may show up as “discharged.”