What is a short sale?

A short sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan. For homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that's resetting higher), up to now the only option was to let the bank foreclose. That stays on your credit record for at least 10 years. Some experts are now advocating a "short sale." If your bank agrees to a short sale, you would list your home with a realtor who would then find a buyer. Your house would be sold for a loss with the bank's blessing. For buyers it is a great opportunity to get into a home for below market value. As with most other value purchases short sales can require patience since the bank holding the mortgage must also approve the offer to purchase instead of just the homeowner. Also, homes being sold in a short sale are typically sold “as is.” In other words, neither the bank nor the owner will do any curative work to the home. Expect to see more “pre-foreclosure” sales in the future. More and more lenders are approving short sales as an alternative to foreclosure. It’s a good alternative for banks since it’s better than if the house goes into foreclosure, sits empty, and its value decline until it's auctioned.