Here's what it is not:

--Half price off boxers. 
--Goods/services sold by persons under 5'-6". 
--After Christmas store hours from 8:00 AM to 9:00 AM only.

Don't quit my day job? Good advice. In fact as a real estate agent what I have been doing lately is helping homeowners sell their homes short.

Here's what a short sale is:

--Sale of real property where the amount owed is higher than sales price.
--The lender accepts full proceeds from the sale minus fees and costs to close the transaction. 
--Lender ('the bank") does not foreclose on the property. 
--Seller receives no proceeds and in a well negotiated sale, lender(s) seek no further compensation from seller and deem the debt fully satisfied. 
--Seller sustains a credit hit less damaging than a foreclosure. 
--A successful sale depicts zero balance owed on credit reports.

A short sale is not always the answer for some homeowners. To arrive at the best decision for homeowners in distress, one must answer the question, "What do you want to do? Do you want to keep the property or not?". You might actually need to consult with an attorney, tax advisor, financial or credit advisor first. This will be the beginning point in a flowchart that could take several directions.

If the decision is made to keep the property then a viable option might be to re-negotiate the loan to arrive at a lower payment. Not all loan modification requests are granted since certain criteria must be met; all lenders, all homeowners/borrowers, all situations are different. Usually by the time I'm called to the scene (envision white chalk outline of a dead, upside down house on the pavement, yellow tape, cops, it's a mess...) , the homeowners decided not to keep the home or loan modification wasn't successful. That's when I explain the before, during and aftermath of a short sale.

Here's a snapshot (and I mean snapshot) of what I explain to clients considering selling short.

Before

Equate the beginning of the process to when you applied for the loan (minus giddiness). You'll need to gather pay records, tax returns, bank statements, mortgage statements. In certain cases a hardship letter (sing like a canary, an adult version of "my dog ate my homework" only it will make a hardened criminal cry) and an income/expense worksheet are requested by the lenders. Lenders will also require written authorization for someone else (other than borrower, usually yours truly) to talk to them on the borrower's behalf. If there is a Notice of Default or Notice of Trustee Sale filed, save the letter(s); these might come in handy.

Then comes putting the home on the market. Pricing is the most important issue in selling a home. Pricing right will result in multiple showings, more than one offer, maybe overbids. In our current market the sales trend is downward. Set the price where it looks like a killer deal for a buyer and within reach for the lender to approve the sale. In addition to pricing, other things to consider are carefully written contracts that protect EVERYONE, condition of the property, accessibility for viewing, marketing...these are normal components of listing a home for sale. Side note: For entertainment ask me for a few real examples of peak purchase price to short sale price spreads; you'll be flabbergasted.

During

When an offer comes in, you'll still be in a position to negotiate with the buyer. Just because you receive no proceeds from the sale, doesn't mean that you can give the house away. It is your responsibility to sell the property for as much as possible. The lenders will do their homework, more on that later. Guided by your agent, the offer will likely contain negotiable terms and conditions. Everything is negotiable. Just know that the short sale lender could deny certain requests. Once agreed upon between buyer and seller, an estimate is formulated with the help of a good escrow officer (procedures/players may be different outside of California, consult locally) and sent to the short sale lender(s). A loss mitigator / negotiator at the bank is eventually assigned to the transaction. Each lender has slightly different requirements for submission of a short sale package, refer to the stuff at the beginning of the "Before" paragraph. Add the purchase contract, listing agreements and any pertinent supporting agent generated documents. Attention to detail is paramount here.

The lenders will send their own representative to evaluate the property (not an appraiser but another real estate broker/agent) to verify price, size & condition of the house (among other things). That "broker price opinion" or BPO will aid the lender in approving the sale.

Simmer 1 to 6 months till done (approved by the bank); time frames will vary case by case. Two words of advice - be patient. The seller can still negotiate with his bank prior to full approval, especially the issue of all loans being fully satisfied by all lenders/lien holders - get this in writing! Another estimate is drafted, down to the penny, prior to approval. Once the sale is fully approved in detail by the short sale bank (in first lien position), buyer and seller now have a normal escrow period. Time frames begin here (if negotiated properly), buyer's loan is processed, inspections begin, disclosures are provided from seller to buyer - it's all a somewhat normal transaction at this point.

After

If the real estate agent did his job, he recommended full understanding of what happens after a short sale before it started. Here are a few things that can be possible in the aftermath of a successfully negotiated short sale:

--No foreclosure on your record 
--Credit score reduction, not as bad as a foreclosure 
--Zero balance owed to lender(s) (unless negotiated otherwise) 
--No follow on tax ramifications (again, this was discovered "before") 
--No legal issues or deficiency judgement for balances still owed 
--Potential for home purchase sooner than in the aftermath of foreclosure 
--Potential for credit purchases (car?)sooner than in the aftermath of foreclosure 
--Peace of mind

For detailed background info, Wikipedia has info, but don't put all your eggs in that basket. For real info, consult an experienced real estate agent/broker, attorney, credit/financial advisor and/or tax advisor. There are many, many more components to a successful short sale. I've only touched the surface here, heck I might've missed some points worthy of mention like "does ALL of the furniture convey with the house?" - real question asked by a buyer, in writing. Or, "Will the seller pay to repair this, that or the other?".

Here's my fave, a real email from a disgruntled buyer's agent excerpted, paraphrased, "Multiple offers? Overbid? That's deceptive marketing...!!". Okay, so I've left a few things out, purposely.

Here comes the caveat - good advice is priceless, get it, you'll need it.

Marvin