What is a Short Sale?

Real Estate Agent with Berkshire Hathaway HomeServices 2005015767

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.

 It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower.

Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers.

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is "doing the other a favor;" a short sale is simply the most economical solution to a problem.

Banks will incur a smaller financial loss than would result from foreclosure or continued non-payment. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal, Broker Price Opinion (abbreviated BPO), or Broker Opinion of Value (abbreviated BOV).

Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from mortgage failures that in part triggered the financial crisis of 2007-2011, they are now more willing to accept short sales than ever before. For "under-water" borrowers who owe more on their mortgage than their property is worth and are having trouble selling, this presents an opportunity for them to avoid foreclosure as a result.


Contact Cinda she can walk you thru the entire process!


Cinda Shuster, Realtor® CNE®


2008, 2009 and 2010 Award of Achievement, OAR 

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Comments (2)

Hannah Williams
HomeStarr Realty - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

Cinda.. Very good explanation ..and very nice illustrations to go with it ..Lets hope this economy picks up and the housing market with it

HelpfulHannah your friend in Philadelphia

Jun 16, 2011 10:05 AM
Goran Utvic
Goran Utvic Real Estate Broker/Construction Consultant - Chicago, IL
Chicago 2 Flat Specialist

Cinda - great post! the Chicago real estate market also has many short sale properties with homeowners realizing the benefit of a short sale over foreclosure.

Jun 16, 2011 11:11 AM