What is a Short Sale?

A short sale in real estate is an offer of a property at an asking price that is less than the amount due on the current owner's mortgage.

A short sale is usually a sign of a financially distressed homeowner who needs to sell the property before the lender seizes it in a foreclosure.

All of the proceeds of a short sale go to the lender. The lender then has two options—to forgive the remaining balance or to pursue a deficiency judgment that requires the former homeowner to pay the lender all or part of the difference. In some states, this difference in price must be forgiven.

KEY TAKE AWAYS

• A short sale usually indicates a homeowner in financial distress, a real estate market in the doldrums, or both.
• The short sale must be approved in advance by the mortgage lender.
• The former owner may be required to pay the shortfall or the debt may be forgiven.
• The financial consequences of a short sale may be less severe than a foreclosure for both the seller and the lender.
• For a home buyer, a short sale can be a good opportunity if approached cautiously.