What is a Short Sale?

The phrase "short sale" is commonly used in a situation where a homeowner finds themselves in financial distress and is unable to stay current on his/her mortgage, but also cannot sell the property, at least for an amount that will satisfy their mortgage debt plus the sale expenses. A "short sale" occurs when the mortgage holder(s) agrees to a discount on what is owed in order to allow the property to be sold to a third party purchaser prior to a foreclosure sale. This has a benefit to the homeowner because a short sale is generally considered to be less detrimental to a homeowner’s credit than a foreclosure. In addition, in some cases the homeowner can be relieved from potential personal liability to the mortgage holder(s) for the amount of any deficiency balance still owed on the mortgage(s) that would occur after the foreclosure sale, if the mortgage was the original mortgage obtained when the homeowner initially purchased the home.¹

The short sale also benefits the lenders, who generally prefer to take the certainty of a cash payoff instead of taking back the property and dealing with the uncertainty and difficulty of selling a foreclosed home in a difficult marketplace.

Negotiating a Short Sale Transaction is a complex and difficult task for homeowners, and even real estate agents, since the skill set and ground rules required to negotiate a successful Short Sale Transaction are very different from the skill set and ground rules required to negotiate a conventional home sale.

¹ In California, a homeowner is protected from personal liability for any deficiency balance owing on a foreclosed mortgage only on the original "purchase money mortgage(s)" obtained to buy the home. A homeowner may face personal liability for a deficiency balance owing after a foreclosure sale of a refinanced mortgage, and/or for any other second and subsequent mortgages or home equity lines of credit.