What Is a Short Sale The Benefits for Buyers and Sellers By Judy Dutton

What is a short sale? Let’s break it down. Say you’re selling your home; however, the offer you get is so low, it won’t cover the total amount you owe your lender on your mortgage balance. But you need to unload it, so you’ll take it. This is a short sale—simply put, you end up “short” on paying back your lender, and your lender agrees to accept less than what’s owed on the loan.


According to recent data from real estate information company RealtyTrac, about 5% of all single-family home and condo sales are short sales.


While selling a home as a short sale is hardly ideal, many experts argue it’s smarter than pursuing more drastic measures like foreclosure.


Foreclosure is when a homeowner falls so behind on the mortgage payments, the lender repossesses the house, often against the homeowner’s will, then tries to sell it. If the amount the mortgage company receives from the sale is less than the mortgage debt owed, depending on state laws, the homeowner may have a deficiency judgment. In other words, the now-former homeowner may still owe money on the home loan.


The process and consequences are very different. For one, the foreclosure process typically happens very quickly, since lenders are eager to recoup the costs incurred by the unpaid mortgage.


While foreclosures can also be bargains, buyers should know that they come with a lot more risk than a short sale. For one, keep in mind that a foreclosure home is sold at a courthouse, sight unseen. So, there’s no time for a buyer to inspect the house for structural problems; you also inherit all liens tied to a foreclosure. In this sense, a short sale might be a safer transaction.