Short Sale
What Is a Short Sale?
A short sale occurs when a homeowner sells a property for less than the amount owed on the mortgage, with the lender’s approval. The lender agrees to accept the reduced amount to avoid foreclosure.
Why It Matters
Short sales allow homeowners to avoid foreclosure and reduce the long-term financial and credit damage associated with losing a home. Lenders may prefer this option to minimize losses.
How Short Sales Work
The process typically includes:
- homeowner experiencing financial hardship
- listing the property for sale
- receiving an offer below the loan balance
- lender reviewing and approving the sale
- sale proceeds going to the lender
- potential forgiveness of remaining balance
Example
A homeowner owes $300,000 on a mortgage but sells the home for $250,000 with lender approval.
Short Sale vs Foreclosure
- Short sale is a voluntary sale with lender approval.
- Foreclosure is a forced legal process.
FAQs About Short Sales
Does a short sale eliminate the remaining debt?
It depends on lender approval terms; some forgive the deficiency, others reserve collection rights.
Does a short sale hurt credit?
It impacts credit, but often less severely than foreclosure.
Can you buy another home after a short sale?
Yes, though waiting periods and credit recovery are required.
Related Terms
