What is a Short Sale?
A Short Sale is where the property owner can no longer make the loan payments and is upside down in the equity in the home. As an example: the owner purchased the home for $300,000 a few years ago and now the home is only worth $200,000 with a loan balance of $275,000. The Lender agrees to allow the home to be sold for less than is owed on the mortgage. These are difficult properties to sell as now there are three parties to the transaction; Buyer, Seller and the Lender. If the owner took out an additional loan on the property, e.g. home equity loan that adds another party that has a stake in this transaction. Usually the home owner is responsible to maintain the property.
A Short Sale can take months to consummate a sale. It is recommended that regular home Buyers stay away from this type of sale, especially if the time to move in is critical. Investors usually are not in a hurry and therefore are the best Buyers. This transaction does damage the owners credit rating but it is not as serious as a foreclosure.