Short Sales are often misunderstood or foreign to home buyers as a method of obtaining real estate.  The concept of a short sale is quite simple, but the process to complete one is a different story.

A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor or homeowner.  This is required when the loan balance exceeds the current market price of the home.

An Example would be a home that could not be sold for more than $800,000, but the loan balance is $1,000,000.  The lender must forgive the difference of $200,000 if the short sale is to work.

How does a short sale benefit the homeowner?

Enables homeowner to escape overwhelming loan payments and less destructive to homeowner's credit than foreclosure.

How does a short sale benefit the bank?

Short sales are quicker and often make more financial sense than going through the foreclosure process.  This is especially true if the real estate market is declining in value.  When homeowners stop making mortgage payments, banks are forced to spend resources to repossess the home.  During this time the home may continue to go down in value.  Once the home has been repossessed through foreclosure, the bank will need to spend more time and money to re-sell the real estate.