What Is A Short Sale On A House

If you’ve ever heard someone talk about real estate or mortgages and mention a short sale, you may have asked yourself “what is a short sale on a house?” Short sale is industry jargon for a process where the money from the sale of a house is not enough to satisfy the outstanding loan balance. In other words, when the loan servicer permits the homeowner to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage.

The “short” in a short sale is the discrepancy between the mortgage balance and the amount repaid to the lender upon the sale of the home. This is a potential alternative for homeowners who may owe more on their home than it is currently worth. You will often hear this situation called “underwater” or “upside down.” 

There are several instances where a mortgage note holder and a homeowner may agree to a short sale.  For instance, a homeowner facing foreclosure that knows they will not be able to make the necessary payments may work with their lender to conduct a short sale. Selling a home at a modest loss allows the lender to resell the home to someone who can afford to make the payments and allows the homeowner to prevent bankruptcy and foreclosure. The homeowner is often expected to repay some or all of the price difference, known as a deficiency, to their lender after the short sale.

There may be some restrictions on who you can sell your property to in order to remain compliant with the law. Also, as stated previously, your lender must agree to the transaction or you will not be allowed to do a short sale on your house. A short sale is usually quicker and less costly than a foreclosure. It does not get rid of the deficiency unless settlement is clearly indicated as a condition of your short sale. Short sales are a form of settlement, and they adversely affect your credit report.