What Is a Short Sale?

A short sale in real estate is when a financially distressed homeowner sells his or her property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a deficiency judgment against the borrower requiring them to pay the lender all or part of the difference between the sale price and the original value of the mortgage. In some states this difference must legally be forgiven in a short sale.

  • A short sale in real estate is one in which a house is sold for a price that is less than the amount still owed on the mortgage.

  • It is up to the mortgage lender to approve a short sale.

  • Sometimes the difference between the sale price and the mortgage amount is forgiven by the lender, but not always.

  • For the seller, the financial consequences of a short sale are less severe than those of a foreclosure.


Understanding a Short Sale 

The term “short sale” refers to the fact that the home is being sold for less than the balance remaining on the mortgage—for example, a person selling a home for $150,000 when there is still $175,000 remaining on the mortgage. In this example, the difference of $25,000, minus closing costs and other costs of selling, is considered the deficiency.

Before the process can begin, the lender holding the mortgage must sign off on the decision to execute a short sale, also known as a “pre-foreclosure” sale. Additionally, the lender, typically a bank, needs documentation that explains why a short sale makes sense; after all, the lending institution could lose a lot of money in the process. No short sale may occur without lender approval.

Short sales tend to be lengthy transactions, sometimes taking up to 6 months to process. However, short sales are not as detrimental to a homeowner’s credit rating as a foreclosure.

For more information on Short Sales and how we can help, please contact our office and speak to one of our housing advocates.

Contact Us

Thanks for submitting!