A short sale is a sale of real estate in which the proceeds
from the sale fall short of the balance owed on a loan
secured by the property sold.
In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an
economic or financial hardship on the part of the mortgagor. This negotiation is all done through
communication with a bank's loss mitigation or workout department. The home owner/debtor sells
the mortgaged property for less than the outstanding balance of the loan, and turns over the
proceeds of the sale to the lender. In such instances, the lender would have the right to approve or
disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will
discount a loan balance. These circumstances are usually related to the current real estate market
and the borrower's financial situation.
A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a
short sale is predicated on the most economic way for the bank to recover the amount owed on the
property. Often a bank will allow a short sale if they believe that it will result in a smaller financial
loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will
typically determine the amount of equity (or lack thereof), by determining the probable selling price
from a Broker Price Opinion BPO (also known as a Broker Opinion of Value (BOV)) or through a
valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on
their credit history and partial control of the monetary deficiency. A short sale is typically faster and
less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien
holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of
real estate, short of the full debt amount. It does not extinguish the remaining balance unless
settlement is clearly indicated on the acceptance of offer.
Short sales are common in standard business transactions in recognition that creditors are not
doing debtors a favor but, rather, engaging in a business transaction when extending credit. When
it makes no business sense or is economically not feasible to retain an asset, businesses default
on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for
a small fraction of their face value in realization of the likelihood of these future defaults.
Copyright 2009 Wright Consulting Group LLC
David Alex Wright DRE 01828188
2500 E. Imperial Highway
Suite 201 PMB 354
Brea, CA. 92821
Short Sale Could Save Your Family
Hundreds of Thousans of Dollars!!