What is a Short Sale?

A Short Sale is the sale of a home or property for a “short” amount of the mortgage due to the seller’s lender.
The seller of the “Short Sale” property is hoping his/her bank will take a lesser amount than what is currently owed on the mortgage.
Example:
The owner of 123 Mainstreet bought his home for 200K in 2005 with no money down 100% financing, now his home is only worth 150K in 2010. The owner needs to sell his home but doesn’t have the 50K+ closing fees to sell, so he markets the home with a real estate agent to sell for 150K as a Short Sale.
The owner is hoping once his agent presents the offer to his mortgage company for 150K his mortgage servicing company will accept the offer for 150K and release the lien to give clear title to the buyer.
The 50K difference is the “Short” part of a short sale.
If the bank agrees to take the offer, the bank is short the amount of the full mortgage it was due.