A Short sale is when a homeowner sells their home for less than what they owe. While doing a short sale the homeowner still has legal title and or possession of the home, however- they need the bank’s permission in order to sell for less than the loan amount. For buyers that have patience, these can be great deals.
Short sales can happen at any point during the foreclosure process. If you are at the very end of the foreclosure process with a Notice of Trustee sale date set, hurry up and ask the bank for a last minute extension!
Short sales are distressed sales that result from a hardship suffered by the homeowner. In down markets where prices are declining, many short sale listings will appear. When the market is going up, the home is worth more than the loans and so sellers can do a conventional sale instead. Break-even sales can even become short sales sometimes when considering closing costs- the typical real estate sale closing costs is 7% to 8%.
Common examples of hardships that may cause a short sale are job loss, illness, death, or divorce. The hardship prevents the homeowner from being able to pay their monthly mortgage payments. Since the homeowner is unable to pay, they will eventually lose the property through foreclosure. Normally, in these circumstances a homeowner would sell the property- but when the market value of the home is less than what they paid for it (upside down)- a regular sale is not possible. The loans against the house are greater than what the home is worth.