What's a "Short Sale"?

If you've been following the fallout from the recent wave of foreclosure activity in the Bay State, you may have heard the term "short sale" being used more often. So, what exactly is a "short sale"?

Basically, a short sale is a sale of real estate in which the purchase price is not enough to pay the amount that is owed on the house, and the mortgage holder agrees to "write off" the difference. We see them most often in situations where a homeowner is already facing foreclosure, and owes their lender more than the house can be sold for in the current market. Instead of foreclosing on the property, many lenders would prefer to "take what they can get" when the house is sold and allow the homeowner to walk away without paying the difference.

Why would a lender agree to a short sale? Because lenders generally do not want to become property owners. If possible, they would prefer to avoid the time and expense associated with foreclosing on a property, as well as the additional time and expense required to sell that property to a new owner down the road.