What is a short sale?

A home sale is classified as a  short sale when the proceeds of the sale (selling price) fall short of the balance owed on the property's loan. Short sales take place when you can no longer financially afford to stay in your home, and need to sell it, but the mortgage balance is higher than the home's current market value.

When do short sales take place?

It often occurs when a borrower cannot pay the mortgage loan on their property, and the lender decides that selling the property at a moderate loss is better than allowing the property to go into forclosure. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.

The current market value of many homes has decreased to the point where you can no longer sell for what you owe. With a Short Sale, you are asking the lender to accept a sale price lower than what you owe, and to accept that contract for sale as payment in full for your indebtedness to the mortgage holder.