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Understanding a Short Sale

In real estate, our entire world depends on transactions; transactions between buyers, sellers, and lenders. 

A short sale is one type of those transactions.

Despite the name, short sales are neither short nor simple.

Short sales are complicated. They are not for everyone and not always applicable. Confusion lies in what a short sale is, how it works, when it is applicable, and who the parties are that can benefit from a short sale. 

Short Sale? What is it?

A short sale, also known as a short payoff, is a transaction between buyer, seller, and lender. Short sale is a sale of an encumbered property where the mortgage lender accepts the net proceeds at closing in full satisfaction of a greater amount of the mortgage debt.

How does it work?

A homeowner can start the process of a short sale via submission of a short sale package to a lender, alongside proof of their capability to make mortgage payments.

A sale is executed when the mortgagee or lienholder accepts an amount that is less than what is owed. A sale could also occur when it is an “arm’s length” transaction, usually preferred over foreclosure. 

No short sale proceeds without a lender’s approval. 

Usually due to the complex intricacies of short sale transactions, such deals often fall through. Most lenders’ approval processes for short sales are paperwork intensive, requiring more time to close compared to other sales. 

What is a Certified Distressed Property Expert?

Consulting with an expert agent is the best option for increasing the chances of closing a short sale and avoiding foreclosure.

Realtors with a CDPE have a designated expertise in providing available foreclosure alternatives. These specialized agents have access to resources and networks in order to clear any obstacles impeding a professional transaction. In certain cases, these agents can help sell a home quickly.

Benefits of hiring a CDPE:

  • Expertise in foreclosure and short sales
  • Shorter processing times
  • Knowledge of handling distressed property situations and clients

Finding the right expert in short sales is key to guiding you through these atypical real estate transactions. An expert’s presence can ease the burden on the seller and clarify situations between parties to provide a smooth closing.  

Are Short Sales Common?

Short sales resurfaced as a trend from 2008-12, during the recovery stage of the Great Recession.

Short sales during this time were the result of the financial fallout through massive inflated real estate prices and the lack of job opportunities for the unemployed and underemployed homeowners.

Short sales were homeowners’ alternative to foreclosure sales when a given mortgage was greater than the amount of the property value that encumbered their home.

Is a Short Sale Similar to a Foreclosure?


A short sale is the lesser of two evils when compared to a foreclosure.

A short sale is initiated by the seller in order to unload the distressed property before foreclosure to prevent damage to their credit. Such sales are usually only approved by lenders when a foreclosure is unavoidable.

A foreclosure is initiated by the lender; it is the repossession of a home when the owner can no longer make payments. After a foreclosure the former homeowners must wait seven years before obtaining any more mortgage loans.

Short sales are voluntary, while a foreclosure is forced.

Who Benefits from a Short Sale?

The seller is likely to accrue some damages to their credit and will not profit from the deal. On the other hand, a short sale can be less damaging and forestall foreclosure, the latter of which is even worse for credit.

The buyer receives the property at a reduced rate; however, the initial deal needs to go through red tape to be approved. The buyer might also be required, by the lender, to pay additional closing costs normally assigned to the seller.

The lender will be hit with a financial loss, but not as large of a loss as it would if the property were foreclosed. They have the opportunity to recoup more of their investment than in a foreclosure. Plus, the responsibility of repossession and property upkeep does not fall on the lender until the property is sold.

The benefits to be reaped by each party depends on the situation.

As with any transaction, a good deal is never guaranteed.



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