short sale
A real estate transaction in which a homeowner sells a property for less than the amount owed on the mortgage, with the lender agreeing to accept less than full repayment.
Example
“Facing foreclosure, the homeowner negotiated a short sale, selling the house for $280,000 while owing $340,000.”
Memory Tip
SHORT sale = selling SHORT of what you owe. Bank takes a loss to avoid foreclosure.
Why It Matters
Short sales matter because they offer homeowners facing financial hardship a way to avoid foreclosure and its damaging credit consequences. Understanding this option helps people make informed decisions when they owe more on their home than it is worth, potentially saving them from years of credit damage and allowing them to move forward financially.
Common Misconception
Many people wrongly believe that a short sale completely eliminates their debt obligation to the lender. In reality, lenders may still pursue the homeowner for the difference between the sale price and the amount owed, known as a deficiency, depending on state laws and loan types.
In Practice
A homeowner owes 300,000 dollars on their mortgage but the home sells for only 250,000 dollars due to market conditions. The lender agrees to accept the 250,000 dollars and forgives the 50,000 dollar difference rather than foreclose on the property. This allows the homeowner to avoid foreclosure while the lender recovers some funds quickly instead of waiting through a lengthy foreclosure process.
Etymology
SHORT (deficient, less than owed) SALE. The sale price falls SHORT of the outstanding mortgage balance.
Common Misspellings
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See Also
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