A short sale is a transaction that occurs when a homeowner owes more in his home that it is worth. For instance:
- Mr. Jones owns a home on 123 River Street
- His loan is $250,000
- Market value is $200,000
- Mr. Jones is $50,000 upside down
In order for him to sell his home and pay off all of the debt to the bank, he must do one of a couple things:
- Bring $50,000 cash to closing.
- Sell other assets (if any) to bring $50,000 cash to closing
- Ask the bank for a BIG favor and have them lower their loan amount and forgive the $50,000
Number 3 is the basic definition of a short sale: Ask the bank for a BIG favor and have them lower the loan amount on a home and release the lien so the home can be sold.
If you have further questions about short sales, please ask. Thanks!
Here are some related short sale links:
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{ 5 comments… read them below or add one }
Aaron, great post. Easy-to-understand explanation for clients who are convinced that short sales are the best way to get a great deal (yet they have no idea what it entails)
finally there is a an clear explanation of what short sale is. i think in Canada we use some other terminology since I never heard for one. One more questions regarding the lowering the loan, does the bank forgive the remaining part or just collects it later on?
Its a nice post to understand a short sale…….
Really nice post about short sale.I liked it.
finally there is a an clear explanation of what short sale is. i think in Canada we use some other terminology since I never heard for one. One more questions regarding the lowering the loan, does the bank forgive the remaining part or just collects it later on?