What is a "Short Sale?"

There appears to be a lot of confusion out there about short sales so I thought I would take a few minutes and explain what a short sale is.

I believe the confusion stems from people in the real estate industry using industry "lingo" or terminology in conversations with people outside the real estate industry. Every industry has its own lingo and each of us needs to be aware of that as we talk with others about our respective industries. To be fair though, it isn't limited to just industry. Have you tried to communicate with a teenager via text message? I'm not even sure they are using letters in the English language.

Anyhow, contrary to popular belief, a short sale has nothing to do with a particular time frame. In fact, if you've ever been involved in a short sale you can attest to the fact that a short sale is anything but short. A short sale can take anywhere between 60 - 180 days, and that's if it happens at all.

A short sale, quite simply, is any home for sale where the total combined mortgages or loans on the property exceeds the current value of said home and the seller is unable to pay the shortage. For example, a homeowner that has a first mortgage for $300,000 and a second mortgage or home equity line of credit for $100,000 owes a total of $400,000 on the home. If he/she decides to sell the property and it is determined that the current value is $325,000 the seller of the property would have to write a check for $75,000 plus the real estate commissions ad closing costs. If the seller was unable to raise that kind of money then he/she would approach the current owner of the outstanding loan(s) on the property and ask that one or both lenders accept less money than is actually owed to them in order to allow the seller to complete the sale of the property. Not only would the lender(s) be accepting less money but they would be paying the real estate commissions and the closing costs.

That is the definition of a short sale in a nutshell.