A short sale is essentially an agreement with a lender allowing for the sale of a property to a third party for less than the amount owed on the mortgage. The borrower must prove financial hardship to the lender in order to recive permission from the lender to go ahead with short sale proceedings. Under this agreement, the lender accepts less than the amount owed and releases the borrower from the mortgage, thereby preventing foreclosure. The proceeds of a real estate short sale fall short of a balance owed on the property to the morgage lender.
Extenuating circumtances such as current real estate market conditions and an individual borrower’s financial situation influence the decision of whether or not banks will discount a loan ablance or essentially agree to a short sale.
A short sale is often executed at last effort to prevent foreclosure proceedings. As we all know a foreclosure has the potential to be highly detrimental to one’s credit and has the capacity to create major problems and headaches, in the future for many years to come. In the event of a short sale, the borrower’s is affected to a lesser degree, making financial recovery possible with the right mitigation professional guidance and mortgage mediation.
Foreclosures are often not in the best interest of the banks or lenders any more than they are to a borrower. A lender will often opt to allow a short sale if they foresee that doing so will result in a smaller financial loss than foreclosure proceedings. Foreclosure proceedings can become very costly with expenses such as maintenance of property, regular mortgage payments and insurance left to the lender to absorb. Most lenders are open to discover the most cost effective way out of any financial crisis. Short sales are typically less expensive and much faster than foreclosure proceedings.