What Is A Short Sale In Real Estate

What Is A Short Sale In Real Estate

A short sale in real estate occurs when a bank accepts an amount less than what is owed on a piece of real estate including closing costs.

So for example.  A borrower owes $300,000 on a property and the current market is $200,000, that is a $100,000 difference.  

In many cases the lender will agree to accept this amount which is short of what is owed to the bank.

Typically the lender will pay all closing costs related to the short sale as well including title related, doc stamps and commissions.

So why would a bank agree to a short sale? 

Well, when a borrower has hardship and is unable to keep current with their mortgage payments, the bank will file a Lis Pendens which is the start of the foreclosure.  

If the bank goes through this process and forecloses on the borrower they usually assume many more costs associated with the asset including attorney costs, hold costs, liability and damages.

So in most cases the lenders are incentivized to work out an agreement with the borrower to transact the real estate short sale.

In many cases they will even relieve the borrower from a deficiency judgement.  Meaning they will not go after them for the difference.

As always, we encourage you to speak with your accountant as well as a local real estate attorney for legal advice.

If you are in default or about to be and are in need of a real estate professional who specializes in short sales, be sure you seek out a short sale specialist in your area.

If you are a real estate agent or broker and want to get a crash course in Short Sales, be sure to check out the link below!

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