What is short sale

You would sure have heard people associated with Real Estate uttering two words very often and the two terms are “short sale”. What is short sale? Is short sale very beneficial? Is short sale that profitable? Is short sale that necessary to be done on the part of sellers? If so, why! And if not, why!

What is short sale?

Short sale is a phenomenon that exists in the real estate industry. A short sale is one where the money derived through the sale of the property is insufficient to pay the loan taken on the property. Not wanting further conflicts, the lender decides to sell the property though he is bound to incur some loss. This way, the lender recovers his loan and also the borrower is not squeezed for the balance amount.

If you are a borrower and if you are not able to pay back your loans, your lender may sell the property and not ask for the repayment of the loan. But if you are caught in a foreclosure, that will post a bad credit man tag on your back. A short sale avoids any such happening. A short sale redeems you or helps you out from a foreclosure.

But there are cases where a borrower may not be released from the clutches of the lender in case there is any balance payment to be done. A foreclosure may not be the most desirable for both the parties. But a short sale, on the other hand, is better of the two options available for both parties.

Banks and lenders might show some mercy on the borrower and discount the balance loan and help facilitate the borrower to repay the loan. This is done especially when the borrower finds it extremely difficult to repay the loan.

You will have to sell the property that is mortgaged for a little lower price than the loan you have to repay and any money derived from the sale will go to the lender or the bank. This creates a win-win situation on a lose-lose situation for both parties. It also ensures that neither side takes undue advantage of the situation. This has to be treated as a problem and the short sale is one that helps you out of it.

However, lenders get a hit but can certainly avoid complete loss of the loan amount. They can retain at least some part of the loan. A foreclosure leads to a bigger loss than short sale and hence, short sale is beneficial. For the borrower, a short sale erases the bad credit tag! Hence, short sale is a better problem solving option!