A Short Sale occurs when a home is sold for less than is owed on the mortgage of the home. When a home is “sold short,” the seller must make up the difference in what is owed in order to sell the home.
When a borrower needs to sell a home and they are unable to pay off the remaining balance of the mortgage from the sale proceeds, they can request that their lender approve a short sale. In this situation, the borrower demonstrates a financial hardship and the lender agrees to release the lien for less than they are owed.
Short sales are frequently used by banks and homeowners as an alternative to foreclosure. These sales are processed by a lender’s loss mitigation department and require the seller to provide financial documentation that demonstrates their financial hardship and inability to payoff the remaining mortgage balance.