What is a Short-Sale?

A short sale is when a homeowner's lender agrees to take a lower payoff amount than the seller owes, when the property is sold.  The seller must prove financial hardship.  The need for a short-sale is usually due to the value of the property  dropping  lower than the amount owed on the loan. 

Short sales are typically a lengthy process for both buyer and seller, and the outcome is not certain because the seller's lender is involved in the negotiations and approval process, and not just the seller.

From a seller's standpoint, a short sale is typically done to prevent foreclosure.  Although there are certain tax ramifications - and the seller does not get any proceeds - it is usually a better choice than having the bank foreclose on the property. 

From a lender's standpoint, a short-sale is desirable if the lender feels that it will result in a smaller financial loss than foreclosing.