A short sale is a discounted real estate transaction involving the sale of a distressed property.
If a homeowner is behind on their mortgage and they are unable to sell the property on the open market or they are unable to sell the property for more then they owe on the mortgage then the homeowner may request a short sale authorization from the lender.
By authorizing a short sale the lender gives the go ahead for a discounted sales price. the lender agrees to accept less then what is owed on the mortgage.
The lender will often agree to a short sale in recognition of the lousy housing market or in recognition of the fact that the property is upside down.
If the property is upside down the lender understands that recovering the full amount due is simply unrealistic. This is because the property is simply worth less then what is owed on the mortgage.
For these reasons a lender will often welcome a discounted cash offer from a third party borrower.
A short sale transaction can solve a messy situation very quickly. All three parties walk away reasonably happy.
The lender avoids much of the cost of foreclosure, managing the property, selling the property, as well as the opportunity cost incurred from having the cash tied up in the property while they are trying to get rid of it on their own.
The homeowner or borrower is able to walk away from a nightmare that they could not afford and they are free of all the mortgage debt. They are able to repair their credit score sooner and they have avoided foreclosure. In many cases homeowners are even able to obtain a few thousand dollars in foreclosure relocation assistance.
Finally the third party buyer is pleased with their purchase of a discounted real estate property.
In the end everyone is still standing.
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