What is a Short Sale?

Building. Fort Lauderdale, FL
The outside wall of the building with interesting windows. Fort Lauderdale, FL

In real estate, a short sale is when a real estate owner sells a property for less than the remaining amount of the loan.

Instead of loosing the house to the foreclosure, the property owner sells it for less than he bought it for. But first, the mortgage company has to agree with short sale. If the lender allows a short sale, then the homeowner can sell the property.

To make it easier to understand, lets look at the example with numbers. Lets say, a home owner borrowed $300,000 to buy a house a few years ago. Then he lost a job and and was not able to pay his monthly mortgage payments.  After getting comparative market analysis (CMA) for the property, the owner finds out that the house value decreased to $240,000. The lender agrees to let the property owner to sell the real estate for the current value of $240,000.

The homeowner lists the property and sells it for the amount of $240,000, despite the fact that he paid $300,000 when he bought it.