Increasing numbers of buyers and sellers are seeking short sales. In the last two years, short sales have become one of the most discussed, least understood, real estate transactions in the United States. Real estate professionals across the country are seeing more short sales today than ever before.

 

A residential short sale occurs when a seller agrees to sell his house to a bona fide buyer for an amount less than the amount of his mortgage balance. However, these types of sales can close only if the lender approves the sale.   Short sales are fast becoming a way for 1) homeowners to get out from under crushing mortgages, 2) lenders to mitigate potentially larger losses, and 3) buyers to obtain affordable housing. 

 

Lenders are approving short sales and discounting properties up to 40% to mitigate potential greater mortgage losses. Why? Because costs incurred by lenders who follow through with single family residential foreclosure actions can reach $50,000 to $80,000 per foreclosure. Couple that with the discounted selling price that the bank will receive at the sale and the losses can far outweigh any losses incurred from a short sale. Furthermore, properties held in REO (Real Estate Owned by the bank) limit the amount of money banks can lend. This double jeopardy is a motivating factor for lenders to negotiate short sales.