Short sales involve financially underwater homes. An owner wants to sell but the property value is less than the remaining mortgage amount. There could be a sale without lender approval -- but only if the owner has enough cash to cover any unpaid mortgage balance. Since most owners do not have such funds selling is not possible unless the lender agrees to take a loss.
Given a choice lenders want a fully-repaid loan and not anything less. The problem for lenders is that without a short sale the property could wind up as a foreclosure.
"While lenders never want a loss, the loss from a short sale might be substantially less than the loss from a foreclosure," said Forsythe. "Also, a short sale can be far quicker than a foreclosure, especially if a foreclosure auction fails and the lender winds up owning the property. One result is that short sales are attractive to lenders because they're less risky than foreclosures. A second result is that owners have leverage in the marketplace."
To make a short sale work we also need a buyer. Buyer demand comes into the picture because short sales are widely available at a discount, 14 percent below comparable existing homes in early 2012 according to the National Association of Realtors.
If you are someone you know needs more information about short sales, contact me, I'd be glad to help.