Short Sales- An Overview
SHORT SALES: In Real Estate, a short sale or “short pay” is simply defined as lender accepting less than the amount owed on a property as payment in full. A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
For example, let’s say we own a home in California with a loan balance of $500,000, but the property is now only worth $350,000. Under a short sale the lender might accept $350,000 as payment in full. The basic concept sounds easy, but there’s no guarantee the lender will accept the amount from the sale as payment in full (short pay off).
In almost all Short Sale situations, the sellers will receive $0 at the close of escrow from the sale of their home. Typically a loan must be late on payments for a bank to consider a short sale and the new purchaser of the home cannot be related to the seller who is doing the Short Sale. If there are two lenders involved, both will have to cooperate. The second loan will usually get very little from the proceeds of the sale.
