A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report out comes for the borrowers. This agreement ,however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, know as the deficiency.
Put simply, a short sale involves the lender releasing the owner from the mortgage for less than what the owner owes in order to accommodate the sale of the property to a third-party buyer.
Obviously, this spells a loss for the lender, so lenders will consider a short sale only under certain conditions. Using the short sale approach, the lender attempts to avoid or reduce future costs.