Most short sales occur when the outstanding property loans are greater than what the property can be sold for and it is clearly demonstrated that the borrower (owner) can’t afford the property under any circumstances.
Lenders may make attempts to create forbearance or loan modification agreements with the borrower. It the default cannot be cured in any way and the debt is greater than what the property can be sold for and the borrower exhibits hardship conditions, the property is ripe for a short sale.
Lenders seeking to mitigate their losses and avoid becoming property owners created the basic idea for this transaction. The number of lender-approved short sales seems to coincide with real estate crashes.
Popular in the 1980s and 1990s, short sales are coming back into fashion. There is a direct correlation in the number of short sales and the number of foreclosures at any time. As the real estate market start to grow and home values appreciate again, short sale opportunities will again fade into the sunset. Like REO sales, short sales are cyclical