A short sale is a real estate selling practice, where the lender of a mortgage agrees to accept less than the remaining balance due on the loan from the seller. Short sales became prevalent in the housing bust and recession of the late 2000s.

Benefits

Short selling a home is an alternative to foreclosure. When a home is sold in this way, it appears on a credit report as "re-foreclosure in redemption," instead of "debt discharged due to foreclosure."

Process

The particulars of a short sale arrangement are up to the seller and his mortgage lender. Some common ways banks choose to account for the debt difference are by writing off the debt, or holding the sellers accountable for a promissory note for the amount of the debt.

Purchasing

Buying a short sale home can have advantages. Often, buyers can purchase a property in good condition for a discounted price. Inexperienced home buyers should work with a Realtor with short-sale experience.

How to Qualify

A seller does not have to be behind on his mortgage to qualify for a short sale, as is the common belief. Showing a house cannot be sold for what is owed, or approaching foreclosure will qualify a seller for a short sale.

Warning

It is dangerous to assume debt forgiveness until the seller has received a definite commitment from her lender. In addition, short sales can affective credit scores, so the seller should understand how her lender will be reporting the arrangement.

Source:

AOL.com: Understanding Short Sales

Mortgage News Daily: The Definitive Short Sales Article

CBS.com: Dual Upside to Foreclosure Alternative

More Information:

Realtor.org: Field Guide to Short Sales