Short Sales Gaining in Popularity

During the last few years, as the real estate crisis has unfolded, one previously rare technique has become much more common: the short sale.

A short sale occurs when a lender allows a homeowner to sell the property for less than the cost of the mortgage. For example, if the mortgage is $300,000 but the house is only worth $250,000, then the lender can allow a short sale where the owner sells the house for $250,000. Then, the owner walks away with no cash, and the lender loses $50,000.

In the past, when the real estate market was healthier, a lender was much less likely to approve a short sale because the lender could foreclose on the house and then sell it for at least as much as the mortgage. But, as you can see, if you click here or click here, housing prices are weak today, and many homes are "underwater" (the mortgages are more than what the home is worth).