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A short sale occurs when the proceeds of a real estate sale falls short of the balance owed on the property. In a short sale, the lender agrees to lower the loan balance to a sale based on fair market value due to the home owners an economic or financial situation.
If a bank \ lender agrees to the short sale, the home owner sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the mortgage or debt that is outstanding. In such instances, the lender would have the right to approve or disapprove a proposed sale.
Most Short Sales leave a loan balance for which the Mortgagor / Home owner is still liable. In almost all cases it does not satisfy all debts related to the home. Banks may, still try to collect the remaining balance from the homeowner. In addition, the mortgage broker, real estate agent / broker, loan officers, title and closing agents still need to be paid.
Further, banks will only consider a short sale in extenuating circumstances such as the current real estate market in the area and the individual borrower's financial situation. If not otherwise negotiated, Banks may attach other property of the homeowner or make them sign loan agreements for the balance that extend out for years.
This whole process has to be carefully orchestrated or the home owner will still be the same position of owing more than they can afford. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.
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