logo for stopping-foreclosure-process.com

Definition of Short Sale in Plain English

Looking for a straightforward definition of Short Sale? Read on!

In technical terms, a definition of short sale is: The sale of an asset that secures a mortgage for less than the value of the mortgage which it secures.

What this means in plain English is the following:

The Problem of Negative Equity ....

A short sale is often an option to get out of foreclosure, used by many homeowners who are struggling to meet their mortgage payments. Everyone has no doubt heard about the sub-prime mortgage crisis of the United States which started in about 2008. This economic crisis caused the value of many properties to drop and caused the housing crisis where many people's homes are worth less than the loans they took from the bank to pay for their home. This is what is known as negative equity in their home. 

This means that if for any reason the homeowner needs to sell their home, they can't sell it for enough to pay back their mortgage loan to the bank.

But Wait, There's More  .... The Crisis of a Weak Economy

Negative equity wouldn't have been such a major problem if people didn't need to sell their homes. Even though it isn't nice to owe more than what your home is worth, homeowners could just wait it out until the real estate market eventually picked up. At which  point if they wanted to sell, they would then be able to sell at a profit, allowing them to pay back all of their loan to the bank.

The problem comes in that the ailing economy has caused a huge number of people to find themselves in dire financial straights (for example through being laid off). Now they can't afford to pay their mortgage, and they also can't get out of mortgage debt by selling their home because they have negative equity.

This has become a huge crisis in the American real estate market.

Finally ..... a "Short Sale" Defined

Due to the fact that so many people are having these financial problems in the USA, it has become a national issue. If banks were to foreclose on everyone who is struggling to meet their mortgage payments, they would be in such severe financial difficulty, that it has become in the banks' interest to help people out in whatever way makes the most sense, when looking at the bigger picture of the national economic crisis.

So banks are allowing homeowners who are in these difficulties to sell their homes for less than the loan, and then they write off the outstanding amount. This is what is known as a short sale or pre-foreclosure sale.

There are certain conditions that homeowners have to meet to qualify for a short sale, but it is an extremely viable option to avoid foreclosure, if you qualify and are really desperate.


Enjoy this page? Please pay it forward. Here's how...

Share


Back from Definition of Short Sale to Real Estate Short Sale