In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagee (borrower).
Extenuating circumstances delegate whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.
A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.
In short; A short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.
Lenders have a department (typically called a loss mitiagation department) which processes potential short sale transactions.
For a more detailed explanation of short-sales including pros and cons and the process of negotiating them, check out "The Definitive Short Sale Article" by Mortgage News Daily.
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New Bill Passed By Congress Makes Short-sales Much More Appealing
Though this information is deemed correct, it is not guaranteed. Please check with a real estate attorney, tax adivsor, the IRS and other preofessionals directly for proper guidance on your specific situation.
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