What is a
short sale and how does a short sale work?
Simply put a short sale is when you
sell your house to a third party and the bank accepts an
amount less than the amount you owe and forgives the
If your property value is less than
the amount you owe on your home, then it doesn't make much
sense to continue owning that home. A third party buyer
can make an offer to the bank to pay off your loan.
Example: Let's say you bought
a home in 2006 for $250,000 with 10% down. Similar homes
recently sold for $175,000. You owe about
$220,000. Let's also assume your payments are $1700 per
month and you could rent a similar home for $1200 per
A short sale buyer will make an
offer to the bank to cash out the lender at a discount to
the face value of the loan. If it is accepted, you can
walk away from the $220,000 debt and owe nothing. The
bank relives you of the debt and does not show a foreclosure
on your credit record.
Now instead of putting good money
after bad and continuing to fund a losing investment, you can
rent and save $500 per month.