A short sale is a real estate transaction in which the owner of a property sells it for less than the amounts owed on the property amongst all lien holders. A short sale negotiator, such as an attorney, real estate agent, or another qualified individual, is given authorization to speak with the bank on behalf of the seller in order to obtain a settlement in full for less than what is owed.

The lender and all lien holders must provide written approval for the closing to take place. In order to obtain approval, the lender usually requests an interior inspection of the property in order to determine its current value. The entire balance of what is due is settled in full for less than what is owed based on the current market value of the property.  Upon closing, all lien holders receive payments based on their payoff and approval letters, they release their judgment against the property, and waive any further foreclosure action against the seller.
 

A short sale typically is less harmful than a bankruptcy or a foreclosure auction on a seller’s credit as all creditors and lien holders end up being paid in full at closing. In most cases, the seller is even able to walk away with relocation or incentive funds at closing if they are approved by the lender. The lender usually agrees to the short sale because it is typically in the lender’s best interest to avoid the cost and hassle of a foreclosure. After the short sale is completed, the lender writes off the remaining balance on the mortgage as a loss.