Avoid Foreclosure

If you can no longer make your mortgage payments and your home is now worth less than you owe on it, foreclosure may not be your only option. A short sale, in real-estate terms, is the sale of a house for less than what the owner still owes on the mortgage. If the lender agrees to a short sale, the rest of the homeowner’s debt typically is forgiven. Lenders sometimes agree to the procedure to take a small loss and avoid the lengthy and costly foreclosure process.

While there are some negative consequences to a short sale such late payments on a credit report, an ever-increasing number of properties are being advertised with that label.

Short sale: Win-win-win situation

The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender. Here’s how:

The seller gets out of the mortgage liability without facing bankruptcy.
The buyer gets the home at a reduced price.
The lender agrees to a loss it considers minimal without going through a foreclosure and being saddled with an unsalable property.

While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, too. The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process. A market saturated with foreclosures can cost lenders billions– and as much as $50,000 per foreclosure — according to a study by the congressional Joint Economic Committee.