A homeowner uses a short sale when they sell their property for less than the outstanding mortgage. A homeowner may consider a short sale if the value of the property falls significantly. Lenders will often consider a 20 percent drop in home price to qualify as a significant change in value.

Why would a lender approve a short sale? A short sale cannot move forward without the lender’s approval. In these cases, the lender may believe getting back some money is better than losing it all.

If the short sale does not work, the lender may have to reposes the home and go through the foreclosure process. This process results in a greater expense to the lender, making a short sale a more favorable option.

Why would a homeowner consider a short sale? Homeowners who are going through financial difficulties and find themselves underwater on their home may consider a short sale. When compared to a foreclosure, a short sale does not have the same negative impact on the homeowner’s credit rating. This means the homeowner could sell the property and move on, potentially purchasing another home that works better for their current family needs.

How does the process work? If a buyer is interested in a property that is going through a short sale, the buyer would first negotiate with the homeowner. Once the buyer and homeowner come to an agreement, the buyer would then need to propose the agreed upon offer to the lender.

The paperwork drafted for a short sale is different than the documents used in a traditional real estate sale. In many cases, the property is sold “as-is” and subject to the lender’s approval.