A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying form a seller, you are purchasing the property directly form the lender for a discount. For example: a home owner who is facing foreclosure, has an existing first mortgage of $300,000. You present an offer to the lender for $220,000 that is accepted by the bank as full payment for the loan. This is a short sale. Why are they willing to take such a discount? First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can sell the property without a huge loss they will do it. Secondly, lenders know they could lose a lot more money if the property goes to auctions. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.
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