A short sale is when a seller’s mortgage balance is greater than the proceeds from selling their property.
For example, if the outstanding mortgage balance is $97,000, the sales price is $100,000, and the seller’s net proceeds are $90,000 ($7,000 less than the mortgage balance), the Seller has the option to bring $7,000 to the closing table.
If the seller is unable or unwilling to make up this difference (i.e. bring a $7,000 check to closing), the bank can agree to accept less than the $97,000 payoff and issue an IRS Form 1099-C (Cancellation of Debt) to the seller for the write-off amount (e.g. $7,000).
For sellers, considering a short sale requires planning and close following of your lender’s rules and policies.
Buyers that want to pursue a short sale just need to understand that they are really negotiating with the bank, not the seller. The bank will approve or deny any offer the seller passes on to them.
From the time of getting a short sale approved for consideration by the bank, there can be 3-6, possibly 6-12+ months before getting to closing. Again, adhering to the lender’s policies and procedures is critical for getting to closing, else it’ll end up in foreclosure.