Short Sale

A short sale is a property sale in which the lender agrees to accept less than the full loan balance as payoff so the sale can close.

A short sale is a sale where the lender agrees to accept less than the full loan balance as payoff so the property can sell. It happens when an owner needs to sell but owes more than the house is worth — the sale comes up "short," so nothing closes without the lender signing off. The seller typically submits a hardship package, the lender orders a valuation, and an approval letter eventually spells out the exact price and terms the lender will accept.

Run the numbers on a typical one: the owner owes $220,000 on a house now worth $180,000. A buyer offers $180,000, and after commissions and closing costs the lender might net $165,000 — it approves the loss because foreclosing would likely net less. That approval can take months, and lenders can counter, stall, or decline late in the process, which is why short-sale timelines kill so many contracts.

What beginners get wrong is treating a short sale like a normal wholesale deal. The approval letter names a specific buyer and price, most lenders prohibit assignment outright, and many approvals add deed restrictions barring a quick resale. Locking one up and then shopping the contract is a fast way to blow up the deal. Short sales also carry real consequences for the seller — possible deficiency claims and tax treatment of forgiven debt vary by state and situation — so keep experienced agents, title, and legal help involved. This is not legal or tax advice.