For various reasons, many homeowners owe more money on their homes than the property is worth. You have heard terms like under water or upside down, but the real estate phrase is over-leveraged. Over-leveraged property is problematic and expensive for the owner and the lender. The owners, especially those having difficulty repaying their mortgage, are either unable or not motivated to maintain or improve the property. Good stewardship goes unrewarded. Lenders do not want to foreclose because the properties under-perform, which means they cost money without a return on investment, the added expense hurts bank liquidity and lowers asset values. Real estate lenders are not interested in losing real book value.
How can these situations resolve?
The short sale is when your mortgage bank agrees to take less than what is currently owed on the unpaid balance. A short sale can provide mutual benefits for both the homeowner and the bank because it helps both parties avoid foreclosure. The lender releases the property from the entire mortgage lien, the new owner receives full and clear title to the property at the current market price, and the seller reduces or eliminates their debt load. A win-win-win compromise.