A short sale is the sale of a property, with the authorization of the creditors, for less than what is owed on it. Short sales are done all the time. Whether it is for the forgiveness of debt owed by a nation or an individual; it simply means that someone is willing to settle for less than what they originally anticipated. It’s part of business. All lenders know they will not win all the time. Risk and loss of capital is an anticipated cost in the lending industury. Changing economic conditions, conflicts, and Mother Nature are among some of the many causes of unforeseen situation that turn good lending contracts into bad. In the context of foreclosure on second assets, a short sale occurs when debtors agree to settle their liens for a known amount of money as opposed to taking a chance at auction. Auction prices are often unpredictable and usually greatly discounted. Many lenders are willing to mitigate further risk of loss by making deals before auction. Bad debt is sold by lenders all the time. For instance, there is a huge market for unsecured credit card debt that is sold for pennies on the dollar to collection agencies. That’s self-effectuated short sales. Lenders are more happy to discuss resolutions of aged debt. Their business is to lend capital, not dispose of foreclosed assets.
If you ever run into a problem with short sales, contact me and we’ll discuss more.