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In today's turbulent economic market the hybrid Real Estate transaction called a "Short Sale" has emerged.

A short sale is when the proceeds of a real estate transaction do not cover the outstanding balance owed on the property to the lender .

An example would be:

Mr. and Mrs. Homeowner purchased a home in X town in 2000 for $500,000. They procured a loan from Main St bank for the full amount. The homes value has dropped 10% over the last 3 years and is now worth $450,000. The Homeowners are having trouble with money and need to sell the home or face foreclosure. If they sell the home for market value they will not cover the debt that they owe. They would enter into an agreement with the bank to sell the home for less than they owe and turn all of the proceeds over to the bank.

Most short sales end with a deficiency balance where the homeowners would still owe the Bank the balance of the loan minus the proceeds of the house.

Short sales are usually used to prevent foreclosure. The credit ramifications of a short sale as compared to a foreclosure are much less. A short sale is considered a settlement not a default. It will remain on the persons credit report for 7 years but it will be possible to obtain a mortgage much sooner 1-3 years.

As with everything prior to deciding to enter into a short sale you should consult an Accountant or a Lawyer to completely understand the Consequences