SHORT PAYOFF
(Short Sale) (Pre-foreclosure Sale) (Compromise Of Sale)
In a short sale, the owner of a home and their mortgage lender agree to sell the home at a discounted price: less than the total amount owed to pay off the home loan. A lender will agree to a short sale if they believe that it will result in a smaller financial loss than will a foreclosure.

Why Would You Choose A Short Sale?
For the homeowner, there are three big advantages to a short sale: short sales appear on your credit report as “pre-foreclosure in redemption,” not as “debt discharged due to foreclosure”; a short sale will probably not damage your credit, as much as a foreclosure; and, in many cases, the lender will agree to forgive the remainder of the loan.

Unlike a foreclosure, in which the lender takes ownership of the property and then sells it, with a short sale the owners sell the property, but do not receive any money from the sale. In a foreclosure, the owner could receive money from the sale if the sale price amount exceeds that of the outstanding loan and the lender has been paid in full.

Lenders will typically not agree to a short sale until the seller has missed at least three consecutive mortgage payments and has received a default notice. Lenders who were once adverse to take on short sales are agreeing to them now for a couple of reasons: first, do not like to have bad loans on their books and if there is an opportunity to sell the property without a huge loss, they will do it; second, lenders could lose a lot more money if the property goes to foreclosure and then to auction.

Buyers
For buyers, it is best to do a short sale once the notice of default (first step in foreclosure) has been recorded. At this point lenders become highly motivated and the likelihood of purchasing at a significant discount is good. Very rarely will a lender discount a mortgage prior to issuing a notice of default.

The type of house or its condition is irrelevant; all mortgages can be discounted if the lender believes it is in their best interest to do so. Historically, the ideal target properties for a short sale are the ones that need lots of work and repairs. Lenders typically offer more significant discounts on distressed properties.

Another ideal target property for short sale buyers are ones that are highly leveraged. Lenders holding a second mortgage will probably not see any return on their investment after a foreclosure auction. These lenders are typically agreeable to a short sale because they would rather receive some money on their loan rather than nothing.