Q.What is a Short Sale?
A.A short sale is the process by which a homeowner negotiates with their lender to persuade the lender to allow the sale of a property for less money than is actually owed on the property. In a successful short sale the mortgage lender (or bank) actually takes a loss (or write-off) on the mortgage because the value of the home has fallen below the mortgage balance AND the homeowner is in a poor financial condition that will not allow him to continue to pay on time.
The short sale transaction is a legal transaction that often benefits both the lender (saves cost and expense of dealing with the foreclosure process, a potential bankruptcy filing, and potential damage to the property) and the homeowner (enables the homeowner to avoid further destruction to their credit).
If the lender approves the discount on the mortgage, the home can be sold for a lower price without the seller having to come up with cash to cover the shortfall, and the mortgage is satisfied and the foreclosure process stops. However, the homeowner will have to pay tax on the amount of the loan forgiven.