A short sale occurs when a property sells for a price that is insufficient to pay back the loan(s) secured against it (or any other liens against the property, such as delinquent property taxes, Homeowners/Condo Association Fees etc.) as well as standard sales closing costs. In such a case, in order to complete the sale, the Seller, must either: (1) come to the closing with sufficient funds from other sources to cover these shortfalls; or, (2) the lender(s) must agree to forgive all or a portion of the amounts they are “short” or make other arrangements for repayment ( such as execution of a promissory note). This second alternative is commonly known as a Short Sale. The Sellers lender will generally not allow the Seller to receive any proceeds or otherwise obtain any monetary benefit as part of a Short Sale.
Buying a property trough a Short Sale may be a “good deal”, but that is not always the case. First, there is no assurance that a Seller will obtain approval of the Sale from the Lender. Each lender has its own requirements to qualify. Most lenders will not allow the Seller to pay for repairs or credit money to a buyer for repairs, and as such, your best and perhaps only opportunity to purchase a Short Sale Property will be on an “AS-IS with Right to Inspect” Basis (which allows you to inspect the property and cancel the contract if repairs are beyond what you would like to pay). Also lenders will typically not allow closing costs and other credits to be given to a buyer on a Short Sale.