Working definition of a short sale. A short sale is the process used by a lender in order to accept less than they are owed, in exchange for releasing their lien on a property. Why in the world would any lender ever do that? The reason is that on average lenders make about 38% more in short sales than they do in foreclosures. Nonetheless, lenders have an obligation to their stakeholders to prevent fraudulent transactions from taking place. Obviously, if there is no distress and no threat of foreclosure, then the lender would rather collect the full amount due. Sometimes the lender will reserve its right to collect some or all of the deficiency amount (the amount they accept that is less than the full amount they are owed) in the future. This is a pitfall that must be carefully explained to sellers.
