At face value, the term short sale seems obvious — the sale of the house is short/quick. But in reality, short sales may take months and even years to close.
A short sale happens when money from the selling property fall SHORT of the debt (e.g., mortgage, liens) owed against the property.
In today’s market, when short sales happen it’s often because people either purchased their home or refinanced their mortgage when the market was high. Now that housing prices have decreased, when they go to sell the house they cannot afford to repay the debt, and the lien holders (e.g., bank, mortgage company) agree to accept less than the amount owed. The amount owed, or unpaid balance is known as a deficiency.
A short sale agreement does not necessarily release borrowers from repaying the debt and will often result in a negative credit report against the homeowner.
And as a buyer, a short sale may be a great purchase, but does not necessarily mean that you’re always getting a deal.