WHAT IS A SHORT SALE?
A ‘Short Sale’ is named based on ‘shorting’ a bank on the amount due on a given mortgage.

Short Sale
Specifically, a short sale is when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.
Generally, short sales are used when the homeowner is both behind on payments and owes more than the property is worth as a way to create equity for the investor so they will purchase an otherwise non-performing asset for the bank. Though recently, banks have become more open to a short sale even if the owner isn’t behind on payments.
A short sale is transferring ownership of the house to another person, most likely an investor, at a discounted rate negotiated by the bank. When performing a short sale, banks require an Agreement for Purchase to be signed. The investor performing the short sale will be purchasing the house with cash in exchange for the discount. Then, the investor will turn around and sell the house for a profit.
As per bank requirements, the homeowner is not allowed to financially benefit from this transaction, and any profit split is considered fraud and is a felony.
While banks will require investors to have a Realtor involved to list the property, banks generally prefer negotiating short sales with investors rather than a Realtor. The reason is that investors are the end buyers. Realtors generally wait for the banks to negotiate and then try to find a buyer for the discounted price. If the Realtor is unable to find a buyer, then the banks time and money has been wasted. Therefore, banks would rather negotiate with an investor who is the end buyer than a Realtor who is not the end buyer.
In areas where there are high amounts of foreclosures or property values have been dropping, short sales are a viable strategy.
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