What Is the Meaning of the Real Estate Term Pre-foreclosure Short Sale?

The subprime mortgage crisis led to many short sales.

Homeowners who are unable to pay their monthly mortgage obligations must sell their homes to prevent foreclosure. In the real estate industry, a "pre-foreclosure" sale is known as a "short sale."

Features

Unfortunately for these homeowners and their lenders, the sale price of the home is not enough to cover the amount due on the mortgage.

Benefits

Lenders often approve selling the house for less than the note it's owed for financial reasons, including being able to recover their deficits quicker than having to wait for actual default to occur to force the owner into bankruptcy and foreclosure.

Considerations

Owners prefer short sales because it may not affect their credit scores.

Warning

Legally, short sales go through a longer approval process than owners may anticipate. To qualify for lender short sale approval, lenders request bank statements and paycheck stubs to verify economic hardship. Lenders may also request tax returns and an official hardship request or letter to detail your financial needs.

Effects

The process may actually force many owners to ultimately proceed into foreclosure because of how long it may take. This is often the reason short sale is also called "pre-foreclosure."

References

• Realtor Magazine: Short Sale Resources Guide
• Fannie Mae: Short Sale Guides