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Why would you use a short sale?

A short sale is often one that is made before a foreclosure. In a general sense, it simply means that you're not able to get as much for the house as you owe to your mortgage lender.

For instance, maybe you bought the house for $200,000 and you've paid the mortgage down to $180,000. However, the market in your area fell and the house is worth just $160,000. Not only are you losing $40,000 on your investment, but you still owe $20,000 more than you'll get.

In some cases, you need to pay some of that extra to the mortgage lender. In other cases, the lender will agree to the sale, knowing you're unlikely to pay and determining that getting $160,000 is better than going through foreclosure. In that case, you can use the proceeds, even though they're less than you owe, to pay off the loan.

Some reasons people look into short sales include:

  • They want to refinance the mortgage but they're not eligible to do so.
  • They have fallen behind on the payments and so foreclosure is coming.
  • They have a long-term hardship that means they can't keep the house.
  • They have tried to sell the home for the balance of the mortgage, but they haven't gotten any offers that are high enough.
  • They want to leave the house because it's no longer affordable. For instance, a person may have bought a home and then lost a high-paying job.

Short sales can grow complicated, as you must work with the mortgage lender to find a solution. If you're considering it, be sure you understand all of the proper legal steps to take.

Source:, "Short Sale," accessed Jan. 19, 2018

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