What exactly is a short sale in real estate?
A short sale occurs when the seller owes more on the property than it is worth, does not have the means to pay the difference, and the bank agrees to accept LESS than a full payoff for the amount owed.  The seller normally must demonstrate a financial hardship. 

Banks lose LESS money on short sales than they lose on foreclosures. Therefore, they have a logical reason to accept a short sale, especially if the sale price is close to the current market value of the property, and it appears that a foreclosure may be likely in the future.  The amount owed is not the determining factor.  What is important? The fact that the property is worth less than what is owed, and that the seller has a FINANCIAL HARDSHIP. These are the two qualifications banks are looking for.  The fact that the property is worth less than what is owed does not automatically qualify the owner for a short sale by itself.

DO YOU QUALIFY?
Some financial hardship examples include: loss of job, business failure, damage to the property, death of a spouse, death of family members, severe illness, inheritance (when the property is inherited with a mortgage the heirs cannot pay), divorce, mandatory job relocation, medical bills, military service, payment increase, insurance or tax increase, reduced income, separation, too much debt, or incarceration. 

Sellers do not have to pay the Realtor's commission or closing costs in a short sale. These funds come from the sale of the property, and this is made possible by the fact that the lender is taking less than what is owed.

Sellers NORMALLY do not receive any funds from the sale of the property. This has changed a bit in recent times with programs like HAFA giving sellers a moving allowing of $1000 to $3000, and occasional short sale incentives for holders of certain types of mortgages from banks like Chase and Bank of America.  Keep in mind, the lender is agreeing to take less than what is owed by the borrower. 

Weigh the cost of renting a moving truck against the repayment of the mortgage balance (often 100's of thousands of dollars) and it is easy to see why many sellers have chosen short sales.  Being allowed to walk away from a mortgage that is larger than the value of the property is still a great opportunity for most sellers to start over and build a future, rather than just ignoring a problem that isn't likely to go away.

It is important to remember that each seller's situation is unique, and in the same way, one short sale can be very different from another in terms of difficulty and the end result. One seller may be unemployed with one mortgage on a house. Another might have gotten a raise, but have two mortgages, a home equity line, and a homeowner's association lien from not paying maintenance on a condo.  They fewer parties that are owed money on a property, the easier it is to reach a satisfactory short sale soluntion. 

Why not just "Walk Away" and let the lender foreclose?

You could INVEST in Your Future - Sellers who were pro-active and did short sales just a few years ago are now BUYING HOMES at market-corrected prices with record low interest rates.   They decided to work with their lender, and are now INVESTING in a home that will be PAID FOR in their future. 

EVERY normal loan application has this question, "Have you ever lost a home to foreclosure?"  Once you have a foreclosure you will need to check "YES" for the rest of your life. So choosing foreclosure could mean choosing a higher interest rate on every financed purchase you make for the rest of your life! What could that add up to?

Florida is a "recourse state".  In other words, the lender may still pursue you EVEN AFTER taking your property back through as a result of a foreclosure.  In Florida, lenders have FIVE YEARS to go to court and obtain a Deficiency Judgment AFTER the foreclosure.  They then have another 20 years to let their attorneys pursue the borrower for collection of judgments, to levy bank accounts, garnish wages if possible, and put liens on other properties, including cars.   

At the moment, the banks' attorneys have plenty of work to do just processing foreclosures.  In a few years when that work decreases and the attorneys need more work, what do you think they will work on next?

Very few people planning on walking away from their mortgage today have any idea they could try to sell something 20+ years later only to have a deficiency judgment surface when it is time to close the sale.

Sellers benefit from a short sale by reducing the hit on their credit, avoiding foreclosure, and avoiding the severe consequences of a foreclosure.  Thinking about just walking away from your property?  Foreclosure consequences that could be avoided or greatly reduced by a short sale include:

• the loss of security clearance
• having "foreclosure" stamped on your credit report for 10 years
• an average loss of 300 points on credit scores
• higher interest rates on future purchases
• HIGHEST POSSIBLE AMOUNT on DEFICIENCY JUDGMENTS from foreclosures -The lender's recourse doesn't end with the foreclosure sale on the court house steps, and the transfer of property ownership to the lender. The lender may choose to file a deficiency judgment against the borrower equal to ALL of the funds it lost as a result of the foreclosure.    
• no approval on Fannie Mae-backed mortgages for five years
• challenge to current and future employment for sensitive positions

Each of the above items could be substantially reduced or possibly avoided altogether through a lender-approved short sale.