In real estate, short selling a home, also called a short sale, refers to the homeowner's action of selling his or her house for a price lower than the mortgage to avoid foreclosure, state government officials at Freddie Mac. Homeowners resort to short sales in times of financial difficulty, such as when they cannot afford to pay mortgages and must leave the premises. Short selling the home proves a better financial option for many, say experts at Freddie Mac, as doing so does less harm to people's credit score than having a foreclosure.
Homeowners engaging in short sales, also called short pays and pre-foreclosures, must enter into sales with lenders. Lenders, generally banks, acquire homes for a sub-mortgage price. Although losing some profit, they relieve themselves of the financial and time costs of completing foreclosures. Depending on the financial status of homeowners, lenders have the task of deciding whether to proceed with short sales or mandate foreclosures. Short sales differ from foreclosures in that lending institutions never acquire ownership of the property. Instead, they authorize the sale and act as the liaison between the seller and future homeowner. Although short sales provide benefits to the parties involved, they have shortcomings too. Downfalls of short sales include accepting homes as they are, higher costs for home buyers and waiting a long time for transaction approval, notes Freddie Mac.