When shopping for a home, you may notice that certain listings are labeled as short sales. This means the seller is upside-down on their mortgage and is attempting to negotiate a deal with the lender in the hope of avoiding foreclosure.
In this type of sale, the bank agrees to accept less than the amount owed on the mortgage. The transaction benefits the bank by allowing it to avoid repossessing the home in foreclosure, which is expensive and time-consuming, and it benefits the seller by allowing them to avoid the negative credit ramifications of foreclosure (and the bankruptcy that sometimes accompanies it).
If you are interested in buying a property listed as a short sale, here's what you need to know.