A "Short Sale" simply means that the amount of the mortgage balance on a property is greater than the current market value of that property.  Therefore, if a person owes a mortgage of $450,000 on a property with a current market value of only $390,000... and the property is sold for $390,000... that leaves the mortgage lender $60,000 "short" in paying off the loan amount.

A "Short Sale" can only take place when the mortgage lender agrees to accept less than the full amount owed on a mortgage.  Mortgage lenders do not like to keep excess inventory and bad loans on their books.  Therefore, if they see an opportunity to sell that property without a huge loss, they may well accept a lower payment amount.

A "Short Sale" will affect a persons credit record score by a drop of 75 to 125 points.  But this is much better than a "Foreclosure" or a "Deed In Lieu Of Foreclosure" which will lower your credit record score by 200 to 280 points.  This is very damaging on a persons credit report, and that foreclosure may remain on your credit report for seven years.

It is best to do a "Short Sale" when the property is in "the pre-foreclosure state". There are two stages of pre-foreclosure: (1) People who are behind on payments, and (2) those people who are behind on payments and have received a notice of default from the lender.

There are three steps to performing a short sale: (1) short sale qualification approved by the lender, (2) marketing the property with an experienced real estate agent to find a qualified buyer, and (3) closing the short sale thus letting the lender close the loan account. 

The first step is for the homeowner to get "short sale prequalified" by the lender. This is where the delinquent home owner contacts their lender with a "hardship letter" explaining how your financial situation has changed, and that you wish to avoid foreclosure by selling your home.  Most lenders have short sale applications that can be faxed or e-mailed to troubled homeowners.  The application will also tell the homeowner what documents need to be gathered and submitted to the lender in order for the lender to determine if a short sale is an option.  Common documents requested may include paycheck stubbs, tax returns, hardship letter, bank statements, etc. These items show your lender that you are not in a position to repay the loan.

Once your file has been approved for a short sale, the homeowner must market the property.  Most homeowners will engage an experienced real estate agent to determine a "short sale price" and to market the home and find a qualified buyer.  The lender will also secure a BPO (Broker Price Opinion) from an experienced real estate professional.

Remember, you are not trying to profit from the sale or cover what is owed to your lender. You are simply trying to stop home foreclosure and avoid having a foreclosure on your credit history by helping your lender recover as much of the money they loaned you as possible.

Once an offer is made... it may be several months before a negotiated offer is accepted by the lender due to all the short sales and foreclosures that lenders are processing at this time.