Today, the terrifying threat of foreclosure is something that many homeowners know and worry about on a regular basis. However, though the concept of foreclosure may be relatively common, it's fair to say that most people draw a blank when they start to see "short sale" signs sprouting up around the neighborhood. Short sales occur when a lender agrees to accept a mortgage pay amount that is lower than the amount actually owed. This is done in order to facilitate a home for sale by owner who is suffering from a serious financial issue. Short sales allow a lender to forgive the balance left over on the loan, giving the homeowner a way out of their devastating circumstances.

Buying a Short Sale Home:

Purchasing a home for sale by owner through a short sale is actually a lot different from buying a property that the bank owns – though to some it may seem similar. Although it may seem difficult to understand, or complicated, it's a good piece of lingo that anyone on the search for a great real estate deal should be looking out for when navigating the current marketplace.

Generally, during the process of a short sale, the proceeds that are obtained from the real estate transaction will be lower than the seller actually needs in order to pay for the mortgage debts and also meet the costs of selling. In order for this sort of deal to work, everyone involved must agree that they're happy to take less – or even no money at all. That means that short sales are highly complex transactions that can move slowly, and frequently fall through.

Can Short Sales Work?

It's obvious that short sales can be a significant problem for everyone involved, so you might wonder why anyone would consider it to begin with. As strange as the deal may appear to be on the surface, a short sale can actually offer a great deal for a buyer, and can help a seller avoid the hassle of having to deal with a full foreclosure that damages credit score for the foreseeable future. Though short sales and foreclosures will always affect the credit score of a seller, it's fair to say that short sales can help to minimize the damage if the homeowner can persuade their lender to report the debt to all credit bureaus as having been fully paid.

Through a short sale, a buyer can obtain a property for a substantial discount, and because the lender will be eager to get money back, they may also offer favorable terms for financing. Do keep in mind, however, that since the seller of the home for sale by owner will be playing an active and crucial role throughout the entire process of the short sale procedure, you must be able to encourage their cooperation. A factor that often puts buyers at ease is the fact that because the seller is active within the short sale process, they shouldn't need to evict them when the time comes to take over the property. Unfortunately, this isn't always the case with properties that have been through a foreclosure.