Need for a Short Sale

• The need for a short sale may either be recognized by the home owner or the lender. When the borrower constantly defaults on the mortgage repayments, the lender may instruct the borrower to sell the house and clear the pending debt. The borrower is required to pay the lender to the maximum possible extent. Or, the borrower may recognize that his financial position is not good and may seek permission from the lender to sale the house.
  
  

Decline in Property Values

• A short sale usually occurs when the borrower is not in a position to pay off his pending mortgage amount and the value of the house has depreciated tremendously. The borrower requests a short sale when he anticipates that the value of the property is likely to go further down. He tries to leverage the situation and sell the house for the maximum possible value. Sometimes, the lender may forgive the remaining portion on the mortgage and sometimes the home owner is still obligated to repay the balance owed.
  
  

Different from Foreclosure

• A short sale is different from a foreclosure. The foreclosure proceedings are conducted by the lender and the short sale is initiated by the home owner. The lender opts for a short sale because foreclosures are always expensive and time consuming. In a short sale procedure, the home owner lists the property with the Realtor. All the tenders that the home owner gets, he apprises the lender of the same. The lender evaluates each offer and reserves the right to accept or reject any offer. Once the lender approves an offer, the home owner sells the house to that party and hands over the proceeds to the lender.
  
  

Deficiency Judgement

• Some states provide additional protection to the lenders. The court orders the home owner to clear the remaining balances on the loan. The court may order the home owner to sell of his other personal assets to pay off the lender. The home owner may sell his vehicles, jewellery and other expensive possessions and try to clear his debts. In some other cases, the court may direct the lender to claim the remaining mortgage balance directly from the borrower's salary.