What is a short sale?

A short sale is a sale of real estate in which the sale proceeds “fall short” of the balance owed on the note and deed of trust. The note holder or “investor” has been granted a secured interest in the property through the deed of trust. The deed of trust is recorded with the Register of Deeds in the county in which the secured property is situated.

The note is serviced by a bank or a note servicing company (servicer). The bank and the note holder can be the same entity but are usually separate. The negotiation of the short sale is the process in which the seller, usually through his real estate agent or attorney, negotiates a release of the secured interest in the property in order to allow the property to be sold to a third party buyer for an amount less than what is owed. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the “deficiency.”


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