Often the only way to sell a home with little or no equity (and avoid a possible foreclosure) is a short sale.
A Short Sale involves an investor (buyer), working with the homeowner to negotiate with the homeowner’s lender. The goal of the negotiations is to postpone a pending auction and negotiate a discounted payoff on the loan (or loans). Using this method, the home can be purchased at a somewhat reduced price and a foreclosure can be avoided.
Standard loan payoff:
This home would have to be sold for approximately $225,000 to cover all loans, taxes, closing costs, commissions, etc. Unfortunately, the home is only worth $200,000, so the homeowner would have to come up with $25K to cover the difference, or give the home up to foreclosure, or SELL IN A SHORT SALE.
Short Sale payoff:
After the loan is negotiated, the home can be sold for anywhere from $180,000 to $200,000 with no foreclosure and no additional cost to the homeowner.
The advantage to a short sale is that it may be the ONLY way to sell a home where the loans add up to more than the home is worth. And, it’s the best way to avoid a foreclosure, which is the "Atomic Bomb" or credit issues.
The disadvantage to a short sale is that, like everything, it does affect a homeowner’s credit. A short sale is simply better than a bankruptcy and much, much, much better than a foreclosure (the “Atomic Bomb” of credit scars).
Short sales are highly complex negotiations that take significant time, paperwork, and expertise. They are among the most complex transactions in real estate. In addition, it can take from 2-4 months (or more) to negotiate with the seller’s lender.