Short sale in real estate means something completely different than in the stock market world.
Short sale in real estate is the situation LC is describing - Someone is behind or in default of their mortgage note and they are willing to sell at a loss to be out from under the note. In this case the seller 'comes out short'.
Obviously this only makes sense for a Buyer if the note is less, substantially less, than the value of the property. The Seller is willing to give up his equity, or some of it, to be relieved of the note. The trick here is valuing the property. A Buyer would need to realistically assess the current market value of the property. My experience has been that if people stop making note payments they stop doing the other things to keep up the property also. Maybe THEY think the property is not worth what they owe on it. Ask yourself, why would the Seller be willing to do this. Job loss, death of a family member, moving to Iraq, whatever. It takes a pretty strong reason not to just put the house up for sale instead of walking away with a loss.
The big caveat is that the holder(s) of the mortgage(s) will have to be paid off. They will not just allow someone to walk away owing them money. They will force the public sale of the property through a foreclosure action and obtain a deficiency judgement from the Seller if the proceeds of the sale are not enough to pay off the note with accelerated interest and costs.
While every situation is different and all the angles need to be considered, it is usually cleaner to buy at the foreclosure auction so you will be assured that all creditors have either been satisfied or discharged. There may be second or third mortgages, mechanics leins, IRS leins, tax leins, etc.
You will need to work with a real estate attorney to make sure there are no other leins or claims on the property before you give the Seller any $$. Are you considering getting a loan to buy the property or are you paying cash?
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