A short sale occurs when a buyer makes an offer on a home where the proceeds from the sale would be less than the seller owes on the loan. At the time the buyer and seller agree upon a sale, the lender is not yet included.
The seller’s agent then takes a short sale package to the lender for review and approval. The package includes the purchase contract, a hardship letter explaining why the seller can’t keep the home and any market conditions that create the need for a short sale.
The lender will analyze the short sale request and determine how accepting less than what is owed affects their bottom line. The lender may come back with a letter stating the specific terms and contingencies that must be incorporated into the deal in order to release the lien and close. The sale will be “approved for short sale” if the buyer and seller can meet those specified terms.