Question about a short sale?

Question

My understanding of a short sale is that the owner of a property has defaulted on the loan, and the bank has agreed to sell the property for less than the owner owes.

So my question is, can the owner owe MORE than the purchase price of the house? For example, the house was bought 5 years ago for $100,000, and now it is for sale at $101,000, so how is that a short sale for the bank? I mean, they are selling it for MORE than it was bought originally. Is the bank really taking a loss?

Answer 1

No, you have it backwards.   For it to be a short sale it would have to be for sale for less then the 100k, 90k or 80k.

Answer 2

You can only see the purchase price. Not what the owner has done in the interim.   I’d bet money the owner refinanced  and withdrew equity or took out a second mortgage.

Example:  

They paid $100K 5 years ago. At the time the house was worth $110K.

By ’04 it was worth $120K. They refinanced for $115K.

So now they owe $115K on that $100K house, but can't sell it for that much.

It’s a sadly common thing.

Answer 3

A Short sale is when a bank agrees to take a loss and sell a property for less then what is owed to the bank.  Just because a property was bought for $100,000 does not mean that the loan is only for $100,000.  

The owner could of re-financed and at that time pulled more money out of the house so the loan could be for much more.  Because the market values then went down, the home is not worth as much as they re-fiananced for.  If the house is listed at $101,000 and is a short sale then the loan on it has to be more then $101,000 or it wouldn't be listed as a short sale.  The bank has the final word in what they will accept for the house in a short sale situation.

Answer 4

As everyone else has stated, the mortgage has to be more than the sales price for it to be a short sale.  The example above could possibly be a short sale if the owner refinanced at some point and took out a mortgage for more than 101,000 (I say this because I see it so often where I am working) but in the example you give the mortgage must be over 101,000 (however it got there) for this to be a short sale.