What does "short sale" mean

Question

If a home is up for "short sale" what does that mean and how does it affect the buyer/bidder?

Answer 1

A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt.

The mortgage holder allows the seller to sell below the mortgage amount because they would rather sell at a loss than go through the foreclosure process.  You may have some price flexibility when you make your offer because the seller would like to sell the home before it goes into foreclosure.  The mortgage holder will have to approve the sale since they are selling at a loss.

Holders of other liens for things such as income taxes, estate taxes, or mechanic's liens may also object to the short sale.