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Lots of great answers here. Let me add this to the discussion.In case you are familiar with the term short sale from the stock market, you probably know that when someone sells a stock short, he sells a stock he does not currently own. This is done by borrowing a stock from an investor and selling it at current market price. When he wants to close the position, he buys back the stock and delivers it to the investor who he "borrowed" the stock from. The profit or loss are determined by the difference between the sale price and the purchase price.In real estate, the term short sale has nothing similar to the term used in the stock market!I real estate, when a homeowner sells his house and the net proceeds from the sale of the house do not cover the outstanding balance of the loan(s) on the house, the homeowner will need to bring cash to close the deal (pay off the loans). However, if the homeowner does not have the cash to close the deal, the deal cannot go through and close unless the lenders approve it. If and when they approve it, the deal closes. And since the lenders did not get all that was owed to them when title transfers, it is a short sale.There are many factors as to why a bank(s) may or may not approve a sale that does not pay all that is owed on the house.As to the P&L statement, bank loses money and reports a loss on its return. The loss of the bank is the gain of the homeowner, reported as income on his return. So there can be tax consequences to this transaction, so it is recommended to consult with a Tax professional.
It occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loan by settling with lender.
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