As the other answers have said, it is when a mortgage company agrees to take a payoff less than the actual payoff. For most people in today's market, they can't sell the house for what they owe on it because the market values are so depressed in today's market. If they can't sell for what they owe then the funds from the sale of the home aren't enough to pay off the mortgage and there will still be money owed.
In order for an owner to be eligible for most short sales I have encountered, they must be able to prove that the market has declined and that there is some sort of hardship that makes them unable to pay the difference. Some cases are illness, job layoffs, divorce, military moves, etc. It is up to each individual mortgage company as to what they are willing to accept or not. In addition, even if you have had a hardship, you generally cannot have a large amount of savings, 401k build up, etc. A mortgage company wouldn't be ok with taking such a large loss if you actually do have the means of making up the difference, but are choosing not to. I have to tell my short sale clients that they can't do a short sale because their mortgage payment is simply inconvenient; they can only do one if they truly have circumstances that warranty it.
If I can answer any more questions, please let me know. Thanks!
The Stephens & Stephens Group
Better Homes and Gardens Real Estate Metro Brokers
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