In the real estate industry, a short sale is a situation where, to prevent foreclosure, there is an agreement made between the borrower (property owner) and the lender (financer) to sell a property at a discounted price in the event that the borrower fails to meet payments. The total proceeds from the sale of the mortgaged property cannot cover the owner’s loan, thus the lender will not receive everything that is due.

A short sales happens when the bank or mortgage lender agrees to discount a loan balance because of economic and financial troubles of the mortgagor. Then the 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 as payment for the outstanding balance owed.

In some areas like Arizona, short sales are common business transactions to combat the growing situation of Phoenix foreclosure. Simply put, a short sale is nothing more than negotiating with lien holders a payoff for less than what is owed, or rather a sale of a debt, generally on a piece of real estate, that is not the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Businesses default on their bonds when it makes no business sense or is economically not feasible to retain an asset. It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in preparation for these future defaults.

The Phoenix Short Sale had its gain in June after 2 years of being down. Both June and July saw an increase in the number of short sales, or the lender letting the borrower unload the home for less than what’s owed. July’s 237 closed deals were an eye-popping 2,270% increase over the 10 sales that came the year previously.

Recovery has been strongest in communities including Avondale, Glendale, Maricopa and south and west Phoenix-areas that, last year, were plagued by a glut of lender-owned homes. Some brokers and developments commentators report bidding wars as many investors flush with cash try to snap up bargain-priced units in a market that has seen prices plunge from its peak by more than half.

For the first half of the year, Phoenix saw the nation’s second-highest foreclosure rate, with one in every 30 homes slapped with at least one filing. The rate of Phoenix foreclosure is expected to climb as unemployment mounts.

A short sale typically is executed to prevent foreclosure. The decision to proceed with a short sale, however, is based on the most economic way for the bank to recover the amount owed on the property. Cases that a bank will allow a short sale is that if they believe that it will result in a smaller financial loss than foreclosing on the home.

Of all the hard hit home markets in the U.S., Phoenix has been among the worst. Phoenix foreclosures are rampant so now many buyers are capitalizing by buying up these Phoenix short sales.

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