A surge in foreclosures is forcing more and more lenders to take a loss on bad loans, giving rise to a speculative real estate practice known as a “short sale.”
Here’s how it works: When a homeowner is threatened with foreclosure, an investor negotiates with the lender to buy the mortgage for far less than is owed.
If all goes well, the sellers reduce their debt, the buyer gets a good deal and the bank removes a non-producing asset from its books. But, in practice, the deals are notoriously difficult to piece together and too often are oversold as a way to turn a fast buck.