short sale in real estate is caused when a home-owner owes more than the value of the property. In order to better understand a short sale, an example would help. For example, lets say a home-owner owes $450,000 on the value of the property and the home is worth $300,000. If the owner were to sale the home, he would technically owe $150,000 on the property. Since the current owner falls short of money when he sells the property, the bank/lender can negotiate on the price of the home. The lender decides to take a value less than the value owed on the property and this avoids foreclosure.
In order to avoid a short sale, a new program for reducing the principal balance on the current home loan is available. With this program, the home-owner will get positive equity back in the property, avoid the short sale and still keep the home. In the above example, the owner will get a new loan for 90% of the current market value of the home or $270,000.
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