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Sellers can either through poor planning,  catastrophic illness, death, divorce or a variety of other cicumstances find themselve owing more on a property than it could reasonably be sold for in the market. In some cases the numbers can be staggering and in others only minor but the seller is unwilling or unable to make up the difference. The lenders have the option of accepting a "short-pay" or if the buyers default the loan - proceeding to foreclosure. In many cases, most perhaps, it is in the lenders best interest to negotiate a short sale.

As an example,  sellers must sell a home due to a long term illness that has left them unable to make the payments. They have fallen a little behind and although the house is listed at  $500,000. with the loan pay-offs, the commission, closing expenses and penalties for the defaulted loan the total is $535,000. The actual value is $475,000 leaving the sellers over $60,000 over encumbered. The lender has begun fioreclosure proceeding but it will take many months to complete and the market is not a strong selling market. The buyers receive an offer of $468,000 which they then present to the lender. The lender will do an appraisal and calculations of their expenses and issues and decide if they would rather take a "short-pay" now or face the issues the future would hold if the property continued to foreclosure.
How You Can Make Money with Short Sales:

Most of the properties you will come across that can be made with a short sale are foreclosures, and other properties where the bank or lender just really wants the loan off of their desk and paid for. This is where you get the upper hand on them by offering a discounted price to pay off the loan in full at a lower price, of course. You can then fix up the property to sell it or rent it out. You might make a profit if you sell the property at a higher price i.e. the current retail price.

Would you like to receive a list of the property in your area currently in foreclosure or listed as "distressed"? I can send you those listings daily weekly or monthly. Just email me and lets get going! Robyn@RobynSeymour.com