A Short Sale is where the bank allows a homeowner to sell the relevant property and to pay the bank less than the amount actually owed on the Mortgage/Note. The borrower pays thousands less than is actually owed, and the bank does not pursue the difference, also known as the “deficiency.”
However, the bank usually does not consider a Short Sale until a foreclosure proceeding against the borrower and property has already been commenced. Plus, one must apply for a Short Sale, just as one must apply for a modification. That includes submitting an application with signature and financials and a signed contract to the bank. (It must be an “arm’s-length transaction” – not with a relative or friend.) But if the bank does not like the deal, the Short Sale application will be rejected – which means that the bank will not accept less than the amount actually owed. The full amount remains due.
I generally consider a Short Sale as a last resort in a foreclosure action because my clients usually have several strong and valid defenses. My clients usually have a winning case, in my opinion. However, if need be, and if my clients are willing to vacate their home/property, I will encourage them to apply for a Short Sale.
A link to further info regarding a Short Sale provided by the New York City Bar Association is below:
https://www.nycbar.org/get-legal-help/article/real-property-law/residential-mortgage-loan-foreclosure-in-new-york/short-sale/