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A lender approved, preforeclosure short sale is a real estate transaction which occurs when anticipated proceeds from a sale are insufficient to payoff all lien holders in full. In advance, the lien holders agree in writing to facilitate the sale by accepting less than it is contractually due, though it is under no obligation to do so. The sale of property at a fair market price may be lower than the loan balance; this is referred to as being "upside down" in your home or mortgage.
Before clear title to real estate can pass from seller to buyer, all liens and encumbrances including mortgages, property taxes, judgments, cost of sales, etc., against the property must be paid. Typically, that payment is made at the time of closing using the disbursements from proceeds of the sale. Sometimes, when anticipated proceeds from a sale are insufficient to payoff all liens against the property, the sellers, alerted by the selling agent, must be prepared to make up the difference in cash between proceeds from the sale and what is owed to the lien holder(s).
It is best to seek professional advice, each situation is different as are the requirements of each lender.
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