A short sale is one option people have to prevent foreclosure. In a short sale, the total proceeds from the sale of the mortgaged property cannot cover the owner’s loan. The lender, in other words, isn’t going to get paid the full amount they are owed. They are going to be shorted on the loan obligation.

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of economic and financial constraints of the mortgagor. The debtor then sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender as payment for the outstanding balance owed.

In some areas like Arizona, short sales are common business transactions to combat the growing situation of Phoenix foreclosure. Simply put, a short sale is nothing more than negotiating with lien holders a payoff for less than what is owed, or rather a sale of a debt, generally on a piece of real estate, that is not the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

When it makes no business sense or it is not economically feasible to retain an asset, businesses default on their loans called bonds. It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.

Phoenix short sales had its gain in June after 2 years of being down. Both June and July saw an increase in the number of short sales, or the lender letting the borrower unload the home for less than what’s owed. In July there were 237 closed deals with an eye-popping 2,270% increase over the 10 from a year earlier.

Recovery has been strongest in communities including Avondale, Glendale, Maricopa and south and west Phoenix-areas that, last year, were plagued by a glut of lender-owned homes. Some brokers and developments commentators report bidding wars as many investors flush with cash try to snap up bargain-priced units in a market that has seen prices plunge from its peak by more than half.

For the first half of the year, Phoenix saw the nation’s second-highest foreclosure rate, with one in every 30 homes slapped with at least one filing. The rate of Phoenix foreclosure is expected to climb as unemployment mounts.

Short sale typically is executed to protect a home from foreclosure, but the decision to proceed with a short sale is decided by the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.

Of all the hard hit housing markets in the country, Phoenix is one of the worst. Phoenix foreclosures are rampant so now many buyers are getting smart and purchasing these Phoenix short sales.