Tips And Tricks on Real Estate Sale
June 25, 2008
You have probably heard the phrase “real estate short sale” and wondered what it meant. If you read the newspapers, or turn on the TV and the odds are high that you will come across stories about declining real estate market conditions and the increasing willingness of banks and other financial institutions to consider real estate short sales as an alternative to foreclosure. Real estate prices are lower now than they have been in a long time and the amount of time it takes to sell a piece of real estate is rising. It is completely valid to say that some regions - such as Detroit, for example - are experiencing a market meltdown. It is because the market is so inhospitable that the need for short sale real estate has gone up so dramatically.
So, what is a real estate short sale? Well it’s when a bank agrees to allow a property to be sold for less than the amount owed on it. In order for this to occur, two conditions must be met. Foremost, you will need to have a market value that is in such bad shape that the sale price of the property cannot cover the balance on the mortgage. Condition number two is that the owners will be unable to make any further payments on their mortgage.
For example, a property that was purchased five years ago with an adjustable rate mortgage for 217,000 dollars. Let’s say that two years after purchasing the property the owners took out an additional 10,000 dollars second mortgage, which means that today the owners owe 227,000 dollars on the property. A five year span of time would result in a small amount of the mortgages actually being paid off. Let’s also believe that the property is in a part of the country where the market values have fallen to 215,000 dollars for similar properties, and that the adjustable mortgage interest rate has risen from seven to eleven percent. We’ll also add the fact that one of the owners has just lost his job and it should be apparent that a real estate short sale situation is apparent.
Rather than go through the expense and time delays that a foreclosure proceeding would require, the bank may decide that allowing a short sale makes more sense in the long run. The reason is that it is far better to have a definite amount of money know and the property off the bank’s books than waiting on an unknown amount of money at some unknown point in the future. Those are the basics of a real estate short sale, though numerous complications can arise from having multiple owners and lenders not agreeing to a short sale terms.
A real estate short sale is not a very pleasant experience, but it certainly isn’t the worst experience they could have. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. For the intelligent real estate investor, however, it can represent a great buying opportunity.
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