Real estate short sale is an unpleasant experience for an owner
The term ‘real estate short sale’ is being bandied about more and more as of late. Anyone who has read newspapers or watched TV has probably come across some sort of stories about the declining real estate market leading banks to consider real estate short sales as an alternative to foreclosure. Real estate prices have dropped dramatically, and the sell time has risen as well. Detroit is one such example of this. Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.
Banks undergo a real estate short sale when they let a property be sold for an amount of money that is less than what it is worth. The following two conditions must be met in order for the bank to approve such a deal. 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. The second condition is kind of obvious, but it dictates that the owners will be unable to continue making mortgage payments on the property.
Let’s look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. Additionally, the owners took out a second mortgage of 10,000 dollars, which brought their total owed to 227,000 dollars.
Remember that in five years the amount that the mortgages would have been paid off is negligible. In the same amount of time, the market values for similar properties are going for 215,000 dollars, while the adjustable rate has risen from 7 percent to 11 percent. Additionally, we end up with a real estate short sale situation once one of the owners has lost their job.
The bank may decide to save expenses and time delays that a foreclosure would cost by simply allowing a short sale. 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. If the lenders and owners do not agree on the terms of the sale, complications can result, but in general, that is how the real estate short sale works.
A real estate short sale is an unpleasant experience for an owner, but it is not the worst thing in the world. The methods may not be flawless, but it will beat having a foreclosure on the credit report. On the other hand, a truly savvy investor can take advantage of these short sales for excellent buying opportunities.