A surprising number of people are using the phrase "real estate short sale" currently and that has drawn a number of curious people to wonder what all the commotion is all about. 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. BTW, I found a site about Valencia houses in Spanish: casa rural valencia. In all parts of the country, real estate prices are down and the time it takes to sell properties has risen dramatically. It is no exaggeration to say that some regions are experiencing a virtual market meltdown (the Detroit market is one good example). It is because the market is so inhospitable that the need for short sale real estate has gone up so dramatically.
A bank allows a real estate short sale to occur when the bank consents to letting their property be sold for an amount smaller than the amount owed on it. Banks typically want two qualifiers to be met before they agree to the sale. Number one, the property's sale price has to be incapable of covering the outstanding mortgage balance. A further condition is that the owners of the property must not be able to continue making mortgage payments on the property.
As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. 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. Home owners typically have made only a negligible dent in the amount of money that has gone towards paying off their debt in five years. It's also likely that similar homes have a property value of 215,000 dollars and that the adjustable mortgage rate has risen four points. Finally, add the fact that one of the owners has just lost her job and the makings of a real estate short sale situation become apparent.
For a bank, a foreclosure can mean a lot of time and money spent that a short sale would not. 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.
While a real estate short sale is an unfortunate and unpleasant experience for an owner forced to go through the process, it's not the end of the world. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. On the other side of the coin, it can often represent an excellent buying opportunity for the savvy real estate investor.
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Heidi Recto
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