What Is Real Estate Short Selling By: je Dunn

The term 'real estate short sale' is being bandied about more and more as of late. With the economy producing an increasingly awful real estate market, many institutions are looking towards real estate short sales as an alternative to going through with a foreclosure.

Real estate prices have dropped dramatically, and the sell time has risen as well. Detroit and similar regions are, it is fair to say, experiencing a full real estate market meltdown. Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.

What is a short sale, you might ask? A real estate short sale is the name given to the process where banks allow properties to be sold for less than the amount owed to them. In order for this to occur, two conditions must be met.

Number one, the property's sale price has to be incapable of covering the outstanding mortgage balance. A complete inability to make the mortgage payments must also be present for the bank to agree to the sale.

For instance, an owner might have used an adjustable rate mortgage to buy a home for the price of 217,000 dollars five years ago. We'll also pretend that the owners had to take out a second mortgage for 10,000 dollars, which means that their total mortgage debt was 227,000 dollars.

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. If we toss in the fact that one of the owners has just lost her job, we should realize that a real estate short sale is on the horizon.

Banks typically go with a short sale because it can save them both expenses and time delays in the long run. The reason for this is that the banks believe it is better to get the property off their books and accept a smaller amount of money they are guaranteed to get than to accept an unknown amount 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.

Having to go through the experience is awful, but it is a lot better than having a foreclosure on your credit report. On the positive side, it can represent a great buying opportunity for the smart real estate investor.

More info on Real Estate Short Selling and Real Estate investing

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