Short Sales As An Alternative To Foreclosure By: Thomas Samden

It would not be surprising if you heard the phrase "real estate short sale" because it is a phrase which is being used more and more frequently. 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. The time it takes to sell a property is extremely high, and the prices on real estate have reached a considerable low. Throughout the country the crisis is so bad that many places are experiencing what is fair to call a market meltdown. This type of real estate atmosphere is the primary reason for needing an increase in short sale real estate opportunities.

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. In order for this to occur, two conditions must be met. The first condition is that market values must be in a state that the property's sale price cannot cover the outstanding balance on the mortgage. Secondly: The owners find themselves unable to continue to make 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. Two years after purchasing their property, the owners also took an additional mortgage out, to the price of 10,000 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. 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. Additionally, we end up with a real estate short sale situation once one of the owners has lost their job.

A foreclosure costs a lot of money and time delays that the bank may not want to waste, and thus, they might allow a short sale instead. This is because the banks believe it is better to accept a definite amount of money now than to wait on an unknown amount of money that may materialize 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.

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. The methods may not be flawless, but it will beat having a foreclosure on the credit report. For the intelligent real estate investor, however, it can represent a great buying opportunity.

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