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Real Estate Short Sale By: Eddy
Ever wonder exactly what the currently popular phrase "real estate short sale" means? 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. It is not unfair to label the current real estate market one that is undergoing a market meltdown in many cases, and Detroit is one of those. The rise in short sale real estate can be directly linked to the declining market.
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. The following two conditions must be met in order for the bank to approve such a deal. Firstly: Market values are such that the property's sale price cannot cover the outstanding mortgage balance(s). Condition number two is that the owners will be unable to make any further payments on their mortgage.
As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. 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. A five year span of time would result in a small amount of the mortgages actually being paid off. We'll also imagine that the property value has decreased to 215,000 dollars while the mortgage interest rate has increased from seven to eleven percent. 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.
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 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. Numerous complications to the process that can arise, such as when multiple owners and/or multiple lenders cannot agree to the terms and conditions of a sale - however, in a nut-shell, that is the gist of a real estate short sale.
Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. 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.
Eddy is webmaster for Investing In Real Estate
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. The following two conditions must be met in order for the bank to approve such a deal. Firstly: Market values are such that the property's sale price cannot cover the outstanding mortgage balance(s). Condition number two is that the owners will be unable to make any further payments on their mortgage.
As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. 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. A five year span of time would result in a small amount of the mortgages actually being paid off. We'll also imagine that the property value has decreased to 215,000 dollars while the mortgage interest rate has increased from seven to eleven percent. 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.
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 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. Numerous complications to the process that can arise, such as when multiple owners and/or multiple lenders cannot agree to the terms and conditions of a sale - however, in a nut-shell, that is the gist of a real estate short sale.
Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. 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.
Eddy is webmaster for Investing In Real Estate
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