What Is A Real Estate Short Sale? By: Carol Bell

You may have heard the phrase "real estate short sale" being tossed around more and more lately. The media of late has put a good deal of focus on banks and other places of finance who are looking towards real estate short sales instead of foreclosures in a bad real estate market. Throughout the country, the prices on real estate have dropped and the time that is required to make a sell is on the rise. Detroit and similar regions are, it is fair to say, experiencing a full real estate market meltdown. It is because the market is so inhospitable that the need for short sale real estate has gone up so dramatically.

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. There are two conditions that must be met before a bank is likely to approve this: Number one, the property's sale price has to be incapable of covering the outstanding mortgage balance. 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. A five year span of time would result in a small amount of the mortgages actually being paid off. 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. Once one of the owners loses their job, the situation is ripe for a real estate short sale.

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. In general, this is how the real estate short sale works, though of course, complications through stubborn owners and lenders can arise.

A real estate short sale is an unpleasant experience for an owner, but it is not the worst thing in the world. A foreclosure, for example, would be far worse to have on your credit report. For the intelligent real estate investor, however, it can represent a great buying opportunity.

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