» What is a Short Sale? » Posted by Realestator      

Many people keep hearing the phrase and are asking, “What is a Short Sale?” Depending on the area you are interested in purchasing in, many homes that are going into foreclosure will have mortgages that are more than the property is worth. This situation is called being “upside down.”

When a homeowner finds themselves in this situation, they have very little recourse. If they place the home on the market, and they owe more than it is worth, then they will have to make up the difference between what they sell it for and what they owe the bank out of their own pocket. Also, they must pay the realtor if they sell it the traditional way. Obviously people who are losing their homes because they can’t afford the mortgage don’t have the money to do this.

This is where an investor can come in and help a homeowner. With the Foreclosure Buying Method, you were dealing directly and only with the homeowner. The technique used was that there was some equity left in the property to either give the seller money to walk away with or split 50/50 with them. In a Short Sale, there is no equity, so you will be dealing directly with banks that hold the mortgage notes on these properties.

If the bank ends up foreclosing on a property, then that situation is called an REO (Real Estate Owned) - owned by the bank. Bank’s don’t want to own property - they’re in the business of selling mortgages. When a home ends up being REO’d, the bank now has to sell the property, a time consuming and costly venture for them if the home doesn’t sell quickly and sells for less than the mortgage balance they had on the property. Banks are ending up taking huge losses right now with the large amount of foreclosures that are occurring in the marketplace.

So what this means for an investor is when you find a seller in pre-foreclosure, you will ask them to sign an Authorization to Release Form so that you may speak directly with their bank(s) and review their loans.

Now that you know what a short sale is, my next post will deal with how to negotiate one.

For more real estate investing information, visit the realestator’s website at www.real-estate-investing-support.com

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» Posted in Buying Methods, Uncategorized on May 26, 2008.

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