What Are Real Estate Short Sales?

With the economy heading downhill, more and more people are hearing about real estate short sales. The concept of real estate short sales is not new to most experienced real estate investors but for a homeowner it is an eye opening concept worth knowing about.

When a homeowner is upside down in his or her mortgage, he or she will often hear people pitching real estate short sales to him or her. An upside down mortgage is when a homeowner owes the bank more than the home is worth. If the home can only be sold on the market for $100,000, for example, the homeowner is upside down in his or her mortgage if he or she owes more than that amount.

The problem with an upside down mortgage is that even if the homeowner is willing to sell his or her home to pay off the bank, it is still not enough to be free from the debt. The proceed is not enough to pay off the mortgage and the bank will come after the homeowner for the difference. This causes major financial disaster for the homeowner.

What all homeowners with upside down mortgage need are real estate short sales. With real estate short sales, the lenders are convinced to accept lower than the amounts owed. Say, Bob owes his bank $150,000 for his first mortgage. Bob’s house is now worth only $100,000. A real estate short sale is done and Bob’s bank is willing to accept $100,000 instead of demanding $150,000. You can see that Bob would be happy to not have to pay the extra $50,000 he owes.

One problem is that Bob cannot stay in his home after the bank accepts the real estate short sale. In other words, Bob cannot do the short sale himself. This is because if Bob shows that he could afford some payments then the bank is less likely to want to forgive the debt. Too many people tried to con the banks into accepting less than what they owe even when they are not in financial trouble at all.

In order for real estate short sales to be accepted, there must be third party buyers who convince the lenders that the homeowners cannot afford to pay what they owe. This often includes proving that the homeowners are in bad financial situations such as loss of jobs, medical bills, and divorces. Many convincing letters will need to be sent to the banks.

Real estate short sales are not always successful. Sometimes, real estate short sales are not accepted by the banks. This may be because the buyers and the homeowners have not given enough proof that the situations are bad enough. Sometimes, the banks feel that they can do better auctioning the homes off in foreclosure sales instead of going ahead with the real estate short sales.

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