What is a Short Sale in Real Estate?

In today’s world of declined real estate prices and multiple foreclosures an often used option to avoid foreclosure is a short sale. What is a short sale in real estate? It is when the owner of a property sells for less than what he owes on the property. What is a short sale in real estate for the property owner? It is an opportunity to get out of perpetual mortgage payments and other property obligations. What is a short sale in real estate for the bank? For the mortgage holder a short sale is an opportunity to recoup part of the amount loaned on a property and avoid foreclosing on the property. A short sale requires that both property owner and lender agree to the process. In agreeing to a short sale the lender does not necessarily release the mortgage holder from the obligation to pay the remaining balance on the mortgage. For the individual learning how to start investing in real estate, being the buyer at a short sale can be profitable.

Besides being a vehicle for getting out of a property for which he cannot pay the mortgage what is a short sale in real estate for the homeowner? It as a means of avoiding the often disastrous credit rating that will ensue if the property goes through foreclosure. It is a means of avoiding the monetary costs and fees associated with foreclosure. It is a means of getting one’s cash flow back into sync with one’s current income. And, although the lender is not necessarily obligated to forgive part of the mortgage this sort of deal is often part of and the point of a short sale. The lender will commonly agree to a short sale as part of an agreement to reduce the residual mortgage amount owed by the homeowner. The mortgage holder recoups part of the loan and the borrower gets a fresh start without a burden of debt from a house he cannot afford. In looking at what are safe investments the lender will typically rewrite its lending policy so as not to entice buyers into unsustainable mortgage situations.

What is a short sale in real estate for a lender? In the recover phase of the worst recession in 80 years there are still banks and other lending institutions in trouble. The ability to recoup cash on mortgages gone badly can be the difference between a bank staying in business and going into receivership. The mortgage holder thinking of as short sale as an option should keep in mind the fact that many banks may well be in as much of a financial fix as he is. The mortgage holder should expect to bargain in setting up a short sale. Having professional representation in this matter is important as well. Because lenders are under pressure to deal with a historic number of defaults and foreclosures they have departments that deal with ways to reduce their losses on non performing loans. This department will typically want an appraisal or broker price opinion. Primarily they will want to see a firm offer on the property. When the owner has an offer in hand he is in a better position to deal with the lender and arrange for an agreed upon short sale, which will be in the best interests of both the owner and the lender. The now former home owner will have had a lesson in learning how to invest, which will hopefully stand him in good stead for years to come.

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