Real estate short sale is an unpleasant experience for an owner
The term 'real estate short sale' is being bandied about more and more as of late. 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. Real estate prices have dropped dramatically, and the sell time has risen as well. Detroit is one such example of this. Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.
Banks undergo a real estate short sale when they let a property be sold for an amount of money that is less than what it is worth. 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. The second condition is kind of obvious, but it dictates that the owners will be unable to continue making mortgage payments on the property.
Let's look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. Additionally, the owners took out a second mortgage of 10,000 dollars, which brought their total owed to 227,000 dollars.
In a five year time span, the amount the mortgages would have been paid is negligible. Let's also believe that the property is in a part of the country where the market values have fallen to 215,000 dollars for similar properties, and that the adjustable mortgage interest rate has risen from seven to eleven percent. Additionally, we end up with a real estate short sale situation once one of the owners has lost their job.
In avoiding time delays and expenses, the bank will probably decide to go with a short sale. 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. This is generally how a real estate short sale works, though there are other complications that can arise from having owners and lenders not agreeing to the terms of the sale.
A real estate short sale is not a very pleasant experience, but it certainly isn't the worst experience they could have. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. These short sales can give the smart real estate investor a great buying opportunity.
Banks undergo a real estate short sale when they let a property be sold for an amount of money that is less than what it is worth. 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. The second condition is kind of obvious, but it dictates that the owners will be unable to continue making mortgage payments on the property.
Let's look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. Additionally, the owners took out a second mortgage of 10,000 dollars, which brought their total owed to 227,000 dollars.
In a five year time span, the amount the mortgages would have been paid is negligible. Let's also believe that the property is in a part of the country where the market values have fallen to 215,000 dollars for similar properties, and that the adjustable mortgage interest rate has risen from seven to eleven percent. Additionally, we end up with a real estate short sale situation once one of the owners has lost their job.
In avoiding time delays and expenses, the bank will probably decide to go with a short sale. 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. This is generally how a real estate short sale works, though there are other complications that can arise from having owners and lenders not agreeing to the terms of the sale.
A real estate short sale is not a very pleasant experience, but it certainly isn't the worst experience they could have. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. These short sales can give the smart real estate investor a great buying opportunity.
posted by Credit Counseling at
4:07 AM
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