"Real estate short selling" is a popular phrase among many these days. Real estate short sales serve as an alternative to foreclosures in an increasingly declining real estate market. Real estate prices are lower now than they have been in a long time and the amount of time it takes to sell a piece of real estate is rising.
It is completely valid to say that some regions - such as Detroit, for example - are experiencing a market meltdown. These declining real estate markets are the main reason for the rise in short sale real estate.
A bank allows a real estate short sale to occur when the bank consents to letting their property be sold for an amount smaller than the amount owed on it. In order for this to occur, two conditions must be met.
Firstly: Market values are such that the property's sale price cannot cover the outstanding mortgage balance(s). An inability to make additional payments on the property is the second requirement.
You might have someone who bought a property five years ago for the price of 217,000 dollars using an adjustable rate mortgage. Let's say that two years after purchasing the property the owners took out an additional 10,000 dollars second mortgage, which means that today the owners owe 227,000 dollars on the property.
Also, we have to remember that in five years, the amount of time that the mortgages have been paid off is negligible. We'll also imagine that the property value has decreased to 215,000 dollars while the mortgage interest rate has increased from seven to eleven percent. If we toss in the fact that one of the owners has just lost her job, we should realize that a real estate short sale is on the horizon.
For a bank, a foreclosure can mean a lot of time and money spent that a short sale would not. Banks do this because it allows them to accept a definite amount of money and because it allows them to get the property off their books. In general, this is how the real estate short sale works, though of course, complications through stubborn owners and lenders can arise.
Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. Having to go through the experience is awful, but it is a lot better than having a foreclosure on your credit report.
Real estate investors should understand that the short sales give them a wonderful opportunity to purchase property.
