Real estate short sales are not a new concept and you will hear of them more and more in our presently receding economy. Many experienced real estate investors have been practicing real estate short sales for years. For homeowners, it may be a new concept but is a very useful and interesting one.
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.
With real estate short sales, the lenders are willing to accept the amounts less than the actual amounts owed by the homeowners. For example, if Bob owes $200,000 in his mortgage payments and Bob cannot afford to pay them ongoing. Even worse, Bob’s house is valued at only $150,000. Bob has no choice but to do a real estate short sale or he would end up in a foreclosure or have to file bankruptcy. If the bank accepts a real estate short sale on Bob’s home, Bob walks away from the debt free and clear.
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.
For a real estate short sales to be accepted, there must be a buyer who is not the homeowner. The buyer must be convincing enough to show the bank that it is in their best interest to accept the real estate short sale. For example, if the homeowner has lost his or her job, just gone through a divorce, has piles and piles of medical bills, then the bank is likely to see that if they did not accept the real estate short sale, they may end up having to foreclose on the home.
Homeowners in the middle of real estate short sale deals should not rest assured because not all real estate short sales are accepted by the lenders. Some real estate short sales are rejected because the buyers are not experienced enough to do them right. Some times, banks feel that the real estate short sale offers are too low and prefer to foreclose and sell the homes in auctions instead of accepting the real estate short sales.
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