Short Sales

A short sale is the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. This home has to be in a preforeclosure status before a short sale can be allowed by the lender. Many lenders will agree to accept the proceeds of a short sale, which is less than the total mortgage, and forgive the rest of what is owed. When the owner cannot make the mortgage payments, accepting a short sale, can allow the lender to avoid a lengthy and costly foreclosure. For the homeowner, the loan is paid off for less than what he owes.

The strategy can offer a softer financial landing than bankruptcies or foreclosures, provided you survive the turbulence on the way down.A Short sale can take from 45 to 120 days to close. This inconsistency is often the down fall of a short sale, especially for a potential buyer.

Instead of proving your credit worthiness and financial stability, the bank asks that the homeowner must prove they are broke. The homeowner must be without cash flow, including savings, investments, trusts, liquid retirement funds or other finances to tap in order for the lender to even consider the short sale route.

Once you have shown the lender you do not have the funds to pay your payment and your status of making payments is a minimum of 30 days late, you can then approach the lender with an offer from a qualified buyer. A real estate broker can negotiate the short sale for you on your behalf.

If the market conditions are right this could be a great way to find equity in a home. The homeowners owe more then the home is worth because the market has shifted since they purchased their home. The real estate agent will negotiate a sales price that can be advantageous for both the seller and the buyer

Example

Home Owner A buys a home for $500,000

Home is appraised at time of purchase for $575,000

One year later

The market changes and the supply or inventory of homes is huge. Homes are just sitting on the market forever.

Home Owner B who lives across the street from Home Owner A decides he is going to sell his home. Home Owner B has lived in his home for 10 years. Home Owner B is relocating to a different state and needs to sell his home quickly. His home is nicer than Home Owner A, but since he needs a quick sale he sells his home for $450,000.

Other Home Owners in the area that have equity do the same. The market value of Home Owner A has dropped substantially because of the sale of these properties.

Home Owner A loses his job and needs to sell his home.

$500,000 - The Purchase of the home was done with 100% financing $25,000 - Pre-payment penalty $31,050 - Real Estate Agent Fees $556,050 = What he needs to sell his home at to break even.

Home Owner A hires an agent to Short Sale his home.

Home Owner A gets buyer for $380,000

Cash Buyer ends up getting the home for $400,000 after bank negotiations.

What does that mean for a buyer/investor

Short Sales

BIG SAVINGS !!!