What is a Real Estate Short Sale?

You may have heard the phrase "real estate short sale" being tossed around more and more lately. With the economy producing an increasingly awful real estate market, many institutions are looking towards real estate short sales as an alternative to going through with a foreclosure. The time it takes to sell a property is extremely high, and the prices on real estate have reached a considerable low. It is no exaggeration to say that some regions are experiencing a virtual market meltdown (the Detroit market is one good example). Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.

So, what is a real estate short sale? Well it's when a bank agrees to allow a property to be sold for less 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). A further condition is that the owners of the property must not be able to continue making mortgage payments on the property.

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 also expect that two years after purchasing the property, the owners took an additional mortgage of 10,000 dollars which brings their debt to 227,000 dollars. A five year span of time would result in a small amount of the mortgages actually being paid off. Further assume that the property is in a part of the country where market values have fallen to 215,000 dollars for comparable properties, and that the adjustable mortgage interest rate has recently increased from 7 to 11 percent. We'll also add the fact that one of the owners has just lost his job and it should be apparent that a real estate short sale situation is apparent.

Rather than go through the expense and time delays that a foreclosure proceeding would require, the bank may decide that allowing a short sale makes more sense in the long run. It's better to accept a definite amount of money right away, so that the property can be off the bank's book, than to accept an unknown amount at a distant point 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.

While a real estate short sale is an unfortunate and unpleasant experience for an owner forced to go through the process, it's not the end of the world. The methods may not be flawless, but it will beat having a foreclosure on the credit report. On the other hand, a truly savvy investor can take advantage of these short sales for excellent buying opportunities.

Tab Solon is an independent website builder who also owns various news sites on various topics such as http://www.legalmattersnow.info and http://www.businessissues1.info