What Are Real Estate Short Sales?

Posted on October 26, 2009
Filed Under Define foreclosure |

In many parts of the country, home prices doubled during the period from 2000 to 2005. During this same time, creative financing programs (e.g. zero down payment, adjustable rate loans, interest only loans, option ARMs loans, negative amortization loans, etc.) gained popularity and helped some people buy homes who would not normally qualify based on their income, debt level and credit history.

Most real estate markets are now cooling, and some are even experiencing declining prices. In times of dropping real estate prices, the amount owed on a loan by some homeowners may actually exceed the value of a property. If homeowners cannot make their monthly mortgage payment, there is a potential for default on the loan and foreclosure of the property by the lender.

The term “short sales” is used to describe a situation in which a homeowner is at risk of defaulting on their loan, and the lender agrees to sell the property below the original appraisal price in order to avoid foreclosure. Most lenders do not readily agree to short sales, although exceptional circumstances such as a homeowner losing his/her job or the death of a wage-earning spouse may make some of them more open to doing so.

If a property is sold as a short sale, the lender recoups at least a portion of the original loan amount, the homeowner avoids the stress and stigma of foreclosure, and the new homebuyer gets a property below its original appraisal price. If a short sale doesn’t work, then the property usually goes into foreclosure.

Short sales may be an emerging trend as the rate of foreclosure is rising dramatically across the nation. According to Business 2.0 Magazine, the top 10 foreclosures markets are:

1. Greeley, CO
2. Detroit, MI
3. Miami, FL
4. Indianapolis, IN
5. Fort Lauderdale, FL
6. Denver, CO
7.Dayton, OH
8.Dallas, TX
9.Fort Worth, TX
10.Atlanta, GA

The credit of homeowners may be impacted after a short sale, but it all depends on how the lender reports the outcome. Some lenders report a partial loan repayment as full payment of the debt due, which does not adversely impact the credit of the borrowers. Other lenders report the sale as “settled,” which adversely and significantly impacts the borrower’s credit. The other problem is that the portion of the loan amount forgiven by the lender may actually count as taxable income by the IRS.

In summary, a successful short sale has some potential positive benefits (e.g., homeowners avoid foreclosure, lenders recoup at least a portion of the loan amount, new homebuyers gets a property at below the original appraisal price, etc), but there are also many negative consequences. Some of these potential negative consequences include: the negative impact on borrower’s credit, negative impact on the value of other similar homes in the neighborhood, and that the amount forgiven by the lender may be taxable event. Homeowners having difficulty making their monthly mortgage payment may benefit from talking to a real estate agent who is experienced in short sales.

Real Estate Advisor
http://www.articlesbase.com/real-estate-articles/what-are-real-estate-short-sales-87103.html

Comments

5 Responses to “What Are Real Estate Short Sales?”

  1. Nuclear M on October 26th, 2009 10:38 pm

    How do i learn about real estate “short sales” without spending money to learn?
    I would like to know how to get involved with real estate "short sales"…I love customer service, but I want out of retail and the R.E.S.S. breed of service can save a lot of people a lot of money, as apposed to convincing them to spend more money as you so often find yourself doing in the retail environment. However, I don’t have money to spend on seminars, boot-camps and other such conveniences or money traps (should that be the case). I would really appreciate anyone who would be willing to take their time to teach me at no cost up front…and i have no problem arranging appropriate kickbacks for the kindness once I get going. Thank you in advance for your time.

  2. operababe_61 on October 27th, 2009 3:40 am

    Are you talking about representing sellers in a short sale? If so, you have to become a licensed real estate agent first.

    If you’re talking about buying properties that are being sold as a short sale in order to buy them cheap and flip them, there are a million books at the library. I read one called Millionaire Real Estate Mentor (or something close to that) that was pretty informative.
    References :

  3. teran_realtor on October 27th, 2009 3:42 am

    Before you go spending your time and money, let me fill you in on what a "short sale" is, and what it is not.

    A short sale is not… "Hey look! I was able to buy this house for less than what it’s worth!"

    A short sale is……."Hey look! My lender let me sell my house for what it’s worth, even though that didn’t pay for the mortgage that was owed! Wow, that was a lot better than the foreclosure that was about to happen."

    Hope this clears things up.
    References :
    14 yrs San Antonio Realtor

  4. satarnag on October 27th, 2009 3:44 am

    Read this book:
    ISBN-10: 0471760846

    and visit: http://www.reiclub.com

    Regards
    References :
    Satar Naghshineh
    satarnag@amirifinancial.com
    California Licensed Real Estate Broker and Investor

  5. John Rosa on October 27th, 2009 3:46 am

    You will likely come across dozens of properties in foreclosure with little or no equity, that is, the seller owes at close to or more than the property is worth. In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a "short pay" or "short sale."

    Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department.” More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.

    Now mind you if you are doing this for yourself (you as the investor), you do not need a license. But if you are trying to do it for others, you will need a license. Also consider investing with other real estate ventures as defined in the book below.
    References :
    Investing without Losing: The Beginner’s Guide to Real Estate Tax Lien and Tax Deed Auctions (ISBN: 0978834607) from Barnes & Noble

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