What is a Real Estate Short Sale?

With the downturn in the real estate market, homeowners are finding themselves living in properties where they can no longer afford the mortgage. Compounding the problem, many of these properties are now valued lower than their loans. They owe more on the house that it is currently worth. Rather than going through foreclosure, many are opting for a different solution.

A real estate short sale occurs when the property is sold at a discounted price. A lender may agree to a short sale when the homeowner is far behind in payments and the lender wants to sell the property rather than start a lengthy foreclosure process. Also, the homeowner may approach the lender with the request when he or she is simply unable to make the payments. With variable rates rising, this scenario is affecting homeowners across the country.

The lender will usually agree to a short sale in order to avoid a foreclosure auction or bankruptcy. If a property goes into auction, the lender could lose money. Also, engaging in short sales avoids the potential of having excess inventory that is hard to sell or dealing with bad loans. The faster they sell the property, the better for them.

With the current real estate market crisis, buyers can take advantage of this opportunity to purchase property at a discount. Buyers interested in earning a living with short sales can find this a lucrative time. They should look for homes in the pre-foreclosure stage, where mortgage payments are behind or when a notice of default is issued. They should try for homes in the second phase because this is when lenders are most likely to discount the properties.

Buyers interested in short sales should try approaching the homeowner and have the homeowner sign an authorization to release form. Then, the buyer should set up a sales contract for the amount to offer the bank and let the homeowner sign it. Along with the offer, the buyer will need a letter which should include the reason why the buyer cannot offer the full price, a letter from the homeowner stating his or her financial situation, and a statement showing how the short sale will benefit the lender. The buyer should also show proof of income and a list any potential repairs the home will need.

With the current market, a lot of houses are sitting empty and lenders are losing money. A real estate short sale works for all three parties involved. The lender is not holding distressed or devalued property, the homeowner is free from a mortgage he or she can no longer afford, and the buyer receives a property at a discount.