Rapid Real Estate Investing Results

Short Sale is a term that many media outlets are throwing around right now not really understanding what the term means.
The basics of a short sale in real estate are a mortgage lender accepting less than the full amount owed to payoff the note. Example: Current mortgage balance is $200,000. The owner has found a buyer for their home, but the only buyer they could find after having their home on the market for 6+ months was someone that is only willing to pay $175,000. Who makes up the other $25,000? Well, if the home is underwater by that much and the owner is not financially able to come up with the $25,000, the lender may accept a payoff for less than the full amount.

Why would a lender do this?
1) If the homeowner can not afford the house payment and it is headed for foreclosure anyway, it is actually less expensive in many cases for the lender to accept less than the full balance as a payoff.

2) Foreclosure is very expensive for a bank. I have seen some estimates that the bank expects to lose anywhere from $30,000-$40,000 on every home that goes into foreclosure. If they can find a buyer that is willing to pay $25,000 less than the full balance, they actually come out ahead by selling before the forclosure sale.

3) Once a home is foreclosed on and becomes an REO (Other Real Estate Owned on the banks books) the property is no longer properly cared for and begins to deteriorate very quickly. In fact, the longer an underwater homeowner stays in a home, the likelyhood of the home deteriorating while they are there goes up as well. If someone can’t pay their mortgage and knows they are going to lose the home in foreclosure anyway, what are the chances they are going to spend any of their hard earned money on keeping their house in good working order.

Someone heading for foreclosure is usually in a very bad place mentally. It is an extremely stressful time for the family and often times is caused by some major life event. Coupling that major life event, e.g. job loss, death in the family, major illness, etc, with the prospect of losing their family home can be extremely stressful.

I receive calls frequently from homeowners that are underwater. Some of them can be helped, others may just need to go through the foreclosure process. I am coming up with a way to handle more of these cases, but it is never the easiest type of deal to work.

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