For Those That Ask, "What Is A Short Sale?"

With home sales trending downward, and many people having difficulty with keeping their loan current, properties ready to go into foreclosure are sure to be on the rise. Because of these lean times, an extraordinary amount of defaults will be ocurring. Several homeowners will throw up their arms in disgust, and cannot be expected to do the right thing without some assistance from someone who knows what to do.

The good thing is, there is a strategy that sophisticated investors will use to buy distressed homes called a short sale.

A short sale is kind of property sale where the market value of the home is less than the balance of the mortgage on the home. The lender agrees to a purchase price that is lower than the outstanding balance of the loan. The lienholder agrees that the sale price will be the full payment for the home.

But what's in it for the lender?

There are lots of reasons, but the largest reason is that the lienholder may decide that in the whole scheme of things, it would be a better deal to take a below balance offer than it would to outlay the funds needed for an expensive foreclosure. By the time the mortgagor outlays funds for foreclosure fees, it may the cost the lender more money in court fees, attorneys, etc., than it would be to sell the property for an amount less than what the loan is worth.

And more than that, a mortgagor does not want to own real estate. The lender makes money by loaning money, and when a company's money is tied up in assets like foreclosed properties, there are fewer resources to lend out to prospective homeowners.

In addition to making the lender's life easier, the sale also works out well for the owner of the home in question. The homeowner is allowed to pay off the debt of the mortgage and gets to avoid a big mess with an impending foreclosure. This can be a boon to the property owner who needs good credit to move on with his life. In many cases, the short sale can even save the homeowner from going into bankruptcy.

Last but not least, the short sale works for the investor because it allows him to purchase a home at below market value. Although the short sale is not well known, you now have a working knowledge of it to increase your bottom line.