How A Short Sale Can Put Money In Your Pocket

With the current downward trend in real estate, and loans going into default at a rapid pace, there are sure to be an increasing number of distressed properties in most areas. Because of these lean times, the amount of defaults that will be happening will be at a record pace. There will be many homeowners that will panic, and don't know how to find a way out of their situation.

The good thing is, there is a strategy that sophisticated investors will use to purchase properties called a short sale.

A short sale is best defined as a type of home sale where the loan amount is worth more than the value of the property. To complete the sale the lender accepts an amount 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.

Why would a lender accept the terms of a short sale?

There are many reasons, but a big reason is that the note holder has decided that when the numbers are put on paper, it might be cheaper to accept less than the loan balance than it would to outlay the funds needed for an expensive foreclosure. By the time the lienholder spends the cash for associated foreclosure fees, it will probably mean more fees for lienholder, 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. A bank or loan company profits from lending money, and when a bank has to devote resources to holding property, there are fewer resources to lend out to prospective homeowners.

Not only does it work for a loan company, the sale also works out well for the owner of the home in question. The owner can feel at ease by paying off the loan and then does not have to deal with the possibility of foreclosure. This can allow the owner to move on without further damage to his credit profile. In several instances this can help the property owner avoid bankruptcy.

Lastly, the real estate investor is thrilled because it allows him/her to buy real estate under the market. The short sale is one of those rare transactions where everybody wins.