How To Do A Short Sale

With the economy turning downward, and the rapid rise of sub-prime loan defaults, properties ready to go into foreclosure are sure to be on the rise. Because of the increasing amount of people not being able to meet their loan obligations, the amount of defaults that will be happening will be at a record pace. 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.

The short sale is the sale of a home 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 mortgagor accepts the price of the sale as the full and entire payment.

But what would make a mortgagor accept a short sale?

There are so many causes, but the main one is that a lender may feel that in the long run, that it would be less expensive to accept a dollar figure under the note value than it would to spend the money to initiate a foreclosure proceeding on the property. A mortgage holder will figure that by the time the fees are paid to initiate a foreclosure, it may the cost the lender more money in court fees, attorneys, etc., than to just agree to an offer for the home that is below loan value.

Also, the last thing a bank wants to do is have to take back property they have lent upon. A mortgagor plies his trade by having money to loan, and when a lending institution has to take back property, there are fewer dollars to lend.

In addition to making the lender's life easier, selling short also makes sense for the property owner. The homeowner can pay off the mortgage and gets to avoid a big mess with an impending foreclosure. This can allow the owner to move on without further damage to his credit profile. In a lot of cases the short sale can help a person stay out of bankruptcy and move on with their life.

Last but not least, the short sale works for the investor because it allows him to purchase a home at below market value. Apply this sophisticated technique to your next eligible deal and you'll be happy too.