There's No Magic In The Short Sale Process

With home sales trending downward, and changes happening in the lending market, there's no doubt that distressed homes are becoming increasingly prevalant. With so many homeowners having difficult financial times, loans are quickly going into default. Many of these homeowners don't know what to do, and cannot be expected to do the right thing without some assistance from someone who knows what to do.

Fortunately, there is a little knows technique that many real estate investors use to profit from real estate, and also to help distressed property owners, called a short sale.

Short sale refers to a property that is sold where the loan amount is worth more than the value of the property. The mortgagor accepts a sale amount that is under the amount 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 several reasons, but a big reason is that the note holder has decided that when the numbers are put on paper, it would be a better deal for the lender to agree to an amount less than what the loan is worth, than it would to spend the money to initiate a foreclosure proceeding on the property. By the time the lienholder spends the cash for associated foreclosure fees, it will probably mean more fees for lienholder, than to just accept a bid for the property that is under loan value.

Also, the last thing a bank wants to do is have to take back property they have lent upon. A lender is in business to lend funds, and when a mortgage company has to hold foreclosed assets, there are fewer resources to lend out to prospective homeowners.

Not only does it work for a loan company, the short sale also makes sense for the homeowner. The homeowner can pay off the mortgage and does not have to fear foreclosure. This can be a boon to the property owner who needs good credit to move on with his life. In a lot of cases the short sale can help a person stay out of bankruptcy and move on with their life.

Lastly, the real estate investor is thrilled because it allows him/her to buy real estate under the market. The short sale truly benefits all parties.