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What is a short sale in real estate?

A short sale in real estate is when the bank takes a short or discount on the original mortgage note in exchange for a quick, cash sale. By discounting the note, the bank will create equity in an otherwise unattractive property and an investor or new home buyer will then be able to purchase an otherwise unobtainable property. The process of a short sale in real estate takes a great deal of time and effort from both the bank and from the REALTOR or investor working on the short sale, as they have to negotiate to determine the amount of discount that will be taken on the note.

Why would a homeowner want to do a short sale?

Homeowners that are behind in payments, have a house in need of repairs that they cannot afford to fix, or homeowners that owe more on the house than it is worth (the home is underwater) are the best candidates for a short sale. If the current economic condition of the house match the criterion listed above, then a short sale in real estate will be the only way to sell a house without going into foreclosure. A short sale is a better alternative than declaring bankruptcy and having their homes foreclosed on. The consequences of these two options can many times lead to lawsuits, ruining of credit, and even IRS problems. A short sale performed correctly by a real estate professional can alleviate a great deal of the stress and pressure caused by this situation, eliminate the lawsuits, and reduce any tax consequences.

Who benefits from a short sale?

A successfully negotiated short sale in real estate is a win-win-win for the homeowner, the bank, and the REALTOR or investor performing the short sale. The real estate professional will be able to create a profitable transaction. The homeowner going through the short sale is able to relieve themselves of the burden of the home without having to deal with a foreclosure, deficiency judgments, and even tax consequences. While their credit will be damaged and treated as a foreclosure initially, the homeowner will be able to improve their credit much quicker than if they had actually been foreclosed upon. In fact, according to FHA guidelines, a homeowner who has had a short sale on their credit report is eligible for consideration for an FHA home loan in as little as 2 years, provided they have steady income and have a history of paying their debt since the short sale occurred. The bank wins because they will be able to write off the bad debt (the home), accept a cash payment in return for the non performing asset, and release their interest in the property. Remember: Banks are in the business of loaning money, not in managing property.

   • What is a Short Sale In Real Estate?