Benefits of Real Estate Short Sales
Filed Under Real Estate |
With the economy heading downhill, more and more people are hearing about real estate short sales. The concept of real estate short sales is not new to most experienced real estate investors but for a homeowner it is an eye opening concept worth knowing about.
Real estate short sales are particularly useful for homeowners with upside down mortgages. When your mortgage is upside down, you will often receive many sales letters enticing you to do a real estate short sale. What an upside down mortgage mean is that you owe your bank more than your home is worth. For example, if your home is worth only $100,000 and you owe $120k or $130k in mortgages then you are upside down.
What can a homeowner with an upside down mortgage do? Even if a home is sold, the proceed wouldn’t be big enough to pay off the bank. Then the homeowner will have to pay the difference between the sale proceed and the balance of his or her mortgage out of pocket. Depending on what that amount is, the homeowner may not be able to afford it and have to file bankruptcy or something serious like that.
Fortunately there are people, such as private investors, willing to do real estate short sales with the banks. Real estate short sales are homeowners’ only hope when the home is upside down. How real estate short sales work is that say Bob owes his bank $210,000 but his home is only worth $160,000. Then a real estate short sale is done for Bob and the bank accepts it. This frees Bob from all of his mortgage obligation. He wouldn’t have to pay the whole $210,000.
The drawback is that Bob will no longer be able to reside in his home. Although, real estate short sales save Bob from having to pay out of his own pocket and even save his credit, the real estate short sales do not save Bob from having to move out of his home. The real estate short sales are always done by third party buyers. The banks are particular about not letting homeowners stay in their home to avoid them pretending that they could not afford the mortgage payments when they could.
For a real estate short sales to be accepted, there must be a buyer who is not the homeowner. The buyer must be convincing enough to show the bank that it is in their best interest to accept the real estate short sale. For example, if the homeowner has lost his or her job, just gone through a divorce, has piles and piles of medical bills, then the bank is likely to see that if they did not accept the real estate short sale, they may end up having to foreclose on the home.
Real estate short sales are not always successful. Sometimes, real estate short sales are not accepted by the banks. This may be because the buyers and the homeowners have not given enough proof that the situations are bad enough. Sometimes, the banks feel that they can do better auctioning the homes off in foreclosure sales instead of going ahead with the real estate short sales.
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