Are Real Estate Short Sales Right for Me?
When the economy is bad, more people cannot afford their mortgage payments and real estate short sales become more common. The idea of real estate short sales is quite new to most homeowners but it is not new to real estate investors. Real estate short sales benefit both the homeowners and the home buyers and maybe even the banks.
There are no need for real estate short sales if homeowners do not have mortgages larger than the worth of their homes. You can say that real estate short sales are invented to help homeowners get out of the upside down mortgage situations. When a homeowner is upside down, he or she owes the bank more than he or she can sell the home for. If a home is worth only $100,000, for example, then the homeowner cannot afford to pay off a mortgage that is more than that amount. He or she is basically “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.
One problem is that Bob cannot stay in his home after the bank accepts the real estate short sale. In other words, Bob cannot do the short sale himself. This is because if Bob shows that he could afford some payments then the bank is less likely to want to forgive the debt. Too many people tried to con the banks into accepting less than what they owe even when they are not in financial trouble at all.
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.
Filed under: Sales