Real Estate Investing: Investing in Short Sales

     If you don't know what a short sale is, ask your agent. In the mean time I'm going to try and explain it for you. A short sale is the sale of a piece of property that is sold for less than what is owed on the property. The proceeds of the sale are much lower than what must be paid back on the mortgage. This usually happens when a borrower cannot pay their mortgage, so they decide to sell it for what they can instead of foreclosing. They would rather take a loss than foreclose.

     The process: Both parties agree to the short sale process in order not to completely be sunk. They avoid a foreclosure with is a mess in itself. There are hefty bank fines, credit score annihilation, and social embarrassment.  However, this doesn't mean the borrower isn't responsible for paying back the rest of the loan that they still owe. This is known as deficiency.

     The bank or lender also agrees to discount the amount owed due to knowing the economic hardship the borrower is going through. Once the debtor sells the property for less than the outstanding balance of the house, they return the proceeds over to the lender.

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