How do Short Sales Work?

There is a booming market developing in Real Estate called the short sale. An out product of untrustworthy loan granting, liberal equity loans, a decrease in real estate values, and a sluggish job market, many people are stuck in houses they can no longer afford to keep. In essence, their loan is more than the value of their house. They feel stuck between the rock ( aka the bank) and a hard place (aka their finances).

The solution is called a short sale. The term “short” does not mean quick or less time. It means “short” as in less money. For one reason or another, the bank is not going to recoup the amount of the loan on a sale. That is a given. It is going to come up short.

The last thing a bank wants is another foreclosure. They do not want the hassle of putting the property on the auction block and getting pennies on the dollar. They can not afford to assume that much loss over and over again. The bank officers know this and their desire is to get rid of these problematic properties as fast as possible. A short sale, or agreeing to say two-thirds of what is owed is a viable solution. If someone owes you a $100, wouldn’t you prefer to get back $75 or $80 now and walk away than to wait for months and then only get back $25? Of course you would, especially if you had loaned twenty or thirty folks each $100. That is the way banks see the situation as well. With so many foreclosures being plopped on their doorsteps, the bank officers would relish the thought of accepting payment in full upfront on a short sale. In fact, short sale is the preferred method used by banks to liquidate property

The amount of foreclosures and pre-foreclosures are on the rise at an alarming rate. It is not going to slow down anytime soon. Now is the time for a savvy investor to step in, negotiate short sales, fix up and flip houses. If you can get a once valued at $400k house for a short sale price of $309K, put in $15K of repairs and sell it for $370K, thus making a $46K profit, would you do it?

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