Michigan Real Estate

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You have probably heard the phrase “real estate short sale” and wondered what it meant. The popularity of real estate short sales in TV and other media can be attributed to financial institutions choosing them over foreclosure in a negative real estate market. In all parts of the country, real estate prices are down and the time it takes to sell properties has risen dramatically. Detroit is one such example of this. A real estate market that is not doing so well is the giving the need for short sale real estate opportunities to grow.

A real estate short sale happens when a bank lets a property be sold for less than the amount owed on it. In order for this to occur, two conditions must be met. Number one, the property’s sale price has to be incapable of covering the outstanding mortgage balance. Condition number two is that the owners will be unable to make any further payments on their mortgage.

Let’s look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. Additionally, the owners took out a second mortgage of 10,000 dollars, which brought their total owed to 227,000 dollars. Home owners typically have made only a negligible dent in the amount of money that has gone towards paying off their debt in five years. The house might also be in a part of the country where the market values have fallen to a low of 215,000 dollars and their interest rates have gone up from around seven percent to up around eleven percent. Add in the additional problem of one of the owners having lost their job, and you end up with a very likely real estate short sale scenario.

Rather than go through the expense and time delays that a foreclosure proceeding would require, the bank may decide that allowing a short sale makes more sense in the long run. It’s better to accept a definite amount of money right away, so that the property can be off the bank’s book, than to accept an unknown amount at a distant point in the future. In general, this is how the real estate short sale works, though of course, complications through stubborn owners and lenders can arise.

Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. Having to go through the experience is awful, but it is a lot better than having a foreclosure on your credit report. Real estate investors should understand that the short sales give them a wonderful opportunity to purchase property.