What is a Short Sale Exactly?

CommercialInvestingCenter.comA few years back, before the foreclosure bomb exploded and laid waste to large swaths of the American public’s self esteem, the term short sale was rarely heard outside real estate offices. These days, a commercial investor with the time and tenacity to bird dog the process all the way through could find a cherry of a deal on a variety of properties going through the process of foreclosure. So exactly what is a short sale?

In general, a short sale describes a situation where a buyer inserts himself into the process of foreclosure, and strikes a sale agreement with the lender that precludes the foreclosure from going full term. The word short refers to the fact that the lender agrees to accept less money to get rid of it than is owed on the mortgage, essentially taking a loss.

A property becomes eligible for a short sale once the mortgage payments are at least two months in arrears. At that point, you have a good chance of finding a motivated seller desperate to get out from under the thing before any more financial damage occurs. How much of a discount can you expect from the lender for buying the house? That depends on the property, the lender, and what side of bed they woke up on that morning. A lender can easily decide they don’t want a short sale, even if it makes great sense to do so. There’s not much you can do in that situation except move on to the next deal.

Not everything that happens in the banking industry is reasonable or intelligent. If it were, the foreclosure disaster would never have occurred on such a massive scale. Regardless, a short sale on a property with a single mortgage could become profitable for a real estate investor with only a 10% – 20% discount. A property with multiple mortgages could yield overall discounts of 70% – 80%, which is a no-brainer for the investor.

Keep in mind that, though the term short sale implies a speedy process, that is not always the case. It can take three to six months to culminate, and deals often fall through at the last minute. It’s a good idea to keep several irons in the fire if you can afford to do so. We’re living in historic times, with buying opportunities that may not be seen again in your lifetime. Seize the day and enjoy the ride.

The Commercial Investing Center Team

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