What Is A Real Estate Short Sale?

You may have heard a lot recently about the so-called “real estate short sale.” You may also have asked yourself: “what is a short sale?” Certainly, with the increase in mortgage delinquencies and foreclosures, there have been many more short sale investing opportunities.

A short sale is sometimes called a pre-foreclosure sale, and that describes one aspect of it. It is a house sale that takes place before foreclosure is completed, and thus it avoids the property going into full foreclosure. The reason it is called a “short sale” is because the money paid for the house is short of the amount that is owed on the mortgage.

You may be wondering why any lender would agree to such a deal. After all, they are legally entitled to get the whole outstanding amount that is owed on the mortgage. The way they would normally do this is by foreclosing on the house, and then selling the house for more than the debt. However, normality has taken a backseat recently, with the plummeting house prices, and many houses are not worth the amount that is owed on the mortgage.

As a result, the short sale may be the practical answer for the lender to minimize his or her losses. It has been calculated that every house which goes to foreclosure costs the lender more than $50,000, with legal costs, the paperwork and the reselling, etc. If the lender can instead sell the house for a little less than is owed, he may find that an attractive proposition. It also provides money for him more quickly than foreclosing, and then trying to sell the property.

In case you were thinking that this is a good way to pay less for your house than you owe on a mortgage, then you should be aware that a real estate short sale can only be made to an unconnected third-party, and not to your Uncle Charlie who could then sell it back to you and thereby reduce your debt. The advantage to the present owner is that he can avoid foreclosure and consequently he ends up with less of a blot on his credit record. From the standpoint of those looking at getting into short sale investing, it represents a way to make a significant income per actual dollar invested.

Till next time,

Dave Oswald

David Oswald (aka 'The Diamond') is a National Real Estate Short Sale and Foreclosure Expert who speaks throughout the United States on Creative Real Estate Investing Strategies. For more information, go to www.DavidOswaldOnline.com