Why are
there an increasing number of Short Sales?
Buyer's
irrational exuberance during the peak of the real estate
market is probably the single most contributor to the number
of short sales. The rest come primarily as a result of risky
mortgages such as Interest-only, ARMs(Adjustable Rate Mortgage)
& sub-prime loans.
What
is a Short Sale?
A
short sale is negotiated with a mortgage lender by the property
owner or by a real estate agent on behalf of the property
owner in a distressed financial condition to prevent a property
going into foreclosure. This usually occurs when an owner
cannot afford to make monthly payments & owes more on
the property than it is worth because of property depreciation,
overexuberant home equity loan funding or income loss. If
approved by the bank, this has benefits to not only the property
holder but also potential buyer & the lender.
Short
Sale Benefits
Buying
Short Sale Property
PROS
Due to the situation
there is a high probability of buying the property below
market value, in some circumstances much below.
You will be helping
the owner get out of their property without the headache
& difficulty of the foreclosure process.
CONS
You must be patient!
The offer must be accepted by the bank, not just the owner.
Cash
is King; Even though it may take longer for your offer
to be processed & accepted, the bank will want to
close as soon as possible once it is, to prevent further
expenses. A cash offer will also make it more likely
the bank will accept your offer for anything less that
the list price.
The
Home Owner PROS
If approved by the
bank for this type of sale, the home owner is typically
forgiven for the difference between the selling price
& what is owed on the mortgage.
They alleviate the
need to file for bankruptcy or having a foreclosure on
their credit history.
They
typically do not have to make mortgage payments or pay
taxes while the property is listed.
CONS
Currently the home
owner will have to pay Capital Gains Tax on the amount
forgiven on the loan. Please speak to a tax consultant
for more information.
The
Lender
PROS
They don't have to
Foreclose on the property. Believe it or not this is the
last thing a bank wants to do.
They don't have to
maintain the property - the homeowner essentially lives
for free while listed.
They don't have to
worry about reselling the home themselves as in the case
of a foreclosure. This is almost always handled by a local
Real Estate Agent
