The Long and Short of Short Sales
Posted on February 26, 2009
Filed Under foreclosure short sale investing |
A “short sale” happens when the real estate market will not support a price for property that is equal to or higher than the current ownersâ debt on the property plus any Realtor fees, taxes, and closing costs. The homeowner would have to bring money to the closing table to sell the home. Unfortunately, the most widely known
alternative is foreclosure.
Short sales are another alternative for the homeowner and they also provide opportunities for a savvy real estate investor.
Here’s an example:
Mark and Heather bought a home for $400,000 with 80 percent LTV (Loan To Value) financing. Later they opened a home equity line of credit and used the remaining value in their home of $80,000. A year later they decided to divorce, and Heather moved out. Heather stopped contributing to the mortgage payment.
Mark decided to sell the home and discovered the market value is only $380,000. So if they were to sell the house and get the full value of $380,000, they would have to pay the difference between the loans against the property and the selling price, in this case $20,000. They would also be responsible for any taxes, closing
costs, and any Realtor commissions, which could be as much as another $25,000. They donât have any money. Mark and Heather are in a “short sale” situation.
The lender or bank’s loss mitigation specialist estimates that a non-judicial foreclosure will cost Mark and Heather about $5,000. Plus there are $2,000 in property taxes due. The property is worth less than the mortgage and with these additional costs, the bank will suffer a serious loss.
With no money, Mark feels he is on a sinking ship and stops making the mortgage payments. Soon he is in a pre-foreclosure situation.
A real estate investor, Tom, approaches Mark and Heather and then the lien holder (the bank holding the mortgage) and offers to buy the
house for $290,000. Everyone agrees, Mark moves out and the closing takes place. Now the savvy real estate investor has a property with almost $100,000 of equity.
What happened behind the scenes is that Tom borrowed the funds to pay the bank from a private mortgage lender, Mary. Mary uses her
self-directed IRA to loan money to real estate investors. She earns a competitive rate of interest on the loan. Everybody wins.
A âshort saleâ is when no one gets the âshort endâ of the stick.
Travis Millward
http://www.articlesbase.com/real-estate-articles/the-long-and-short-of-short-sales-336508.html
Comments
7 Responses to “The Long and Short of Short Sales”
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How long are short sales taking?
My husband and I are first time home buyers. We are wondering how long are short sales taking?
Long time. Be patient, and be proactive.
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real estate attorney
It can be over a month before you get a response to your offer. Make sure your offer is subject to financing and a satisfactory inspection by a properly licensed home inspector. If the bank won't accept those conditions, walk away.
realtor.sailor
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I'm a Realtor
The banks really drag their feet on these sales, and might not respond to your offer at all!
I suggest developing other options in case your deal becomes a non-starter.
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They take from 90-120 days.
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i put in a bid in november and still waiting on the bank respond. i already heard from the homeowner.
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Lets see…I put an offer on a home on Jan. 2008, found out Dec. 2008 that it was going to auction the first week of Jan. 2009. Because the way the sheriff auction works in Lake County Indiana we lost the house to some individual. So we fought for a yr and ended up losing it anyway.
Be prepared…its a very emotional process, lots of ups and downs.
Make sure there is only 1 mtg against the home, or if they have 2, only deal if they are held with the same bank.
DONT DO BUSINESS WITH WELLS FARGO
Good luck
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