Short Sales Explained

Any investigation into the real estate market in the United States today will have a person encountering some of the same terms over and over. One of those terms is "short sale". While short sales in real estate have always been a part of the landscape, they are more common today than ever before. Let's take a look at what the term means and why short sales have become more common.

The real estate game includes many players, the most important on the sales end being the house buyer and the bank. The majority of people cannot afford to pay cash for their homes of choice today, and that means they have to go through a bank or other lending institution in order to get the money to buy their homes. These mortgages are paid off over time, according to guidelines put forward by the lender and agreed to by the borrower.

When the borrower is in breach of the terms of the mortgage contract, or fails to adhere to the guidelines, the home bought with the money may become the property of the lender. No matter how much has been paid off on the loan, the mortgage must be completely paid off before payments can stop.

As you know from checking out the news over the last five years, more and more home owners find themselves in this situation. They are unable to make the payments on their loans, and are in danger of losing ownership of their property to the lending institution.

There are two options for the lender in this case. Either they can foreclose on the mortgage, claiming the property as the lender's asset, or agree to allow the owner the option of a short sale.

Short sales occur when the lender agrees to allow the owner to sell the property at less than what the actual amount of the outstanding loan is. The mortgage is forgiven when the entire amount of money from the sale is handed over to the bank, at the discounted price.

Both parties often find a short sale preferable to foreclosure. Lenders avoid heavy prices for taking on title of property in foreclosure, while owners are able to mitigate damage to their credit history.

Short sales obviously create an interesting scenario for those in the real estate market looking to buy. They allow people the chance to purchase property at a lower price, often a significantly lower price than would otherwise be expected. In today's market, short sales are more common than ever.