The Resurgance of the Short Sale

I'm seeing more and more information about Real Estate Short Sales and their resurgence in the past few months. Neither the real estate community nor consumers have seen much about this type of transaction since the real estate market has been so good in past years. But now all that's changed. As a record number of homeowners continue to struggle to make their mortgage payments, low property values make it impossible to refinance or sell, and foreclosure has been their most likely option. According to a report by the Mortgage Bankers Association, the number of Americans receiving foreclosure notices hit a record high this past Spring, with .65 percent of mortgage holders starting the foreclosure process in the second quarter of 2007. Short Sales are becoming a popular alternative to foreclosure for homeowners that are in a bind but want to avoid the financial and emotional impact that foreclosure will have.

Short Sales are actually very similar to a typical real estate transaction -

- Seller puts home up for sale

- Buyer makes offer on home

- Seller and Buyer agree to price and terms and are under contract

This is where the transaction changes. In a Short Sale, the lender must agree to take less then is owed for the mortgage if there is a proven hardship. It may sound crazy; agree to take less then the owed amount? Not so crazy when you see that lenders can lose up to 50 percent of the amount due in a foreclosure, so it's likely they're going to be more eager to use a short sale to handle the situation. Still, Short Sales require a lot of extra documentation, and did I mention proven hardship? Basically you need to prove that you're flat broke, which can be hard to do when you're up against the banks. And you do need to have a firm offer on the home before you can even address the possibility of a Short Sale with your lender. This in itself is difficult in today's sluggish market, but seasoned real estate investors are in search of "smokin deals" so there is some demand. Also, a Short Sale is not inexpensive. You'll need a real estate agent to handle the home sale, an attorney to negotiate with the lender, and a tax professional to help clear up all confusion and explain the repercussions. Simply put, a Short Sale is not for the faint hearted, but it may be some homeowners only alternative.