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  • Sunday, July 25, 2004 @ 02:39 PM EDT
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What is the definition of short sale and how is it done?

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    alegrier25th July, 2004

    A Short Sale occurs when a lender agrees to a discounted payoff of a homeowner's current mortgage. For example, let's say that a property has a mortgage balance of $150,000 and it's current appraised value is $160,000. You as the investor can agree to purhcase the property from the homeowner for $125,000. You would negotiate with the lender in an effort to get you offer accepted. If the negotiation is successful then you would have discounted the current mortgage by $25,000 and created $35,000 in equity. Short Sales are an excellent strategy if you are interested in buying property at a discount and if you do not have much cash to work with. Once the bank accepts your offer you have two main options to profit from the deal.

    1. Purchase the property by getting your own financing for $125,000.
    2. Selling it to another investor to make an upfront profit. The benefit to this scenario is that you can sell the property to another investor or homebuyer for a discounted price and still make a nice profit. This exit strategy would not cause you to take out a new mortgage or use your own credit.

    Short Sales typically occur when a homeowner is facing foreclosure or delinquent on their mortgage payments. The benefit to the homeowner is that they can avoid a foreclosure and stop any further damage to their credit. The benefit to the lender is that they do not have to keep a bad loan on their books or go through the trouble of foreclosing and putting it back on the market.

    If you would like to learn more about short sales then check out TCI's various resources.

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