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Real Estate Short Sales-What You Must Know Before Taking This Option

What is a real estate short sale? This type of sale is one in which the property is sold for less than the amount of payoff owed to the bank. The bank will come up "short" in this deal, but believes that this is a more profitable way of removing the property from their books than a foreclosure would be. This type of transaction is often used by one who owes more on the mortgage than the home is currently worth. Those who are unable to make their mortgage payment for any reason can take this route.

With short sale on your real estate property, the bank must be approached to see if they will agree to abide by this transaction. This is usually done after a mortgage holder goes into default. When approaching the bank, the borrower or the borrower's Realtor must ask for and receive permission from the bank to sell the real estate at an amount that is less than the current mortgage. Although a bank wants the money owed to them, a short sale will benefit them as this avoids the foreclosure process which can be costly and time consuming. If a sale does not occur as a result of the foreclosure, the bank will become the property owner and this is something they most likely do not want.

When trying to decide which option is better for you, the advantages and disadvantages of each must be considered. When you foreclose on your home, the consequences will be felt for many years to come as your credit score will be negatively impacted. The property will be lost to you and the mortgage lender may be able to legally sue you for any money that was lost as a result of the foreclosure. This may include any cost the lender incurred as a result of the foreclosure action in addition to any arrearages that come up.

A real estate short sale allows you to sell your house for less with the approval of the lender. The sooner you do this, the better you will be in the long run, so don't delay. A short sale will still affect your credit, but the impact won't be as devastating as a foreclosure. In the past, the IRS also taxed you for any amount that was written off as a result of the home being sold in this manner. The Mortgage Forgiveness Debt Relief Act releases the homeowner on their primary residence from their tax liability.

When you decide to do a short sale on your real estate property, make sure you list with a reputable, experienced short sale Realtor and not to become the victim of fraud or a scam that can come in many forms, such as undisclosed payments or third party interest.

Flopping is a scam found with short sale real estate. With this type of scam, the lender approves the sale of the property based on a misrepresentation of the property value. The person committing the fraud makes an offer to the lender based on an artificially low property valuation. Higher offers are withheld even when there are for buyers who genuinely want the property. Once the short sale has been approved at the lower price, the person committing the fraud contacts the genuine buyers and tries to market the property to them at the actual property value. When someone buys at this price, the fraudster hides the extra money from the lender and pockets it.

Another scam to be on the lookout for in short sale real estate is predatory short sale negotiators. Here a company approaches a person who is considering a short sale and guarantees to get them the desired results for a percentage of the sale or a flat fee upfront. Often the seller receives nothing in return for this fee. Each state has different requirements when it comes to short sale negotiators so be sure you know what these are before proceeding. Protect yourself by learning all you can before committing to a negotiator of this type.

A real estate short sale is a viable option for many distressed homeowners looking to get out of their property and avoid foreclosure. Care must be taken when choosing this option though. It best to go through an experienced Short Sale Realtor that partners with an experienced Short Sale Attorney and deals with your mortgage company, so you don't have to, to get your real estate short sale approved and closed.