By: Seomul Evans
Submitted: 2009-09-12 19:02:52 | Word Count: 618
When a real estate mortgage lapses due to non payment of the amortization, the lending bank may foreclose on the property. The owner therefore has two optional courses of action: simply pay the outstanding amount and redeem the property; or sell the house then pay the outstanding balance, in order that he may derive something from the proceeds. When the first option is not possible, which is the better option, then the second option becomes vital. This is where the pre foreclosure short selling of the property becomes an avenue of benefit to the owner.
Pre foreclosure is that time when the payments have not been paid, but the bank have not as yet initiated foreclosure proceedings to obtain the property and satisfy the mortgage. Short sales is when the bank is convinced to accept an amount less than that owed on the property, in order to liquidate the receivable quickly. Short selling is thus very similar to buying off the mortgage from the bank, but at a ‘discounted’ rate.
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The present economic squeeze has accelerated the rate of foreclosures, or the number of people falling behind on their amortization payments are growing more and more each day. Most house mortgages lack equity since they were bought with creative loans, interest only loans, or loaned 100 percent of the cost. If the property is sold prior to foreclosure the owner then obtains some equity on the proceeds to enable him to start a new life somewhere else.
Short sales are most often performed by agents and brokers who deal directly with the bank. The brokers’ market consists of rehabilitation agents or real estate developers. Rehabilitation agents spruce up the property and sell to retail buyers, mostly homeowners in search of their first home or just transferred to the place. However, most retail buyers experience difficulty in getting loans to purchase their homes, so that market is tight at present.
According to Bent Twyford, a broker doing short sales, the better market is the real estate developers. At least they have the necessary capital to perform the development on the property, either to lease them out as rental property or sell them. It is thus easier to sell to the real estate developers at the present times.
Short selling benefits the real property owners in another way. If the mortgage is redeemed, no report of foreclosure is appended to the owner’s credit report. A foreclosure report pulls down the credit rating of an individual by as much as 175 points, which is considerable. If a short sale is consummated, the entry in the report may be ‘mortgage satisfied’, ‘satisfied by short sale’ or simply ‘satisfied’. Such an entry simply indicates the owner was able to redeem the mortgage, without specifying the method.
If you have a real estate mortgage in danger of being foreclosed, there are a number of caveats that are important. First, banks are in the business of lending, not accumulating property. Therefore they will do the best they can to be relieved of the property for foreclosure and liquidate the would be asset. Short selling is one of the better ways of doing that, because all parties benefit. The bank disposes of the property in a profitable way (a significant percentage of the outstanding payable is interest charges and penalties that can be waived by the bank); the agent or broker earns something, while the owner gets some money out of the transaction and no negative entry in his credit report. This money would enable the owner to start somewhere with something, perhaps capital to buy a smaller house or invest in a business. The alternative would have been loss of the property without anything in return.
