What is a "Short Sale"

Samir Rafeedie — Thu, 16 Apr 2009 16:18:00 GMT

As most of us know, home prices skyrocketed in 2004 and 2005. By the end of 2005 the feeding frenzy came to a holt. Those that thought home prices where going to continue to climb where in for a surprise. Instead of continuing to rise, many homes in the country have dropped in value, some dropped as much as 50% or even 60% Yet those that bought homes at the inflated prices or refinanced their homes during the boom now find that they owe more against their home than what the home is worth. If they want to sell their home (and many have to because they can't afford the home any more, for various reasons, whether it be loss of job or interest rate increase) they're finding that they can't get enough to pay off their existing mortgage(s). Now the banks have a decision to make. Do they foreclose on the home and then try to put it on the market at the much lower value, or should they allow the owner to sell the home at the lower value and accept the lower proceeds as full payment for their loan. Banks have found that they actually net more money if they allowed the owner to sell their home at the lower market value and accept whatever the proceeds are as full payment for the loan. In addition, banks now don't have to deal with the maintenance of the home, the legal aspect of the foreclosure, or the possible liabilties connected with the home. So they accept a payoff "short" of the amount owed to them. Thus you have the term "short sale".

Market Update

Samir Rafeedie — Thu, 16 Apr 2009 15:56:00 GMT

Are you seeing it? I am. There are more buyers coming out of the woodwork now that home prices and interest rates have dropped to near record lows. Some are finally realizing it's cheaper to buy a home than it is to rent. Many people have had to face the unfortunate situation of losing their home, either to foreclosure, or have had to sell their home on a "short sale" ( see article "What is a Short Sale" to learn what it is). as a result they now have to rent. Investors are finding rental rates are going up so they're buying investment properties. This will soon cause home values to start climbing again. No i don't expect to see prices to shoot through the roof like they did in 2004 and 2005 but before long we will start to see a bottoming out of home prices and then values will begin to climb. Where will you be when that happens. I hope you're not sitting on the sidelines watching. This is the time to get into the market. If you have reasonably good credit, 620 FICO score or above, you may be able to buy now. Don't wait.