The Problems With Short Sales

A “short sale” can be used when the Owner of a piece of real estate has to sell it for substantially less than is owed to the Lender(s). It is sold “short” of the amount that is owed. Quite often the Owner of the high rise condominium is financially distressed and no longer meeting the mortgage payment and elects to sell the "real" property short rather than let it to go into foreclosure. Unfortunately, notwithstanding the best efforts of the real estate community, short sales continue to be tremendously difficult and frequently fruitless endeavors.

Why? After all, everyone should have great reasons to find a speedy solution. The Home Owner of course wants to get out from under a mortgage that they can no longer manage to pay for, the Lender should want to resolve to the affair since it is not receiving a monthly mortgage payment and certainly the Realtors involved would like to sell the home and secure the commission.

So why are short sales so tricky?

One of the reasons is a lack of communication. To get anything accomplished one must talk to decision makers.. We believe that if we talk to anyone but decision makers that we are wasting our breath. And one of the biggest troubles with short sales is that no one talks to a decision maker.

It is right that the Property owner of the condominium} technically is the decision maker as to whether or not he or she sells the property. However, in the situation of a short sale the Property owner has to get permission from his or her Lender to sell the property for less money than is owed. Frequently there is not only a First Lender but also a Minor Lender from whom permission must be obtained. To further complicate matters many times the Lenders are no longer the decision makers because they sold the note to another party (e.g. an airline pilot union's 401K plan - in the future referred to as Investor). So, whomever runs that fund has to be okay with the Owner of the home to sell it for less money than is owed the holder of the note.

Another dilemma certainly is confidence. Why should the Lender or Investor believe that the purchase offer on the table reflects the highest and greatest price feasible for the asset? After all, the Owner has forfeited any cash that he or she may have had in the property and they are giving up the piece of real estate also. It is clear to get why an Owner "just wants out" of the situation and will sell it to the first purchaser who shows up, in spite of of how low the offer happens to be. A higher price really just benefits the Lender or Investor and doesn't really help the Owner (apart from any subsequent tax issues which we will not focus on at this point). Moreover, in many cases the Lender/Investor has very limited knowledge of the "real" property specifically or the condition of the surrounding real estate market in general and has little cause if any to expect that a potential short sale is to its advantage. For all the Lender/Investor knows it could be smarter to reject the short sale and shove the asset into foreclosure.

Ultimately, in a normal market there is a more even balance of Buyers and Sellers than exists today. In a more typical market both parties stand to benefit to a reasonably comparable degree. The Owner gets to sell his or her residence for a profit and the Buyer buys a home that they are keen on with the expectancy that prices will appreciate (so the earlier they buy the better). Both sides benefit. Now, Owners are losing money when they sell their properties and Buyers are trying to buy real estate for below market value. A Lender/Investor can without doubt speculate if today is the smartest time to take the loss and permit the short sale or is it smartest to hold onto the piece of real estate until real estate moves to a more balanced condition.

So there you have it, short sales are exceedingly challenging to close because 1) the true decision makers, Buyer and Lender/Investor in no way speak 2) Seller's just want out of the deal and are quick to “sell” the property for less than market value 3) the Lender/Investor is generally ignorant of the condition of the property and particular market circumstances of the city 4) the Lender/Investor has hardly anything to profit from a short sale and may instead benefit from taking the "real" property back through foreclosure 4) Buyers, wisely, look for huge bargains and are cautious to pay "fair market value" presuming that fair market value can even be determined in today's nutty conditions.

Gang, we clearly advocate that investors look at homes that have previously been foreclosed upon OR even better, standard transactions (to be exact property owner selling without being under financial duress) instead of squandering time looking at and proposing purchases on short sales. With a foreclosure or a standard sale one actually know what you are getting into and you can rationally look forward to closing the transaction and get a great deal. Why go through all the trouble of "procuring" a short sale when there are superior alternatives? Telephone the experts at We Know Urban Realty for assistance digging up a impressive property that can really close.

Article Source: http://profitnb.com

The agents at We Know Urban Realty and www.WeKnowUrban.com/Short-Sales_Foreclosures_Distressed/ focus on the sale and acquisition of foreclosure houses in Phoenix, Scottsdale and Tempe. Phone them at (480) 510-8755.

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