What Is A Short Sale? (Short Sale for Dummies version)

OK!  So my well versed investor who has turned about 7 properties with me in the past 4-5 years, e-mailed me back asking what a short sale is.

For those of you who are wondering about the same thing, here is my understanding of it: 

A SHORT SALE is when a bank agrees to sell the property for less than the amount owed on it.  If an owner goes into foreclosure, and the bank agrees to a short sale, the property is listed with an agent and posted as a short sale.  The bank looks over all the offers and accepts the most palatable one.  If the bank accepts a short sale, the foreclosure is not brought to fruition (it's stopped).  The owner does not garner a foreclosure on his credit record, or a deficiency judgment chasing after him for a lifetime (ouch, our state is a deficiency judgment state!)

Say the owner bought a property for $ 200,000, which is now only worth $ 150,000 on the open market.  If the owner put only 5% down (95% LTV) when he acquired the property, the amount owed on it is around $ 190,000.  If the bank agrees to take $ 140,000 for the property under a short sale, the bank loses the difference ($50,000 plus the cost of sale).  Losing money is not something banks like to do, but "cutting losses" is certainly a concept businesses and savvy investors comprehend.  It's not good, but it's the better of the two choices....  Foreclosures are expensive, and banks have less control over the outcome.  Short sales are sort of "the bird in the hand..." concept.

Is this simple enough? 

Your Myrtle Beach Real Estate Connection, Mirela Monte

http://www.myrtlebeachhomes.us/