“Let’s get ready to rumble!” In today’s schizophrenic real estate market, buyers and sellers may feel like hitting below the waist-line, head-butting, or biting off a portion of the bank’s ear in hopes that the bank will stop punching when the bell rings at the end of the round.

Consumers often ask, “What’s the difference between a short sale and a foreclosure?” The answer is simple. However, the process is about as similar as Mike Tyson and Liberace. A short sale is the process by which a homeowner is selling a piece of property and the debt is greater than the current market value. Example: Homeowner “X” purchases a property in August, 2006 for $500k with 10% down and finances $450k with a three-year adjustable rate mortgage (A.R.M.). Fast forward to March, 2009 and the property is now worth $250k and the A.R.M. is due to reset in August, 2009.

What’s the problem one might ask? For starters, the home will not appraise for the $450k that is due because the home is currently worth $250k, so a re-finance of the property is nearly impossible. In this case, the homeowner will typically contact a real estate professional to confirm the value of the property. Once the bad news has been confirmed the next step is to contact the bank in hopes that the bank will modify the loan or allow the A.R.M. to remain at the original rate, thus allowing the homeowner continued affordability.

However, many banks will allow the homeowner the option of listing the property as a “short sale” with a real estate professional at fair market value. Don’t be fooled by the term “short sale” because they typically take a long time to close escrow (3 – 6 months).

Part II coming soon….

Posted By: Doug Hecker