Short Sales. In very simple terms of understanding, when a Seller with a mortgage wants to sell a property, the lender(s) is contacted and forwards a written payoff amount to the closing office and this amount is in listed on the HUD-1 as a payoff deduction. The Seller typically leaves with the difference between buy and sell or in some cases has to bring in few dollars. This is a typical sale. This amount is generally a huge discount from the total amount owed by the seller.

Now, in a case where the amounts owed on a property are higher (little or substantial) than the value of the property and or what the Buyer(s) is willing to pay and the Seller(s) cannot make any contribution to the difference, the deal cannot proceed and would not be able to close.

In this case the Seller(s), if elected to, could pay the difference and close the sale, or not and walk away. If this were a foreclosure situation, the lender(s) would generally take back a property that is worth less than what is owed (no other Buyers are interested).

Not good for the lender(s) for many reasons. Having too many non-performing loans doesn’t look good on the lender(s) balance report to the stockholders.

The lender(s) have to put up reserves of 8 to 1 for these non-performing loans until they are resolved. Meaning for a $100,000 loan, the lender(s) has to put the sum of $800,000 into reserves and cannot loan on this amount, thus not earning any interest on that sum of money, times the number non-performing loans, Ouch.

Now, if the lender(s) take back properties through a foreclosure action they are then assigned to the REO Department (real estate owned by the lender) and now there are many on going associated holding costs such as utilities, maintenance, commissions, carrying costs, taxes, legal fees, vandalism, HOA fees, closing costs and loss of earning interest potential.

If the market continues to erode and or if anything breaks and or needs repaired…when it finally sells, what is the true loss (major)?

To learn more about the amazing profits of short sales, please visit our website or contact us for more in depth information. Have questions…please contact us.