What is a Short Sale?

A Short Sale is an investment strategy in the pre-foreclosure arena. An investor can make significant profits when purchasing pre-foreclosure properties by discounting existing mortgages.

Essentially, the bank has begun the foreclosure proceedings which can take anywhere from 21 days to 120ish days (depending on which state you live in). The home has not been foreclosed on yet, but it is in the process of being foreclosed on.

The bank does not like it when it has to foreclose on a property because the property becomes a non-performing asset which means the bank must keep $7 for every $1 loaned. If the loan is $100,000, then the bank has to keep $700,000 on hand to protect the asset. That means they cannot loan the $700,000.00 that they could loan prior to a home foreclosure. It makes it difficult for the banks to continue lending and that is part of the reason why our economy is in such dire straits right now. Another example, in a home foreclosure that has $1,000,000.00 mortgage, the bank has to keep $7,000,000.00 in liquid assets (cash) in the bank that cannot be loaned out! That's 7 million dollars that, before the foreclosure, could finance several home loans.

In order to prevent a foreclosure to occur and to prevent the $7 for every $1 of a home loan to be tied up in the bank, the bank is willing to take a discount on the mortgage. That means, if the home loan is $100,000.00, the bank might settle the debt with an offer that is around 80% of the home value. In other words, if the home is actually worth $100,000.00, the bank might take $80,000.00 and settle a mortgage loan debt of $100,000.00.

Right now, in our current economy, homeowners are faced with the reality that their home is worth less than what they can sell it for. In this market, short sales are a very common way for a homeowner to sell his/her home if he/she needs to sell. Basically, the homeowner sells his/her home for less than what is owed with the bank's approval.

For more information on how you can learn more about short sales, how to profit from short sales, how to negotiate with the bank, how to contact prospective clients, how to effectively communicate and work with a seller, how to determine what to offer on a short sale, e-mail your contact information to simplehbb@gmail.com or call 1-888-217-5791.