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“Real estate short sale” is a very popular concept at the present. If you read the newspapers, or turn on the TV and the odds are high that you will come across stories about declining real estate market conditions and the increasing willingness of banks and other financial institutions to consider real estate short sales as an alternative to foreclosure. The real estate crisis throughout the country has made the prices decrease and the sell time increase. Calling the current real estate market a complete meltdown would not be unfair in some cases, such as in Detroit. Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.

A bank allows a real estate short sale to occur when the bank consents to letting their property be sold for an amount smaller than the amount owed on it. There are two different conditions that must be in place before the banks will agree to this. Condition number one will likely be that the market values have to dictate that the property’s sale price will not cover the existing mortgage balance. A complete inability to make the mortgage payments must also be present for the bank to agree to the sale.

As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. Let’s also expect that two years after purchasing the property, the owners took an additional mortgage of 10,000 dollars which brings their debt to 227,000 dollars. A five year span of time would result in a small amount of the mortgages actually being paid off. The house might also be in a part of the country where the market values have fallen to a low of 215,000 dollars and their interest rates have gone up from around seven percent to up around eleven percent. We’ll also add the fact that one of the owners has just lost his job and it should be apparent that a real estate short sale situation is apparent.

For a bank, a foreclosure can mean a lot of time and money spent that a short sale would not. It’s better to accept a definite amount of money right away, so that the property can be off the bank’s book, than to accept an unknown amount at a distant point in the future. Those are the basics of a real estate short sale, though numerous complications can arise from having multiple owners and lenders not agreeing to a short sale terms.

A real estate short sale is an unpleasant experience for an owner, but it is not the worst thing in the world. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. On the other hand, a truly savvy investor can take advantage of these short sales for excellent buying opportunities.