With the economy heading downhill, more and more people are hearing about real estate short sales. The concept of real estate short sales is not new to most experienced real estate investors but for a homeowner it is an eye opening concept worth knowing about. There are no need for real estate short sales if homeowners do not have mortgages larger than the worth of their homes. You can say that real estate short sales are invented to help homeowners get out of the upside down mortgage situations. When a homeowner is upside down, he or she owes the bank more than he or she can sell the home for. If a home is worth only $100,000, for example, then the homeowner cannot afford to pay off a mortgage that is more than that amount. He or she is basically "upside down." What can a homeowner with an upside down mortgage do? Even if a home is sold, the proceed wouldn't be big enough to pay off the bank. Then the homeowner will have to pay the difference between the sale proceed and the balance of his or her mortgage out of pocket. Depending on what that amount is, the homeowner may not be able to afford it and have to file bankruptcy or something serious like that. What all homeowners with upside down mortgage need are real estate short sales. With real estate short sales, the lenders are convinced to accept lower than the amounts owed. Say, Bob owes his bank $150,000 for his first mortgage. Bob's house is now worth only $100,000. A real estate short sale is done and Bob's bank is willing to accept $100,000 instead of demanding $150,000. You can see that Bob would be happy to not have to pay the extra $50,000 he owes. The downside is that Bob cannot stay in his home. With real estate short sales, homes must be sold to third parties. This is because if Bob's bank knows that Bob can only afford to pay what the home is worth, then the bank will not be lenient about the extra $50,000. Besides, what's to stop people from pretending that they cannot afford the mortgage payments to deceive the bank if it were that easy to do. Real estate short sales are not that easy to do. The third party buyer has to send many letters to the bank convincing them that the homeowner is really in trouble and cannot pay his or her mortgage payments. Usually banks don't want to have to foreclose on the homes or deal with homeowners filing bankruptcy so they are likely to want to consider real estate short sales. Loss of jobs, medical bills, and divorces are great evidence in favor of real estate short sales. Homeowners in the middle of real estate short sale deals should not rest assured because not all real estate short sales are accepted by the lenders. Some real estate short sales are rejected because the buyers are not experienced enough to do them right. Some times, banks feel that the real estate short sale offers are too low and prefer to foreclose and sell the homes in auctions instead of accepting the real estate short sales.
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