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When Is A Short Sale the Best Option

More and more these days, as the foreclosure situation shows few signs of letting up, homeowners are turning to short sales hoping to stop foreclosure and salvage their credit. The past several years have seen an exponential increase in the number of short sales across the country. 2008 is shaping up to be what many experts predict may be the worst year yet for foreclosure filings with short sales increasing proportionally.  This article will explore what a short sale is, how the process works, common causes, and the conditions that need to be met.

What is it?

In the simplest terms a short sale occurs when a home or property is sold for less then the amount owed on it.  Getting a bank or lender to agree to this is another matter entirely and its success largely depends on how well the seller and buyer work together to convince the lender or bank that a short sale is in their best interest.

Possible Causes Behind The Increase In Short Sales

There are many causes behind the increase in short sales, most of which with a little foresight may have been easily avoided. The most common uncontrollable reasons include, but are not limited to, death in the family, job loss, divorce, and long-term illness. Other reasons, most of which are the result of poor judgment and could have been controlled, include divorce, taking out excessive equity loans, and inexperienced real estate investors and speculators. That last reason is viewed by many to the main culprit behind the current foreclosure crisis. As real estate values were growing at a record breaking pace these individuals, mostly driven by greed, jumped in with both feet and started buying homes at a frenzied pace. This action caused home prices to artificially inflate to dangerous unsustainable levels until ultimately the market turned south.

What Conditions Must Be Met?

Getting a short sale approved is no slam-dunk by any means. Banks and lenders don't like to lose money…period. However, banks and lenders don't want a home back either. Certain conditions have to be met prior to a short sale being approved. Without a doubt the most important condition involves the homeowner being able to prove they are unable to make the current mortgage payment. A well written hardship letter by the homeowner goes a long way towards convincing the lender that a short sale may be their best option.

The other, but no less important, condition must be met by the buyer. They have to write an offer based on the balance of the loan, current market conditions, and any funds left over from the sale for the current borrower to pay back.

One important thing to keep in mind is this process will take patience as some short sales can take weeks or even months. The better prepared the parties involved are the faster the process will happen.

As you can probably tell by now short sales are only going to increase in the near future as foreclosure filings reach their peak. I cannot stress enough that as the situation worsens time becomes of the essence. Homeowners wishing to stop foreclosure by attempting a short sale must understand that taking action at the earliest signs of trouble is of critical importance. Investors hoping to buy a short sale property and turn a profit have to be able to move fast if they hope to turn a decent profit.