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What is a Short Sale and Why Do You Need to Know?
When I began my own journey into the realm of real estate investing, the jargon unique to the field was difficult to decipher. As an educator whose personal experience has proved invaluable to our students at the US Tax Lien Association - it’s important to me that I share I too had gaps in my knowledge - but with a fair amount of diligence, research, and curiosity, Saen Higgins and I got a foothold in a niche real estate investing medium. We even went on to develop a method that has brought financial success and security to us, and many others since.
While we focus a large portion of our instruction on property tax liens and tax deeds, it’s important to be familiar with the language of real estate at large. So today I have decided to dive into an interesting topic that many of you have likely heard of, but when quizzed may not be able to come up with a clear definition.
Do you know what short selling is? It was a hot term during The Great Recession. The Great Recession was a time of economic decline that began late in the year 2007. Largely generated by the decline in the housing market. Many homeowners found themselves owing far more on their home then it was worth due to the inflated home prices of the early 2000’s. This is what we call being ‘underwater.’ So once the United States economy slipped into a recession, a staggering amount of people found themselves drowning in debt, unemployed, or underemployed.
This is when we saw short sales become more commonplace again. With many homeowners struggling underwater, lenders could be convinced to accept proceeds that were less than the existing dollar amount of the mortgage from a sale. Depending on the terms the homeowners were able to work out with their lender, the balance of what was owed after the lender took possession of all proceeds, could be forgiven. In other circumstances the homeowner could still be held responsible for the outstanding debt.
Short selling can be a long and arduous process, as the sale needs to be approved by the lender before it can be completed. This adds another layer to an already intricate process, so patience is important. Short selling is favorable over foreclosure however. While it can still hurt a homeowners credit, it’s less likely to do so as badly as a foreclosure. It’s a better way out of a mortgage you can no longer afford.
Since the recovery period of The Great Recession the volume of short sale properties on the MLS has reduced considerably. I think it’s important to be aware of short sales because we are in the midst of another economic crisis. Short sales were a symptom of the last crisis, so do you think they will be a symptom of the current one as well?
As discussed in my last article the forecast for the residential real estate market is positive. Not to mention the current crisis was not driven by a housing bubble or the subprime mortgage disaster. As I write this, home sales aren’t slowing to typical winter rates and home values are still rising. We entered into this crisis with a strong residential housing market, and fortunately are seeing the end of it with much the same. This cannot be said for other industries, such as food and beverage, travel and leisure.
I’m sure you’re wondering how to get your hands on a short sale property, and if it is a good real estate investment strategy. That however, is a topic for another article. As always, thank you for reading.
Tony Martinez is the Co-Founder and Co-Chairman of the US Tax Lien Association, which is an organization that is committed and dedicated to helping others achieve total financial freedom through the power of investing in Tax Lien Certificates. With over 20 years of expert experience, Tony is the world's #1 authority on the subject of creating enduring wealth through the little know strategy of investing in Tax Lien Certificates, which gives anyone the opportunity to earn guaranteed fixed rates of returns of 18% – 36% interest per year, and acquire valuable real estate for approximately 10% of market value.