Short Sale Condos
Short sale condos are everywhere in today’s market place. I keep hearing, short sale, short sale. What does it mean? A short sale is when a bank decides to accept less than what is owed on the condo. Why would they do that? There are so many instances today where the real estate was purchased for more than what it’s worth today leaving no equity when the condo unit sells. Let me give you an example.
A seller of a Miami condo bought the condominium three years ago at $200,000. They put 10% ($20,000) and financed the remaining 90% ($180,000). They now have a $180,000 mortgage at 6% interest for 30 years. Over the last three years they have been diligently paying their mortgage payment when all of a sudden the husband gets transferred and has to sell the condo. The couple outs the condo up for sale but they have no offers. It’s a year into the process when finally an offer comes in at $150,000. This is substantially less than what the couple bought the condo for but the condo market turned so dramatically that it actually is at today’s market value, a loss of 25% since 2006. What can the couple do?
The bank reviews the situation and realizes that the couple cannot afford the condo anymore. If they take the sale at $ 150,000, the couple will lose their $20,000 down payment and the bank will lose because the loan is at $ 170,000. The bank will look at all angles and in the end decide that if they take the condo back and foreclose on this couple, there may be more expenses involved than just simply taking a loss right now. So the bank ends up agreeing and the sellers close on the condo “short†of their mortgage amount. At the closing table the buyers purchase the condo at $150,000. The bank gets all of this money and the sellers are released from the loan. This is a negative on the sellers credit but the condo is now out of their hair, they have moved on with life and the bank has a new buyer for the condo.
Life is not great for the bank or the buyer, but it’s time to move on. Short sale condos can take forever if the bank drags its feet, but if you stick it out, it could be great opportunity to pick up incredible deals because of situations sellers have gotten themselves into.
