Are you 'upside down' with your real estate investment? Or to put it another way, are the outstanding loans on your property greater than what you could get if you sold the house or property in today's real estate market? If you are in such a situation it is possible to make a 'short sale' and cut your loses before they grow bigger. Here is a step-by-step guide to making a successful short sale on your real estate:

1. Verify the value of your property

If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value. If you are selling the property yourself, do your own market analysis of the area and your property.

2. Add up all the costs of selling the property

If you are using the services of a real estate broker, the broker will provide an estimate of closing costs. If you are selling the property on your own (for sale by owner), call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

3. Determine the amount owed against the property

This will be the total of all loans against the property.

4. Do the calculations

Subtract the total amount owing against the property from the estimated proceeds of the sale. On a short sale, this will be a negative number.

5. Contact the lender or lenders

Talk to someone in the customer service department and tell them the situation. They may direct you to a specific department. Talk to a supervisor or manager if possible; this person will have more authority.

6. Ask the lender what its procedures are for a short sale

Some lenders are willing to work with you by reducing the amount owed or making other arrangements. Others will look to the agents involved (if any) or anyone else who's making money from the transaction to see if they are willing to make concessions to make the transaction happen. Still other lenders will tell you that your debt is your responsibility, one way or the other.

7. Sell the property

Tips & Warnings

Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.

If you sell the property without the assistance of a real estate broker, you will save the amount of the commission and have more to apply toward paying off your loan.

If you feel more secure having a real estate broker handle the transaction, consider using a discount broker to market your property. You could also try to negotiate the sales commission with your broker.

Remember that the amount on your monthly loan statement does not include interest. Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you'll need to include this interest in the total payoff amount.

And, two more important points:

1. If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or a collection.

2. The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income. Check with your accountant.

Follow this step-by-step guide and you will be able to make a successful short sale on your real estate. If you need help, then contact a capable broker or real estate agent.

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