When considering what a Short Sale is, the most obvious situation that crosses our minds is the Short Sale which is quite a common term that you hear often in connection with Property Mortgages. A Short Sale is generally closely associated with what is known as a Foreclosure. Since these situations more or less are linked together, we need to know exactly what is meant by both terms in order to get a proper understanding of the relevant mechanism and the tricks of the trade as a whole.

A Short Sale occurs when a third party buyer (an Investor) manages to buy a mortgaged property from the lender at a discount. It should be clearly noted that the Investor is buying direct from the Lender and not from the Borrower (Mortgagor) who may still be in occupation of the property concerned. But let us analyze how and why this happens.

If and when a borrower starts to falter on his monthly mortgage loan re-payments to a lender, initially a warning may be issued and if the borrower still does not cure his loan, then a Notice of Default (NOD) will be served by the lender on the borrower and action initiated to evict the borrower from the property and take back possession and absolute legal ownership of the property for himself. However, the lender is well aware that it is a costly and time-consuming process.

Even though he may ultimately get a court order in his favor, the property has to go for foreclosure auction, where the chances of obtaining a good price are rather remote. Further, after the lender pays the auctioneer's fees and other various forms of fees and taxes on the transaction, he may be left with hardly anything for himself for parting with his property for good.

Due to these circumstances, a smart Investor may be able to convince a lender in to parting with a property at a discount, far below the prevailing market value. But why does a lender agree to sell a property at a discount?

The main reasons are that the lender (most probably a Bank or a Financial Lending Institution) takes into consideration the total money he had received from the borrower up to the time of default in deciding on the extent of the discount that could be given to the new investor.

Besides, the lender could save himself a lot of expenses and delays associated with the other alternative of a foreclosure, where he would have to bear the costs of legal fee, costs of repairs in case of possible damage to the property when it is left in a state neglect during a long period and costs associated with a re-sale after re-possession of the property.

This process of re-possession itself comprises of eviction of the mortgagor from the estate, which could be further delayed by the borrower filing bankruptcy with the resultant very long time taken for proving same. In the case of a Short Sale, the lender converts the property to cash very fast in contrast to a foreclosure where he has to sometimes wait indefinitely to dispose of the property in addition to having to bear a host of additional costs.

Another reason for the lender to decide in favor of a quick sale rather than a prolonged re-possession process is that unlike in a trading business, a financial businesses such as a Bank does not wish to carry excess inventories with corresponding bad debts in their books over long periods. In this context the lender may have nothing to lose in giving the discount to the prospective buyer (investor).

The borrower too may be relieved of the agony of an unredeemable debt weighing on his head without any prospects of a better solution to his problem in the foreseeable future. As for the Investor, he is likely to be the person who will be greatly benefited from this Short Sale.

The role of the Investor in a Short Sale is easier said than done. There are several steps involved in the approach of a lender and negotiations that have to follow, obtaining the required documentation from the borrower including the deep of ownership (most important), a 'hardship letter' etc., and attending to property ownership transfer formalities to be finalized before the lender could be finally persuaded to part with the property at a discount. Further, it should be obvious that you are not the only investor who will be eying this sort of situation with the idea of striking a gold mine.

In the present scenario, there are several businessmen who are increasingly entering the fray to grab the kill with foreclosures now at an all time high, which means more and more opportunities for smart investors to move in and collect the booty.

However, the one who locates and moves fast to the scene of the default and completes all the infrastructure work ahead of others amidst numerous difficulties and obstacles is likely to be the winner who takes it all. Theses aspects surrounding a Short Loan forms different subject matter altogether; and will be discussed under the relevant topics elsewhere.

There is a right way and a wrong way to get your web page in the public arena.

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