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You have probably heard the phrase "real estate short sale" and wondered what it meant. If you read the newspapers, or turn on the TV and the odds are high that you will come across stories about declining real estate market conditions and the increasing willingness of banks and other financial institutions to consider real estate short sales as an alternative to foreclosure.

Real estate prices have dropped dramatically, and the sell time has risen as well. Calling the current real estate market a complete meltdown would not be unfair in some cases, such as in Detroit. Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.

A real estate short sale happens when a bank lets a property be sold for less than the amount owed on it. In order for this to occur, two conditions must be met. Firstly: Market values are such that the property's sale price cannot cover the outstanding mortgage balance(s). An inability to make additional payments on the property is the second requirement.

Let's look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. Two years after purchasing their property, the owners also took an additional mortgage out, to the price of 10,000 dollars. In a five year time span, the amount the mortgages would have been paid is negligible. Further assume that the property is in a part of the country where market values have fallen to 215,000 dollars for comparable properties, and that the adjustable mortgage interest rate has recently increased from 7 to 11 percent. Once one of the owners loses their job, the situation is ripe for a real estate short sale.

For a bank, a foreclosure can mean a lot of time and money spent that a short sale would not. The reason for this is that the banks believe it is better to get the property off their books and accept a smaller amount of money they are guaranteed to get than to accept an unknown amount in the future. Those are the basics of a real estate short sale, though numerous complications can arise from having multiple owners and lenders not agreeing to a short sale terms.

Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. The methods may not be flawless, but it will beat having a foreclosure on the credit report. Real estate investors should understand that the short sales give them a wonderful opportunity to purchase property.