Real Estate: San Diego Short Sales Explained

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My husband and I started doing short sales back in 2008. He had branded him self as the San Diego Short Sale Kid. He was very blessed to be mentored and still by 2 amazing local Carlsbad investors here who have done over 500+ deals. They taught us very well on SHORT SALES. A short sale is simple. If you have a property that's worth $150,000 and let's say it has a first mortgage for $100,000 and a second mortgage for $40,000-what that means is the total debt on that property, or the total mortgages, is $140,000. Being a real estate investor, I wouldn't want to buy a $150,000 house for $140,000. It doesn't make sense. A short sale is when you get the bank to not take $140,000, you get them to take less, like $85,000. The banks are going to do this for several reasons. First, they're going to have a lot of expenses that are associated with a foreclosure. They're going to have realtor's costs, foreclosure costs, holding costs, repair costs-they're going to have all sorts of fees associated with a foreclosure. Inevitably, the bank is only going to recoup somewhere around 70% of the value of the property. That's why banks will take short sales on foreclosures. The natural follow-up to that is, “Why are foreclosures such a hot commodity right now, and why is there a lot of buzz about them?”  The thing is that a lot of folks may recall this brief refinance boom we've been going through, which is important. People went out and got a lot of mortgages called “Adjustable Rate Mortgages,” which have an extraordinarily low interest rate to start, let's say 3% in some cases. But in a couple of years, maybe two to five, depending on the term of the Adjustable Rate Mortgage, their rate is going to go up, it's going to adjust upward.   So, people went out and bought more house than they could normally afford, or they refinanced, got the low payments, and bought a car that they couldn't afford if their payment had to adjust upward. What's going to happen here in the next two to five years is that all these ARMs are going to be adjusting upward, and that's critical because people aren't going to be able to afford them. They aren't going to be able to afford them because they didn't count on it, and because inflation is outpacing wage growth. All of this sounds great, but you may say, “How is that going to affect my business?” Here's the way it affects your foreclosure real estate business. If you're in a judicial foreclosure State, where properties that are in foreclosure go through a judicial process before a foreclosure is complete; or a non-judicial foreclosure State, where the properties go through a trustee as they're going through a foreclosure-you're going to see less and less equity in these properties. So if you know, like I said earlier, that banks are going to take…