How to Do Short Sales on Apartment Buildings

Apartment buildings are going at short sales to prevent foreclosures.

Apartment buildings and other commercial properties are not immune to market conditions that put owners in default on mortgages. A commercial apartment building's property value often drops below the mortgage loan amount. Homes that aren't selling rent for less when property values fall, so an apartment building owner will not be able to charge as much for an apartment. Building maintenance, taxes and other costs often drive an owner into default. This prompts lenders to approve short sales and avoid the high cost of foreclosure.

Things You'll Need

• Commercial real estate agent

Instructions

1. Contact the lender once you have missed at least two monthly payments on the apartment building mortgage to put the loan status into pre-foreclosure. Lenders do not consider short sale options for an apartment building owner unless the loan is in default.

2. Ask the mortgage company or bank holding the mortgage for approval to sell the property for less than the remaining amount of the loan, or a short sale. Ask to be released from the remainder of the loan amount. Get a document outlining all agreements from the lender, including the lowest sale price they will accept.

3. Hire a real estate agent who is familiar with commercial real estate and short sales. Get the agent to list your apartment building and aid you in finding a buyer. The agent will draft a sales contract for you and the buyer that conforms to state regulations.

4. Advertise the building for sale under the term "Short Sale," to attract interest from investors looking for properties selling at below market value. Set the sale price within the lender's approved amount.

5. Contact the lender with all offers made on the property. The mortgage holder may accept an offer from an approved buyer for less than they initially stated in order to prevent foreclosure.

6. Attend the closing with your real estate agent. Give all proceeds from the sale of the building to the bank or mortgage company.

Tips & Warnings

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• Be aware of the other costs that may arise after a short sale. Some lenders will not excuse the remaining loan amount and take legal action to get it from you. The IRS considers any loan amount you are excused from paying as taxable income. Property taxes due are also still owed after a successful short sale.

References

• SF Gate: How Can You Short Sale Commercial Real Estate?
• Apartment Building- Short Sale Success Institute: A Guide to Investing in Real Estate
• New York Short Sale Center: The Largest Apartment Complex Faces Public Auction