Short Sales

So what is a short sale?
A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount.

For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $290,000. You write an offer to the lender for $210,000, which is accepted as full payment for the loan. This is a short sale.

Why are they willing to take such a discount? Several reasons.

First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can sell the property without a huge loss, they will do it.

Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.

Foreclosures are at an all time high which translates into more opportunities for you to invest in real estate. Since foreclosures are increasing, this is the perfect time to jump into investing because there will be more and more lenders discounting properties. It is safe to say that most lenders will accept a short sale, however, you may come across one or two lenders who will not discount. If the numbers work out for the lender they will do it.

There are two stages within pre-foreclosure. The first stage being homeowners who are behind on payments and the second stage are those who are behind on payments with a notice of default. In order for this to work properly and for you to successfully get a short sale, you must find the homeowners who are in the second stage of pre-foreclosure or more than 3 payments behind on their mortgage. Once the notice of default has been recorded, banks become motivated, so you are more likely to get a discount. Until that time, very rarely will a bank ever discount a mortgage that soon. Why would they? The homeowners still have time to cure the loan and make up the back payments.

It does not matter what type of house or condition it's in, all mortgages can be discounted. The best properties to perform a short sale on are the houses that need lots of work and repairs because lenders will give you a bigger discount if they see they are "don't wanters". Properties that are over leveraged are also prime candidates. Most rookie investors who see a house over leveraged with an upside-down mortgage may think there is no hope for this property. On the other hand, this is a sweet deal to the savvy investor. Properties with large 2nd mortgages are also treated as gold because the 2nd mortgage is wiped out at the foreclosure auction. Lenders with a 2nd and 3rd mortgage position would rather have something than nothing.

Things to remember.....
     - Always get pre-approved before starting the process

     - Since the banks are taking 75 - 90 days to approve any short sale, make sure your inspection contingencies are to start on the day bank approves the offer NOT when the seller signs. 

     - There are hundreds of potential short sale  homes for you to consider.  Most are good buys.  You need to be prepared to wait 75 -90 days.  Patience is a virtue.

     - Realistically expect a minimum of 75 days to close. Some banks are taking longer and some are quicker.  You just need to be patient.

     - You ARE negotiating with the bank, NOT the seller.

     - The Seller will need to sign off on your offer, then the offer and required documents from the seller will be presented to the bank

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