Short Sale Basics for Real Estate Investors

If your Real Estate Investment activities involve pre-foreclosures, then you need to understand the short sale. Let’s take a look at the short sale and review what’s involved in putting one together.

A Short Sale occurs when a mortgage holder agrees to accept less than the amount due on the loan. Why would a lender consider a short sale? In almost all cases, a short sale allows the lender to get the property back more quickly at a lower cost. The foreclosure process includes many fees and possible delays. A short sale helps the lender cut his losses.

Short sale negotiations can be difficult to conduct. Just finding the right person to talk to can be a grueling process. Every lender will probably have a different department that deals with short sales, and negotiations can’t begin until you find someone who has the authority to make this kind of decision.

Different mortgage lenders require different documents for short sales. Document packages typically include a hardship letter, a purchase and sales contract, pay stubs, bank statements and other documents. The lender wants to know as much as possible about the seller’s financial situation. A hardship letter provides a narrative about the seller’s dire circumstances. In addition to the letter, there will also be plenty of paperwork designed to confirm that the seller is completely broke, is unable to make payments and has no assets or other sources of income.

The lender is also going to be interested in the sales contract between you and the seller. This is primarily to ensure that the seller isn’t profiting from the deal in any way. You, as the buyer, should be prepared to pay all of the costs associated with the property sale.

Whether or not a lender will accept a short sale offer depends a lot on the value of the property. During short sale negotiations, you should expect an appraisal or broker’s price opinion (BPO) of the property by the lender. They must determine the value of the home before they can make a decision on any short sale offer. If the home has a substantial amount of equity, they may prefer to foreclose and gamble on receiving a higher offer at auction.

They are more likely to approve a short sale when the home has little or no equity. In these situations, the lender may realize it’s in their best interest to accept a short sale, closing out the loan for an amount less than the total amount due. You can submit your own appraisal to the lender as well. To strengthen your case for a short sale, include any and all negative information about the property, the neighborhood and the local economy. If you can get a contractor’s bid for property repairs, include that too.

Lender approval of a short sale is not a sure thing, so don’t be discouraged if your offer is rejected. But if you have a knack for finding pre-Foreclosures that fit the right profile, you may want to specialize in short sales and leverage the power of duplication.

Mark Walters
http://www.articlesbase.com/real-estate-articles/short-sale-basics-for-real-estate-investors-95621.html

My coworker is in short sale with his lender. I am familiar with the Mortgage Debt Relief Act of 2007, but I don’t know if he is in short sale trying to sell the property, if the bank can foreclosure in the process. He is about 2 months behind on the notes. He has about 20 more days before he’ll be 3 months. Does the fact that he is in Short Sale agreement with the lender keep him from foreclosing? I told him it is better if he can get the short sale to occur rather than foreclosing.

Yes, if the lender agreed to a short sale they gave him a time limit to find a buyer. They will not do anything during that time limit as long as he is making payments. If he is not paying them they continue to ding his credit, but not foreclose.

However, performing a successful short sale is not as simple as it looks. You must put your best negotiation skills at work so that you could persuade the bank to accept your offer. Awkward attempts to short sell will mean losing the Real Estate Investing deal and your proposal will get rejected. In fact, there are two main components that determine your success in the short sale first, how prepared you are, and the second, how much control you have over the homeowner and the deal.

You must work out an effective game plan while you are submitting your offers. You need to be equipped with the necessary tools so that you could turn the NO of the bank into Yes. Consider the following factors in order to make your game plan strong and to ensure your success.

Judging The Profit Potentiality Of The Deal
You must be efficient enough to analyze and judge the profit potentiality of the short sale deal. Only then, will you be able to succeed in your real estate investing game plan. You must understand that not all deals are good short sale opportunities.

For example, homeowners facing foreclosure should not attempt at this deal. Before you decide to proceed, analyze the deal and review the property thoroughly. For example, how much will you need to spend for the repair of the short sale property; whether you will be able to find a potential customer for the same.

Performing The Short Sale For Mortgages
As soon as you have decided to short sale the mortgage, contact the mitigation department of the bank that handles properties in foreclosure. Try to convince the concerned authority that you want to buy the property so that you could help the homeowner with his foreclosure. Bid a relatively small amount saying that the real estate investing property is in very poor condition. Also, fax the sales contract for that amount, along with some very bad pictures of the property and an extensive list of repairs that you think is needed to bring the property up to a marketable condition. Now, wait for a few days.

It is very much likely that the bank will contact you to increase your bid to a much higher rate. Never ever accept the higher rate demanded by the bank rather increase the amount a little bit and make another offer, with more documents and pictures to support your offer. Keep trying to convince the bank that the real estate investing property is in very poor condition and you will be at a loss if you increase your offer more than what you have already offered. This way, after two or three rejections, your effort will be rewarded and the bank will accept your offer. Thus, performing a successful short sale for mortgage demands your patience and a firm strategy.

Then, performing a successful Short Sale does not just mean to submit an offer and wait for the bank to give you an answer. You must have a back up plan ready so that you know what should be your further course of action if you get a rejection. If you stick with the basics, it is not very difficult to turn a no deal into a moneymaking real estate investing deal.

James Klobasa
http://www.articlesbase.com/non-fiction-articles/short-sale-how-to-deal-with-a-noequity-deal-96885.html

Suzy explains the past tax consequenses of a Short Sale and how the new “Mortgage Forgiveness Debt Relief Act of 2007 H.R. 3648″ helps people trying to complete a short sale
More information at:
sccrealestateuncensored.com/2007/mortgage-forgiveness-debt-relief-act-2007/

micasamidinero.com/2007/mortgage-forgiveness-debt-relief-act-2007/

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Any one know how bad a short sale effects your personal credit? I talked with a gentleman who specializes in Short Sales and says it only effects your credit for about a year and up to 40 points. I have excellent credit, so that doesn’t worry me too much. I’m more worried that he is just telling me this to get my business. Thanks!

He’s just telling you this to get your business. A short sale is going to slam your credit file nearly as bad as a foreclosure will hit it. Furthermore, you may well receive a Form 1099 from the lender at the end of the year for the deficiency amount, and will have to claim that on your income as ordinary taxable income. Use caution before you proceed.