Short Sale

Why would lenders accept less than is owed?

Short Sale: (This is it in a nutshell) It is when a homeowner is having economic hardship and has fallen behind on his payments. Then you as the buyer would contact the lender and negotiate to buy the house for less than what is owed on the property.

Why would the lender accept less than what is owed on the property?

Answer is simple: The lenders have a non-performing loan on their books; one that is heading towards the Bad Debt column. Lenders are not in the real estate business and they do not want to take back properties, especially with the number of foreclosures on the market already. It can be very expensive to foreclose on a property.

Think about it!

Here is a list of some of the expenses a lender faces in a foreclosure: 

• Legal fees
• Lost mortgage payments
• Keeping property insured
• Keeping utilities on
• Taxes
• Diminished value due to vandalism and neglect
• Auction costs
• Bad Debt expense on their books!!! (this is a biggie)

So is it possible to buy a home through a short sale? Yes!

Is it going to be easy probably not; my understanding is the Loss Mitigation Departments for most lenders are under staffed. And with Short Sales being a Real Estate Guru’s favorite topic lately I’m sure there is going to be several overworked and under paid mitigators’ not thrilled to hear from you. When you do find a lender that you click with do everything you can to nurture that relationship.

 

A Short Sale is not a quick process the lenders are going to want to make sure all the documents are in order. Buying a home this way can take anywhere from several weeks to several months.

With that said you can scoop up some nice bargains if you know what you are doing and are not looking to do these deals overnight.

If you chose to go down this path than my suggestion is to get a lawyer experienced in short sales; to purchase a short sale without an attorney is insane! I believe a realtor is required by all lenders (the reason is the property has to be for sale to the public which allows for fair market value to be determined) so make sure that the realtor is experienced in short sales because many are not.

I suggest you research and learn as much as you can about short sales before you venture into one of these deals.

And PLEASE!  Do your research without spending a fortune on a Short sale course with one of these Bogus Real Estate Guru’s.

 

Now I am not saying that all these people who sell real estate books and courses are bogus; there are some good one’s out there just not too many.

Think about how much money these Guru’s make selling books and courses and boot-camps. Regardless of how much time they say they spend on Real Estate. My gut tells me that they spend their time and make their money on Seminars and selling books, what do you think?

We will soon post a list of people we feel have something of value to offer. So keep checking back or be the first to know by signing up for our free newsletter. We will never sell or share your information. That way you don’t miss a beat!

In the meantime check out the library, try sites like bankrate.com or money magazine and cnnmoney.com. Search the web for reliable sites offering business information and then run a search on that site, don’t forget to try a bookstore.

If you decide to give Short Sales a try remember to always “cover your assets” by having professionals on your side (lawyers, realtors, accountants).

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Where to Begin?

A good place to start might be to make sure you have your financing in place. Even though it may take several weeks or months there is always the possibility of talking to the right lender at the right time: who wants to close on the deal quickly and you may have to come up with the money in 30 days. And you don’t want to lose out on a great deal because you were not prepared.

After that the process flows like this here is a brief outline of what is involved in a Short Sale.

• Locate the property – you are searching for pre-foreclosure, they can be found for free at your local courthouse or in the legal notices in your local newspaper. There are also paid services like Realtytrac and Foreclosure.com and others that can provide this information to you. And of course your local realtor (who is experienced in short sales).

• Find out what is owed on the property- Compare what is owed to what the house is worth. Lenders are more flexible when the amount owed is high in relationship to the market value. (Those are the properties you want to find).

• Go see the property – There are some fools out there who will tell you they buy properties without looking at them. I want to see what I am spending my money on no matter what it is, how about you?

• Research and Evaluate- Who is the primary lender, how many liens are on the property, what repairs are needed, how much will they cost, what is the house worth now, how much will it be worth after the repairs (this is known as the ARV – After Repair Value) you want a detailed breakdown of the repairs needed and the amount of money it will take to fix them. You are now an artist painting a very dark but realistic picture for the lender to justify the low offer you will make.

• Get an Authorization Letter from the Seller – This letter must be notarized and what it does is grants the sellers permission for the lender to speak to you about the property.