What is a Short Sale ?

Let’s first cover what the definition of a short sale is.

A Short Sale is when the bank agrees to accept less than what’s owed on a mortgage foreclosure that is secured by real estate.

To get a Free Foreclosure Investing Course, Go Here What is a short sale

Benefits to the Seller of the property

The seller wins by avoiding foreclosure by selling their home before the foreclosure auction even if they owe more than its worth.

If sellers were to sell their home foreclosures the traditional real estate transaction with a realtor without a short sale, typically they would have to bring tens of thousands of dollars to the closing to sell their own home. This is not an option for them because they are in foreclosure and don’t have any money.

Sometimes they are able to get some moving money out of the deal where they would get nothing if they lost the home back as a bank foreclosure. A bank foreclosure is also known as an reo.

Benefits to the Lender

The Lender wins because they are getting some of their bad debt paid off and are decreasing the amount of foreclosures and reo properties they have.

You see, when a lender has delinquent loans on their books, it affects how much money they can lend out in new loans because they are regulated by the FDIC. So the more bad loans they can get rid of, the more good loans they can then go ahead and acquire. This is why they have the Loss Mitigation department to help the bank liquidate their foreclosure listings.

Also by taking a home to auction, the lender will lose 35-50 thousand dollars.

So it’s a huge cost savings to them to do short sales before the auction occurs.

Benefits to you the Investor

The investor wins because we get to make a great profit on a home while offering free foreclosure listings to our buyers, most of the time in the area of 25-200 thousand dollars, that we have invested little money in, have not had to put our credit at risk and we don’t have to rehab the property.

Most of the time we are able to get these properties at 60 cents on the dollar and they are in great condition. I have acquired foreclosures through short sales in bad condition for as low as 28 cents on the dollar. That means I was able to acquire a home for 28 cents on the dollar by doing a short sale with the lender. You can’t buy hud homes for that much of a discount.

The information of how to short sale a home benefits everyone:

It benefits Realtors because in today’s market Realtors are getting tons of listings with no equity and they can turn these dead leads into strong commission checks that they wouldn’t get without knowing how to help their sellers out with a short sale.

It benefits investors because they are getting a lot of leads now from sellers that owe more than their house is worth. The only option for them is to do a short sale.

And the short sale business for investors is awesome in this market because you don’t have to make payments on the house, you don’t have to make repairs to the home, you don’t have to put your credit on the line to do the deal and you make a huge profit just for structuring the whole deal. The best part is you can control large luxury style homes while generating exponentially more profit than starter homes without any risk. You make ten times more profit on a luxury home than a starter home and its that same amount of work and still no risk.

Home Foreclosures are at an all time high and it is your time to get in the game and help out some needful homeowners while make a boatload of cash along the way. Short Sales need to be a part of every investor’s real estate investment strategy in today’s mortgage and housing market.

Why Would a Lender Do a Short Sale?

There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale."

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

If you are considering buying a short sale, there could be drawbacks. For your protection, I suggest that all borrowers:

• Obtain legal advice from a competent real estate lawyer
• Call an accountant to discuss short sale tax ramifications

As a real estate agent, I am not licensed as a lawyer nor a CPA and cannot advise on those consequences. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.

Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect.

• Call the Lender
  You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want the supervisor's name, the name of the individual capable of making a decision.
• Submit Letter of Authorization
  Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
• Property Address
• Loan Reference Number
• Your Name
• The Date
• Your Agent's Name & Contact Information
• Preliminary Net Sheet
  This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.
• Hardship Letter
  The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
• Proof of Income and Assets
  It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
• Copies of Bank Statements
  If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
• Comparative Market Analysis
  Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:
• Active on the market
• Pending sales
• Solds from the past six months.
• Purchase Agreement & Listing Agreement
  When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to allow payment of certain items such as home protection plans or termite inspections.