Short Sale – No, It’s Not About Clothes!

Every street you turn to, there is a home being foreclosed. Every third person you meet knows someone who is facing a foreclosure. Yes this is bad news but from a realtor’s point of view, this is the time when they can switch from the usual bread and butter to delicacies.
A fat percentage of properties being foreclosed usually have very little or no equity- What the owners owe to lenders is Properties For Sale With A View almost, if not fully, what the property is worth. In such a case, how can you benefit? Short sale my friend short sale!
What does short sale mean? A newbie may ask. It means getting the bank to sell you the property for less than what the mortgage is worth. You can then find a buyer to purchase the property from you at a higher price. Sure it does seem to be an impossible thing, doesn’t it? Why would a bank settle for anything less than what they owe? Here are three simple reasons;
• What the property was worth at the time of mortgage being offered was higher than what it is worth today. In other words, property prices may have fallen. The bank obviously knows that they cannot get ‘that’ amount so they settle for less. This is the case that we see in today’s market.
• The bank maybe reluctant to write down another bad debt on their books; keep in mind that banks are penalized when the size of their bad debts crosses a certain limit.
• Dealing with property foreclosures is way out of a bank’s comfort zone; they certainly want to avoid the hassle of taking over the property, getting it repaired and listing it in the market.
Banks are actually a secondary factor. The primary factor in kick starting the short sale procedure is to get the homeowner to be by your side. Why would a homeowner opt for a short instead of a foreclosure if they know, either way they aren’t going to get a penny from the amount. (Remember what the owner owes the bank is approximately the worth of the house) There is one very good reason for this; they do not want their credit record looking dirty. A foreclosure on your records signifies that your inability to pay back. This will certainly make it difficult for the homeowner to raise finances in future. When the owner agrees to go with a short sale, mortgage will be marked as ‘paid’ on the credit record.
Short Sale Procedure
Before you start off the actual procedure, you need the owner to get agree to the short sale. You can’t randomly pick out a random property from the How To Find Real Estate Deals Off Market foreclosure column thinking that you can go it alone. Unless the owner is by your side, banks will not deal with you. Ok so here goes the procedure;
A homeowner gives you a call explaining that they are facing a foreclosure. They owe the bank $120,000 in mortgage. The owner is looking to sell the house but is unable to do so since what they owe to the bank is same amount as the worth of the house. The owner insists that they want to get out ‘cleanly’.
The platform has now been set up for you. It’s time for you to put up a performance.
Go meet up the homeowner and get them to sign the ‘Authorization to release’ form as well as a sales contract. The former is a sort of a permission form that allows you to deal with the bank regarding that specific property. The latter is to show what you are willing to pay for the house. For the sake of this example let’s take it as $80,000.
Your next step is calling up the loss mitigation department of that specific bank- the department responsible for foreclosures. Talk to the manager and let them know that you want to buy the property from Mr. X. Mr. X is your friend and you want to help him. Tell them that you are willing to pay $80,000 for the property as a full and final payment. Send them the sales contract, a true but ‘long’ list of repairs that need to be undertaken, a net sheet and of course some snaps that make the house look ugly. After reviewing the documents, the bank will make a counter offer at $95,000. You make another offer of $86,000. They agree and it’s a done deal. A house that is actually worth $120,000, you got it for $86,000.
Now you can find buyers for the same property. Who wouldn’t offer $100,000?
Realtor’s do this on an on-going basis; making $20,000 here and $30,000 there. Do you see the potential that short sale has in store for you? You are now well on your way to making a fortune!

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