Short Sales: They May Be Your Answer If You Are Facing Foreclosure
Are you facing a home foreclosure? Has your financial hardship landed you in a position that may cause you to lose your home? Well then, a short sale may be the answer. Selling your home by doing what is referred to as a “short sale”, by which the lender agrees to accept less then what is owed, may be just what you need to get on the road to recovery.
Short sales essentially tell the bank that you have a purchaser that has agreed to purchase you home for less then what the current outstanding mortgage balance. Lenders lose money by doing this, however the short sale is a decision that they must agree too.
Some lenders will be very open-minded to a short sale lawyer’s fess, court costs and the likelihood of a bankruptcy, on your part, in the future. Ultimately, foreclosures cost lenders tens of thousands of dollars, losses that are certainly a loss in the event that you file a bankruptcy. Eviction costs, administration and sale of your home these too are factors that lenders take into account while consider the short sale offer.
A short sale offer that is as close to the actual market value as possible will more likely be your best approach to getting the bank to consider this option. If the offer is considerably less then the market value, you will need to convince the lender that the offer on the table is in their best interest, and to move forward with the short sale of your property. Keep in mind that mortgage companies are in the business of lending, not property management.
Some ways to persuade the lender to consider the short sale are to convince them that there is a wide range of repairs required on the property, the local economy for housing and employment is in distress, or any other persuasive explanation why they should agree to the short sale.
A short sale is preferred over a foreclosure with the later; your credit will be negatively affected which will require a great deal of time and effort to repair. Short sales allow you to repair a damaged credit history faster so that you can get back in the housing market faster, once your financial position is recovered.
Short sales are a radical solution to your financial problems, however you can convince the lender that you are desperately in the rears on your payments and you have no viable way to resolve the default amount, or the future payments on the mortgage then you are a prime candidate for a short sale.
The foreclosure process is very costly, and can be very complicated. Lenders sometime would rather avoid having to complete the foreclosure process, and avoid getting the home back as an REO, otherwise known as a “Real-Estate Owned” property.
Short Sale Success Secrets With Foreclosures
Are you facing a home foreclosure? Has your financial hardship landed you in a position that may cause you to lose your home? Well then, a short sale may be the answer. Selling your home by doing what is referred to as a “short sale”, by which the lender agrees to accept less then what is owed, may be just what you need to get on the road to recovery.
Short sales essentially tell the bank that you have a purchaser that has agreed to purchase you home for less then what the current outstanding mortgage balance. Lenders lose money by doing this, however the short sale is a decision that they must agree too.
Some lenders will be very open-minded to a short sale lawyer’s fess, court costs and the likelihood of a bankruptcy, on your part, in the future. Ultimately, foreclosures cost lenders tens of thousands of dollars, losses that are certainly a loss in the event that you file a bankruptcy. Eviction costs, administration and sale of your home these too are factors that lenders take into account while consider the short sale offer.
A short sale offer that is as close to the actual market value as possible will more likely be your best approach to getting the bank to consider this option. If the offer is considerably less then the market value, you will need to convince the lender that the offer on the table is in their best interest, and to move forward with the short sale of your property. Keep in mind that mortgage companies are in the business of lending, not property management.
Some ways to persuade the lender to consider the short sale are to convince them that there is a wide range of repairs required on the property, the local economy for housing and employment is in distress, or any other persuasive explanation why they should agree to the short sale.
A short sale is preferred over a foreclosure with the later; your credit will be negatively affected which will require a great deal of time and effort to repair. Short sales allow you to repair a damaged credit history faster so that you can get back in the housing market faster, once your financial position is recovered.
Short sales are a radical solution to your financial problems, however you can convince the lender that you are desperately in the rears on your payments and you have no viable way to resolve the default amount, or the future payments on the mortgage then you are a prime candidate for a short sale.
The foreclosure process is very costly, and can be very complicated. Lenders sometime would rather avoid having to complete the foreclosure process, and avoid getting the home back as an REO, otherwise known as a “Real-Estate Owned” property.
If you’re active in real estate investing, you may already realize one of the biggest issues real estate investors face: Finding Great Deals.
Foreclosures at a 52-year High
With foreclosures at a 52-year high, there are thousands of deals available on the market, if you know where to find them and how to secure them. The first challenge you’ll face once you locate the property is that most of these homeowners are mortgaged to the hilt. They have no equity, and big loan payments. In fact, many actually owe more than the property is worth!
Most investors will walk away from these deals because they see no obvious profit. That’s because they don’t know about the Short Sale.
WHAT IS A SHORT SALE?
The concept behind the short sale is simple: your goal as a real estate investor is to convince the bank to sell for less that is owed as payment in full. Of course, this concept is easy – buy the foreclosure from the bank at a big discount, sell the real estate, and make money! So how does it work?
Success with short sales can be accomplished in the following steps:
Step 1: Do your research.
Many new real estate investors make the mistake of waiting until some subscription service sends you the list. The disadvantage is that a ton of other investors are also getting the list. If your first contact is to send a letter, forget it. Your letter will be lost in the huge pile the homeowner is getting from all sorts of other investors, credit repair etc. 99% of the time these go directly into the trash or a big basket unread. If you go directly to their door you’ve got a chance.
So if you’re going to mail, be the first to act when the default notices are printed in the local newspaper. Or be the first at your courthouse, if that’s where they’re filed first. The key to finding investment-worthy properties is to act quickly. Be disciplined and mail out the letters the very same day-in fact take them to the post office. In this business, the early bird really does catch the worm.
Tip for Success: If you don’t have a company that publishes your notices of default, check with local title companies or bankruptcy attorneys to see if they offer these services; you need somebody familiar with the subject that visits the courthouse often.
Step 2: Develop your marketing strategy.
When you have located foreclosures, make sure your timing is swift. Mail your initial letters of approach to the homeowner the same day you discover the property. Placing ads in your local papers also helps to generate leads and find homeowners eager to avoid the credit penalties involved with foreclosing.
Tip for Success: A typical advertisement strategy taught in real estate training is to get listed in real estate or credit section of the classifieds. These ads typically have a bold, to the point headline, such as “Avoid Foreclosure” or “Stop Foreclosure, Today!” If you are targeting a specific property type, or reaching for higher market values, specify this in your ad. (Instead of simply “Avoid Foreclosure,” add your target market to the bottom of the ad. Example: “Avoid Foreclosure, call 1-800-555-1212. 500K and up.” You’ll make more money in real estate by reaching for high-value properties, and an ad like this shows your prospects that you specialize in helping those with higher value homes avoid foreclosure.
Step 3: Work with the homeowner.
You can’t get anywhere without the cooperation, and often gratitude, of the homeowner. The homeowner you are working with has obviously run out of options, but you’ll need their trust and confidence if you plan to short sale mortgages. Remember, in these situations, you are often looked at as the “rescuer”. Make sure you explain the homeowner’s part in the process thoroughly. Once they deiced to allow you to work with them, there is important paperwork you need them to fill out and sign:
1. an “Authorization to Release” form that gives you permission to contact the lenders and the foreclosing attorneys.
2. a sales contract – signed but leaves the purchase price blank. You may need to change the numbers as you negotiate with the bank
3. a financial statement – to show they can’t afford to make the payments
4. a hardship letter – to explain in personal terms what happened.
Tip for Success: Remember that this is a stressful time for the homeowner. It’s easy to get caught in the excitement of a prospective short sale profit. You can get them to make a decision when you are able to convince them that this is the right option for them Emphasize the benefits of working with you, and then ask for them to take action. Make sure to let them know that once your contract is signed, and the bank accepts it; they’ll be free to move on with their life.
Step 4: Negotiate with the bank.
Although banks don’t enjoy taking a loss, it is a simple fact of the lending business that short sales are a necessary evil for lenders. Indeed owning the property (a non-performing asset) is even more expensive than selling it for a loss. Consider:
Banks use short sales to drop unwanted property quickly without having to deal with the REO office and go through the long process of putting the home back on the market. When you speak with the Loss Mitigation department, remember, this property is actually costing them money! Federal regulations require somewhere between $300,000 and $800,000 (or more!) to be held in reserve by lenders, which is many times over the actual price of the bad debt.
When you call the bank and ask for the Loss Mitigation Department (the department that handles properties that are in foreclosure) tell the person handling the account that you are trying to help Mr. X with his foreclosure and you are willing to buy the property from him, but due to the condition of the property/declining values/etc. you are only willing to pay X amount. This is where your negotiations begin.
Be firm and polite, but don’t ever make threats to not buy or be forceful in your approach. Loss mitigators are often busy and overworked, and they want to see you as somebody who is minimizing the damage – and hassle – of the bad debt.
Tip for Success: Larger banks are the easiest to deal with when working with short sales and foreclosures. This is because the larger banks have more resource, more experience, and more loans! While there are some larger banks that don’t work with short sales at all, other banks, such as Wells Fargo or Fairbanks Capital, tend to work with a much larger volume of short sales.
Once you have worked with enough short sales, you’ll find that you have inside contacts at some of the larger banks; be friendly, ask them about their day, Develop a rapport. Sometimes, they’ll open up about problems they’re facing or current trends, which of course, you’ll need to keep on top of!
You don’t have to be a real estate pro to see the potential for making money with short sales, and now you definitely have some great tools to get started. Great deals in real estate are out there, and with today’s market, your potential for profit is limitless. Just keep in mind: do your research, market your services, and treat the homeowners and lenders with respect. When you use this approach with short sales, you can make a win-win for everybody, especially the officers at your own bank when you cash in on your profit!
In the next article, we’ll discuss the tricks and tips in convincing the bank to take a big discount on the short sale.
Why Do Banks Short Sale?
Are you facing a home foreclosure? Has your financial hardship landed you in a position that may cause you to lose your home? Well then, a short sale may be the answer. Selling your home by doing what is referred to as a “short sale”, by which the lender agrees to accept less then what is owed, may be just what you need to get on the road to recovery.
Short sales essentially tell the bank that you have a purchaser that has agreed to purchase you home for less then what the current outstanding mortgage balance. Lenders lose money by doing this, however the short sale is a decision that they must agree too.
Some lenders will be very open-minded to a short sale lawyer’s fess, court costs and the likelihood of a bankruptcy, on your part, in the future. Ultimately, foreclosures cost lenders tens of thousands of dollars, losses that are certainly a loss in the event that you file a bankruptcy. Eviction costs, administration and sale of your home these too are factors that lenders take into account while consider the short sale offer.
A short sale offer that is as close to the actual market value as possible will more likely be your best approach to getting the bank to consider this option. If the offer is considerably less then the market value, you will need to convince the lender that the offer on the table is in their best interest, and to move forward with the short sale of your property. Keep in mind that mortgage companies are in the business of lending, not property management.
Some ways to persuade the lender to consider the short sale are to convince them that there is a wide range of repairs required on the property, the local economy for housing and employment is in distress, or any other persuasive explanation why they should agree to the short sale.
A short sale is preferred over a foreclosure with the later; your credit will be negatively affected which will require a great deal of time and effort to repair. Short sales allow you to repair a damaged credit history faster so that you can get back in the housing market faster, once your financial position is recovered.
Short sales are a radical solution to your financial problems, however you can convince the lender that you are desperately in the rears on your payments and you have no viable way to resolve the default amount, or the future payments on the mortgage then you are a prime candidate for a short sale.
The foreclosure process is very costly, and can be very complicated. Lenders sometime would rather avoid having to complete the foreclosure process, and avoid getting the home back as an REO, otherwise known as a “Real-Estate Owned” property.
If you’re active in real estate investing, you may already realize one of the biggest issues real estate investors face: Finding Great Deals.
Foreclosures at a 52-year High
With foreclosures at a 52-year high, there are thousands of deals available on the market, if you know where to find them and how to secure them. The first challenge you’ll face once you locate the property is that most of these homeowners are mortgaged to the hilt. They have no equity, and big loan payments. In fact, many actually owe more than the property is worth!
Most investors will walk away from these deals because they see no obvious profit. That’s because they don’t know about the Short Sale.
Reason’s why banks short sale:
-The mortgage is in arrears or foreclosure.
-The property is in poor condition.
-The homeowners have hardships and cannot make the payments anymore.
-New homes in the area are being chosen over existing homes.
-The area or neighborhood has depreciated in value.
-The bank’s shareholders are concerned when there are too many defaulted loans on the books.
Banks have reports due at the end of each quarter. They are more inclined to accept short sales at the end of a quarter to “clean up their books.” The absolute best time to get short sales accepted quickly is the last quarter of the year. I have called banks on December 10th and been told the short sale would be accepted if I’d close by the end of the month! If you are reading this program in January, don’t let that piece of information discourage you. Banks short sale all year, they short sale faster in the last quarter.
-Some banks are required to prove a loss each month… let’s help them out.
-Some banks are required to keep a cash reserve of up to six times the retail value for each REO.
It breaks down like this: The bank has a $200,000 property and is required to keep six times that amount as a cash reserve. This means the bank is sitting on $1,200,000 in unlendable money. Imagine if the bank has 2,000 foreclosures across the nation! The homeowners could drag the foreclosure on for two years utilizing the bankruptcy system. Would it be better for the bank to sit on $1,200,000 for two years or accept a short sale today? The answer is obvious. The short sale is a relief.
-The area is crime ridden.
-The area is riddled with foreclosures proving a decline in the area.
-Many people don’t realize that banks wholesale money. Banks borrow money from larger banks and lend it to you. These banks must show reports in order to borrow this money.
Think of it like a credit report: Every defaulted loan is like a black mark on the credit report. The more foreclosures a bank is carrying, the riskier it appears. If you were a larger bank lending to a smaller bank, would you lend your money to the bank with more or less defaulted loans? Exactly … less! The bank needs to borrow this money as inexpensively as possible so that it can make money lending it to you.
As you can see, a short sale is often a welcome answer to a big problem. If the bank takes the short sale it can write the loss off and clean up the books before any reports are due.
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