A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. 

In a short sale, the bank  or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the borrower. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt.  In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property.

We are getting  closer to the worst economy meltdown since the great depression, incomes are down, the unemployment rate at an all time high since 1982, most homes are over leveraged, there’s a incredible decline in home sales, plus the number of homes for sale in the market just fuel the number of foreclosure that is happening everyday.

 

Remember a hero always rises on every crisis, and it is an Understatement to say that this country is facing a FORECLOSURE CRISIS.

 

Foreclosure is the Problem and you have the SOLUTION.

So you are a beginner in short sales, the first step for you to do is exactly what you are doing now “ educating yourself on the subject” the second thing I would recommend is for you to attend your Local Real Estate investment Association club Most “REIA” clubs meet at least once a month.  You want to connect with different Investors, and also try to really connect with investors who are focusing on short sales as well.

Make sure to Sign Up for our Free short sales Educational, you Will receive a weekly tips On different short sale Subject

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The Discount

You find a homeowner facing foreclosure that has little or no equity in their home. You explain you may be able to buy the home if you can convince the lender to give you a break on the amount due on the loan.

You must be upfront and tell the homeowner exactly what is going on and have he/she/them sign a sales agreement. If the homeowner knows (or think they know) the amount due on the loan you can use 50% of that number as your purchase price as you fill out the purchase contract. That number can be adjusted with an amendment to the agreement after you talk to the mitigation rep and find out the true payoff figure.

At this point you just want to get the homeowner committed to the deal. Get everyone who is on title to sign the purchase contract before you contact the bank. These homeowners are under a lot of stress and you don't want to depend upon a verbal agreement and then have them back out just as the deal is ready to go into escrow. To protect yourself, the purchase agreement you prepare for the homeowners' signatures must contain a clause like "This agreement is contingent upon the lender accepting a discounted loan payoff acceptable to the buyer."

You should always try to get the Deed from the homeowner, it is a usual M.O. that most investors use, as we discussed homeowners often get cold feet, change minds or want to renegotiate after several hours spent in obtaining favorable term for a short sale.  To explain this in Plain English get the Deed records it or hold it in escrow.  I have seen investors fail to get the deed work on the short sale just to find out, someone else have recorded that deed and is buying the property.

After you collect all the information from the buyer, make sure to fax the Authorization to release Information to the bank, it usually take 24 to 48hrs for the bank to process this information, once they received you must call and ask for a short sale packet, some banks may have some other documents that you must send, talk to a rep from the Loss mitigation Department get their name fax#, their email address and mailing address, Make sure you fax a complete Short Sale Packet to that person. When you are on the phone with the bank, make sure to introduce yourself as the homeowners representative or the buyer.  Remember they receive short sales Packets everyday, so make sure you know what you are sending, if you send a mediocre Packet it will go in the garbage, and that will be the end of your deal.