Short Sales

Short Sales: Courtesy of McGrath&Stankevich
How do we find homeowners in default or behind on payments? There are several ways to find motivated homeowners: newspapers, ads, signs, courthouse, and attorneys, just to name a few. When a homeowner is delinquent on their mortgage, a legal notice, or notice of default, must be sent to the homeowner to let them know that their property will be going to auction soon. These legal notices are published weekly -- sometimes daily -- at the courthouse. Some counties have a website or newspaper that lists all the legal notices. When you find the notices, call up the homeowner and see if you can help them out of their situation. This is one way to find motivated sellers, because their home is going to the auction soon.
Homeowners often feel like no one can help them because they are "upside down" on their mortgage --meaning they owe more than what the property is worth. This is where you have the advantage over most real estate agents. Most agents are just looking for a commission, and if they try to sell the property at market price -- which they have to because of the loans -- most likely the home will not sell. You, on the other hand, can discount the loans from the lender and attempt to sell the property under market value. This is called a Short Sale, when the bank accepts a discount for a loan. *Keep in mind your only goal here is to create a win-win situation.*
What Are Short Sales?
A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure, auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000. You write an offer to the lender for $220,000, which is accepted as full payment for the loan. Why are they willing to take such a discount? A couple of reasons:
First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can get rid of the property without a huge loss, they will do it.
Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.
At the time of this writing, foreclosures are at an all time high, which basically translates into more opportunities for you. Since foreclosures are increasing, this is the perfect time to jump into this because there will be more and more lenders discounting properties. It is safe to say that most lenders will discount, however, you may come across a one or two lenders who will not discount. Also, lenders will not always discount if the loan to value is really low because they would be better off to sell the property and make money on it.
Most short sales occur during the pre-foreclosure state; however, you can do a short sale even when the property goes back to the bank. The biggest profits come from the pre-foreclosure stage.
There are two stages within pre-foreclosure. The first stage is when the owners are behind on payments and the second stage is when those who are behind on payments have received a notice of default. In order for this to work properly, and for you to successfully get a short sale, you must find the homeowners who are in the second stage of pre-foreclosure, or more than 3 payments behind on their mortgage. Once the notice of default has been recorded, banks become motivated as well, so you are more likely to get a discount.
It does not matter what type of house or condition it’s in, all mortgages can be discounted. The best properties to do short sales on are the houses that need lots of work and repairs. Lenders will usually give you a bigger discount if they see they are "don’t wanters".
Properties that are over-leveraged are prime candidates. Most rookie investors who see a house over-leveraged with an upside-down mortgage may think there is no hope for the property. On the other hand, this is a sweet deal to the savvy investor. Properties with large 2nd mortgages are treated as gold because the 2nd mortgage is wiped out at the foreclosure auction. Lenders with a 2nd and 3rd mortgage position would rather have something than nothing.
Short Sales can be very profitable because you can discount loans down to 5% of their original value! It doesn’t matter if the home is a multi-million-dollar home or a simple 3 bed Condo. Lenders will accept discounts as long as it is advantageous to them.
You've already learned how to get a list of people in default; now you need to sift through them and find the gold.I recommend calling them so they get to know who you are. Be nice when you do this. Most of the time, they will tell you they can fix the problem, which many of them can. However, a small percentage will just tell you that so you will go away. They are embarrassed to let anyone know of their circumstances. The best thing to do in this situation is to tell them that most people like to have additional options or a backup plan "just in case." Give them your information and tell them you are here to help them and to call you if their plans don't work out. Some may call you, others won't.
Get the Deed
Getting the deed is the first step in obtaining a short sale. You must -- without question -- get the deed. Sometimes, after several hours of research, time, and hard work, the homeowners decide they don’t want to go through with the short sale. They start to avoid your calls, they won’t sign the documents, and you are left high and dry. And who knows why; funny things happen to people who are in financial distress. So, make this easy and GET THE DEED!When you begin your conversation with the homeowner, be sure you never promise things you have no control over. You do not know if the lender will accept a discount for the loan or if you will get a big enough discount to make this deal work for you. So don’t say things like, "I can definitely save this property from foreclosure," or "I can definitely make up your back payments," because it will come back to haunt you.
All you should tell them is that you will do your best to save this home from going to auction. Let them know that everything depends on the lender's willingness to work out a deal. Make sure the homeowners know you will need their cooperation as well, because they will need to sign the necessary documents that allow you to proceed with the short sale. Also, let them know that they will need to be available because time is your biggest factor.
When you talk to these homeowners for the first time, make sure BOTH owners of the property are present when you sign the documents. You do not want to make an extra trip out to the property because you found out there were two owners. When you make your first visit, you will have full intentions of purchasing the property right there on the spot.
McGrath&Stankevich have over 30 years combined experience in helping families through all kinds of markets. Our expertise also covers helping families through the pre-foreclosure process helping them with negotiating with the their Lenders to accept a selling price regardless of what is owed. For just a few of the hundreds of properties being offered as Short Sales, click on to http://www.bestpropertybuys.com