Working with short sales in this declining real estate market

First, what is a short sale? It is nothing more than a lender discounting a mortgage. Usually, it is in lieu of foreclosure, but not always. Banks, however, call it a short sale instead of just saying discount. I say not always because in this bear market, there are many sellers who are current on their mortgage, they have to sell, and what they will get on the open market will not be enough to satisfy their loan(s).

I’m working with a seller right now, say, as an agent, not an investor, and we’re going to get about $20,000 less than what you owe on your house. What I told them to do was contact the mortgage company (if they were late, Loss Mitigation), contact the contact who handles short sales, and then send a hardship letter explaining the problem. situation. So, current or not and foreclosure or not, many banks will work with short sales.

As an investor, it’s an opportunity to pay up to 15% less than market, since that’s what the homeowner would get anyway if it sold on the open market and then paid a commission. As a real estate agent, you must realize that there are many deals available to you, unlike in the past. Even with that said, my opinion is that the best prospects for a short sale are those in distress, ie, late payments. Now, in this situation, sometimes the lender has already filed for foreclosure and sometimes they haven’t. If you want an approximate timeframe for moving a property to the Department of Loss Mitigation, you are approximately three months behind schedule. I have seen extreme examples where mortgage payments were over 6,7 and even 9 months late and there was still no foreclosure notice or movement towards Loss Mitigation; There are always exceptions.

If you want a mini checklist for dealing with a short sale in an ideal situation as an investor (since we roughly explained how to do it as a real estate agent above), they are:

1. Get the deed

2. Call the bank, usually the Loss Mitigation Department

3. Complete your short sale package (all banks have a protocol they will follow to do this).

4. Submit your completed packet to the lender as directed.

5. Follow up until you get a response. Please understand that this will require an enormous amount of persistence and patience. There are services that will handle short sales for you for a fee and in almost all cases I would highly recommend using them. There are built-in benefits when you use services to do this for you. They include, but are not limited to: (a) Much more credibility when a service (usually a law firm) calls instead of you: Mr. or Mrs. Investor, Realtor, or Homeowner, and you will know for your part that having professionals at work, (b) In fact you will have a check system built in at the beginning to see if you should proceed because they do this for many other clients and normally tell good from bad, (c) Leverage – you can make more deals while that happens in the background

6. Pay the lender and get on with your deal! “pay back the lender” can be from the proceeds of the sale when you find a buyer before you have to close or if repairs are needed, that will mean you took out a loan yourself, your own cash, or private money to buy it, fix it up, and resell it. The first option is sometimes called “wholesale.”

If there are other mortgages behind the first ones, the chances are very high that the discount on those will be huge. I train students to offer as little as 5-10% of face value on those. They realize that if the first mortgage is foreclosed, they will get absolutely nothing.

I know you are wondering what you should offer in the first one. Well my experience (not 100% of the time, just my experience) has been that the banks will take about 85% of the BPO (broker price opinion they always order to verify value). They will also take into account any necessary repairs.