A real estate short sale means getting the bank to accept less than what is owed by a seller for the property. A house owner who cannot bring his mortgage current has no choice but to part with his house. Signing away the house ownership is a very distressing event. It destroys credit, embarrasses the family, and strips owner of his dignity. A lender accepting a short sale means he is accepting less than the total amount due or a discounted payoff. A lot of real estate investors shy away from investing in foreclosed and distressed properties, as they have no equity. They cannot handle a no-equity deal or make an effort to make the deal profitable. However, a real estate short sale can yield good returns for a real estate investor by short sale of the mortgage. 

Short sale of real estate

The following steps will ensure success when you short sale a piece of real estate:

1. Work in tandem with the house owner. A real estate short sale investor cannot buy the property directly from the bank during the foreclosure stage. The bank owns the property only after the courthouse sale. The real estate investor can win the confidence of the house owner and buy the mortgage, not the property, and finish the foreclosure process. This is short sale of a mortgage. The deal then can be resold at a profit. 

2. Submit letter of authorization to the lender. The house owner gives a letter of ¡°authorization to release¡± to the lender. It specifies the person making the real estate short sale and who is willing to pay off his loan. The letter of authority includes the following information:

a. Property address.
b. Loan reference number.
c. Name of the owner.
d. The date.
e. Name of real estate short sale agent and contact information.
f. Preliminary net sheet. This is an estimated closing statement of cost of sale, unpaid loan balance, outstanding payments due, and late fees, including real estate commission.

3. Hardship letter. This is basically a statement of facts by the house owner to the lender of how he got into financial problems, disabling him from repaying the loan. He makes a plea to the lender to accept less than full payment to mitigate his problems. If the problem is genuine, then lenders do sympathize. However, a false plea involving dishonesty or criminal behavior can cause legal problems for deficiency payment claims.

4. Contact the loss mitigation department of the bank. This department handles properties that are under foreclosure. Tell the accountant that you are helping out the owner with the foreclosure and are willing to buy the house. Submit pictures of repair required and a net sheet to negotiate the price for short sale of the mortgage and bring it down to the lowest figure.

5. Proof of income and assets. A lender is generally humane to a genuine problem but is definitely not in the charity business to waive loan repayments. The real estate short sale agent should submit an honest and true copy of the house owner¡¯s assets and finances. This includes details of savings accounts, money market accounts, stocks or bonds, cash or other real estate, or anything else of any tangible value. Lenders want to ensure that the debtor cannot pay back any of the debt that they are waiving. 

6. Comparative market analysis. The property value falls if the real estate market declines because of vagaries of market economy. This could be the reason that a house owner could not sell the house for a reasonable amount to pay off the lender. A real estate short sale agent can substantiate this fact by making a comparative market analysis report by showing prices of similar homes active on the market, pending sale, or those sold in last six months. It is a very genuine supporting fact for short sale of the property. 

7. Purchase agreement and listing agreement. After a house owner has reached an agreement with real estate short sale, submit the copy of the purchase agreement and listing agreement to the lender. These documents are required to negotiate commission and loan repayment plans with the lender for the short sale.

8. Negotiation with the lender. The real estate short sale agent should negotiate realistically for mutual gains. He can also request that the lender avoid giving an adverse credit report to crediting agencies, which he may or may not comply with.

A real estate short sale is a useful technique for a real estate investor to make a reasonable profit. The investors'skills in negotiating a deal with the lender will determine the profit he or she can generate from the short sale.

 

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