When the property owner is having difficulty making mortgage repayments and is in danger of, or in the process of, foreclosure, the lender generally has a number of options available which may include: 

1. Foreclosing on the property and risk selling the property for less than what is owed. There is also the risk of having the property take too long to sell which will in turn cost the lender even more money.

2. Attempting to restructure the loan with the property owner. However, this may not be a viable option depending on the magnitude of the owner’s financial difficulty. 

3. Encouraging the owner to look for a buyer for the property. Under these circumstances, the owner and the lender will be looking for a quick sale, which may result in a short sale.

It is this third option that is of interest to the investor looking for short sales real estate opportunities.

What is a short sale?
In order to unload the property quickly, the bank or other lender together with the property’s owner, may agree to sell the property for less than the amount that is owed (ie a short sale). While this may initially sound like a poor deal, especially for the lender who is losing money, this is not necessarily the case. The lender may be happy to unload the property quickly, and for little to no effort, in order to avoid the costs of preparing the property for sale, and risking the possibility of not being able to sell it quickly. For the owner unable to make the repayments, it provides a relatively easy option to get out of financial difficulty. 

So, for the lender, a short sale provides the opportunity to immediately offload a property that otherwise may take months and cost thousands to sell. And for the owner it offers a way to clear their debts and to start over again. For the investor, it provides an opportunity to make money from real estate short sales. But if you are going to succeed at this, you need to tread carefully and follow some simple rules. 

How to seal the short sales deal
Firstly, you need to find a suitable property where the owner is having financial difficulty and is happy to relieve themselves from that difficulty. Once you find such a property offering a short sale opportunity, you’ll need to convince the owner that a short sale is in their best interests. Be upfront in telling them that you will also make a profit, but emphasize the fact that you are actually helping them out…which is exactly what you are doing. 

When you have the owner’s blessing, contact the lender. You will not be able to make a short sale deal without the agreement of the lender. This can often prove tricky and will generally take a great deal of time and patience on your part. You’ll need to contact the employee responsible for making such decisions. This step may prove to be your first stumbling block. 

If you have difficulty finding the employee responsible for authorizing foreclosure short sales, ask to speak with the senior manager of the office or branch. They should be able to point you in the right direction. 

When you contact the right person, it’s important to make a good impression and develop a good working relationship with them if you want to succeed in closing the short sale. They will make or break your real estate short sale. Here are some tips:

•  Always treat them with respect. 
•  Mention the owner by name in order to personalize the deal.
•  Be patient with them. 
•  Have a conversation with them in order to develop a good working relationship (this is  very important). 
•  Don’t come across as too experienced, emphasize the fact that you are helping out the owner.

If you are to convince the lender to go ahead with the foreclosure short sale, you’ll have to come up with the right price. Too low a price for the short sale and the lender will look at other options to recoup their money, too high a price and you’ll reduce your profit margin on the deal. In order to get the lowest price for the short sale, you’ll need to convince the lender that the price you are willing to pay is fair. Try emphasizing the negative aspects of the property. For instance, look at what repairs the property requires. Get quotes and show the lender the highest bid. Look for other negatives such as slow local house sales, poor rental market or shops closing down in the local neighborhood. Convince the lender that they may experience some difficulty in selling the property. But remember, don’t overdo it. These people will generally be relatively experienced in the local real estate market so if they sense you are trying to scam them in any way, you will probably miss out on the short sale.

 

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