Short Sales

 

Short sales are by far the most active segment in real estate in the 2008 market. Unfortunately, they can be quite complex and not many investors or even agents really understand them but there is money to be made with short sales by those who do. Short sales are no different from a mortgage perspective but training is short sales is necessary for an investor or real estate agent to be effective. You must know which deals will get to contract and which will not. Email short sales questions. Let me try to give you a definition of short sales first.

Short sales are when a mortgage lender agrees to discount a loan balance due to an economic hardship on the mortgagor. The home owner/debtor sells the property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such cases, the lender would have the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not lenders will discount a loan balance. These circumstances are often related to the real estate market climate and the individual borrower's financial situation.

A short sale usually is executed to prevent a home foreclosure. Often a lender will allow a short sale if it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoiding a foreclosure on their credit history. A short sale is typically faster and less expensive than a foreclosure.

Lenders typically have a loss mitigation department which processes potential short sale transactions. Lenders normally do not accept short sale offers until a Notice of Default has been recorded with the locality where the property is located. Lenders have to approve of any buyer's or listing agent's commission in advance, a primary reason for non-brokered short sales with an investor or facilitator to save on the margin.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second mortgages and HOA (special assessment liens), may need to approve of the short sale. Frequent objectors to short sales include tax lieners (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even unrecorded) and mechanic's lien holders.

While it is common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating the zero balance and settlement option on the mortgagor's credit report, or even flat refuse to do so "due to their financial loss."

As you can see, they can be complex but very profitable which is the reason I suggest some training in them to maximize your return. There are several training programs available on the internet that I looked into for my own investing but most are just junk. However, I did find one program by Oscar Morante that met my needs and I highly recommend the program to both Realtors and investors. He explains the process and pitfalls clearly in a video format and offers the specialized tools you will need to be successful and make money. Learn more about his Short Sales Program.