A VERY hot "deal" that everyone is jumping onto these days is pre-foreclosure properties - also known as a "SHORT SALE". There are a ton of seminars, speakers, and classes on how to 'do' a short sale. Here's a news flash:
The only people making money on short sales are the ones selling the seminars!
Here's what happens: for whatever reason, the homeowner can't make his mortgage payments anymore. Ultimately, the bank will foreclose - but that's a long, drawn out process that can take up to a year. In the meantime, the homeowner retains control of the property and can sell it at anytime.
The catch is, the homeowner owes the bank more than the property is worth. So, the bank has to agree to take less than what's owed them before you can actually close the sale.
Doesn't sound so tough, right? Think again! The banks are horribly understaffed. You never speak to the same person twice - and anyone you DO speak to is basically on a par with the kid working the McDonald's counter. The only difference is that they've graduated - high school. They have no decision-making authority and they don't even really "get" what's going on. You're dealing with a "bureaucracy" in the absolute worst sense of the word.
The situation is compounded if there are second mortgages or IRS liens on the property. Each layer just doubles the complexity of the deal.
Many times when an owner gets into a financial bind (maybe they've lost their job or have a major health problem) - the first thing they do is tap the equity in their home. So even if they've owned the home for many years, they've taken all the money out of it.
The lending environment up (until about 12 months ago) often let them do it. They're hoping that once they find a new job, get their health back - whatever - they'll be able to get caught up on their payments and keep their home.
Sadly, it rarely happens. They've taken on so much debt and have gotten so far behind that they can never catch up. Usually, their only recourse is to give the home back to the banks and file bankruptcy.
(There are lots of things they can do to re-negotiate with the bank if they actually DO find a new job or get their health back. For details on that see my article "Rescuing Your Home From Foreclosure".)
Thanks to our weird economy, there are a TON of these out there. And there's more of them everyday. A lot of them are "investors" that should have been afraid to buy 3-5 years ago who went ahead and bought anyway.
The point is you can easily spend 90 - 120 - maybe even 150 days! You handhold your offer all the way through the process (and trust me, the process is about as much fun as having a root canal) only to have it all blow up in your face. And for reasons that make absolutely no sense whatsoever.
Trust me - you don't want anything to do with a short sale!
A number of years ago, a movie came out called "Global Thermonuclear War Games". The Big Computer (incorrectly) senses a nuclear threat to the US and prepares to launch nuclear missiles at Russia and start WWIII. No one can prevent what's happening until they teach the computer that the only way to win the game is by not playing it in the first place.
Maybe 3-5 years ago, short sales were a good opportunity. But no more...
For helpful hints on investing in real estate, visit my website at www.mnack.com.
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