Short Sale Investing...Is it for you?

Short sale real estate investing is defined as purchasing a property from a lender for less than the balance owed on the mortgage. Many books and courses have been written about it, but can short sale real estate investing be simplified? It can!


There really are only two types of short sale real estate investing. First, when you purchase a property that a lender has foreclosed on and listed with a Realtor, you can offer less than the balance that was due on the foreclosure. This type of short sale real estate investing requires that you have a good relationship with the right Realtor, one who works with Short Sale listings and buyers.


When you find that agent, you’ll want to impress upon them you intend to follow through on all your offers. Then, do exactly what you say you will. That’s your ticket to the short sale real estate investing gravy train!


The second type of short sale real estate investing involves you negotiating directly with a motivated seller’s lender. Your agent needs to be determined in negotiating, first of all to reach the right person at the lender’s REO (Real Estate Owned) department, and then to get the price you want.


When housing prices in many parts of the country were booming a couple of years ago, there wasn’t much national attention given to short sales. But with the current sub-prime debacle and increasing mortgage delinquencies, many people are wondering if the short sale process is a way to avoid foreclosure.


Basically, the definition of the short sale process is when the lender of a property allows the property to be sold for less than the amount due on the mortgage loan.


The obvious benefit to the short sale process is it allows the seller to avoid the severe credit report damage associated with a foreclosure. A foreclosure can stay on your credit report for up to 10 years and can take an emotional and financial toll.


But the pitfalls of the short sale process should be considered as well. The I.R.S. may consider any debt forgiveness as taxable income, thus resulting in a tax liability. In addition, lenders can often pursue a borrower for the deficiency balance (the difference between the amount owed and the amount paid).


In some cases you may be able to avoid taxation if you can prove you are insolvent. But if insolvency is unsuccessful, and you are faced with a tax liability resulting from the deficiency amount, it may make more financial sense for you to let the lender foreclose.


The Short Sale Process


The short sale process can vary, but it will generally work as follows:
1) The lender is contacted to discuss the possibility of a short sale and to determine the lender’s process for completing the sale.


2) The seller issues a letter authorizing the release of personal information about the loan and the property to the buyer or escrow agency.


3) The lender will review a settlement statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions and other fees and expenses associated with the closing.


4) The seller will complete a "hardship letter," which will detail and explain all financial difficulties. Lenders will usually want to validate the seller’s financial situation by looking at bank statements, investment accounts, along with examining paystubs and other financial records.


5) The lender will then look to the broker to provide a price opinion by examining the condition of the house and the market value of comparable properties.


6) The lender will then want to scrutinize the purchase agreement to determine if all amounts are reasonable and the real estate commission is acceptable.


Because of the documentation required, the short sale process can be lengthy. But if done correctly, it can work well for all parties involved. The lender avoids the uncertainty of the foreclosure process, the seller avoids a foreclosure on his or her credit report (along with potential bankruptcy), and the buyer hopefully got a good deal on a property.


Investing in Short Sales


It's no secret the foreclosure market is at an all time high. It seems as though more and more properties continue to face home foreclosure. Because of this increased volume, opportunities for real estate investing in short sales are tremendous.


Short sales are becoming more and more popular when buying a foreclosure just because of the huge discounts they offer. Real estate investing has been taken to a new level as more and more investment opportunities pop up everywhere. Therefore, it's important to have the right knowledge when these real estate investment opportunities present themselves. That's where we come in. We have created a special foreclosure process to attract distressed sellers who must act fast!


The Foreclosure Investing Process


The foreclosure process contains 3 stages: Pre-foreclosure, foreclosure auction, and bank owned properties REO. Each stage in the foreclosure process can become very profitable when you understand each of the different stages and use creative real estate investing techniques. Our current inventory of over 300 homes with a short sale possibility makes your decision process easy.


Pre-Foreclosures with Short Sales


Investing in pre-foreclosures with short sales has never been better. With our marketing campaign focused toward the distressed homeowner, these Short Sale opportunities come to you. Short sales allow the real estate investor to discount the loan from the lender. You must know this technique if you want to be competitive in today's market.