Who, What, When, Where, and Why a Short Sale?
The terms short and sale together often tends to raise the eyebrows of skeptic real estate investors. Typically anytime a deal is mainly focused on the speediness of the transaction, especially if it involves cash money, people become more apprehensive about becoming involved.
What defines a short sale is based on a variety of factors. Borrowers that are in default of their loan and have demonstrated that there is no other way that they can get out of their current financial situation, making a short sale deal is an easy and quick way out. Lenders are pretty much convinced that there is no other alternative and that the property cannot be sold for a price that would cover the balance of the loan. Lenders also tend to be more willing to take a smaller hit in order to avoid a bigger loss, such as owning the property themselves. In addition, a seller typically is aware of the fact the property does not have any equity and he/she is unable to repay the loan and/or make a profit on the property.
The process involves a lender that releases the owner from the mortgage for less than what the owner owes in order to accommodate the buyer. The lender typically approves the pre-foreclosure sale from an owner to a third party for a greater amount than is owed to lender. Banks and homeowners are willing to consider short sales even though there is less potential profit to be made, because they have the ability to rid themselves of nonperforming assets. When selling the property would be more beneficial than holding on to it, short sales are a good option to consider.
The role of lenders is vital during a short sale transaction, both on the initial agreement to commit to this type of deal. If they are willing to create forbearance or a loan modification agreement with the borrower, the short sale process can begin. Lenders wish to mitigate losses and avoid potentially becoming the property owner they just want to get the property off their hands and not have to deal with it any longer.
The reasons this type of sale is considered are vary. Short sales are often initiated when a loan is in default and the homeowner cannot make good on the loan. The lender usually decides to simply cut its losses and get rid of the property, even if that means taking a loss on it. If the condition of the property is beyond fixable and/or the market is bad and the lender does not want to be ’stuck’ with the property, again, the short sale does offer an alternative.
The short sale process begins when loans that are in default are located. Information pertaining to ownership of the property, liens that are attached to the property, and existing loans that are in place is researched. The current borrower is contacted and he/she is asked to complete the authorization form and purchase contract. The bank can than be contacted for a list of any necessary legal requirements. Investors then can negotiate the deal with the lender.
If the offer and terms are accepted, together with proof that the borrower is unable to make the necessary payments required by the loan and a Brokers Price Option (BPO) from a real estate professional, the next step is sending the proposal to the lender. The proposal should include information about what the property is worth and what it could be potentially sold for. A purchase or sales contact should be included along with a letter of hardship that demonstrates the current situation of the owner/borrower.
Sending a proof of assets in order to illustrate the overall picture would really show a lender that you mean business. These assets should include and indicate bank and credit card statements, existing insurance policies, copies of recent paychecks, other records of income, records of any existing loans, tax returns (for at least six months), credit reports, medical and utility bills, household expenses, unemployment and/or disability checks, and a list of comparables (CMA) should be included.
There are also several other areas to consider are prior to making an offer on the property. Be aware of the sales prices, not the asking prices, of other properties in the areas. Make sure to obtain inspection and appraisal reports. Repair estimates should be evaluated. An overall settlement or closing statement that estimates the sales price, any unpaid loan balances, late fees that are applicable, taxes that have or have not been paid, appraisal fees, real estate agent/broker commissions, repair and damage control estimates, and any outstanding payments due should be included.
Doing a cost/benefit analysis that demonstrates the benefit to the potential lender and offering a good faith or earnest money deposit will demonstrate severity and seriousness about the deal and often expedites the short sale process.
Jeff Adams is a full time investor who has done over 350 deals and is a leading expert in the buying and selling of real estate. For more information visit http://www.FreeForeclosureCourse.com or sign up for a free seven day e-course at http://www.RealEstateWebProfits.com.
Article Source: ArticleSpan
Author: Contributor, August 4th, 2009
