Real Estate Investing Blog - DiscountedProperties.com

For many homeowners facing foreclosure, a short sale may be a viable way to stop foreclosure. To understand the premise of a short sale, it is important to first analyze the circumstances under which so many homeowners essentially owe more on their mortgages than what their homes are worth.

Why Homeowners are Underwater in Their Mortgages
During the real estate boom a few years ago, home values across most of the country skyrocketed. Many home buyers purchased homes during this time, often with adjustable rate mortgages. Most homeowners were under the assumption that once the adjustable rate mortgage adjusted, they could refinance or sell the home for more than they paid.

Unfortunately, the mortgage bubble burst and so did home values. Homeowners looking to refinance or sell their homes then found themselves in a position where they owed more on their home than what it was worth. They were, essentially, “upside down” or underwater in their mortgage.

This left homeowners with adjustable rate mortgages that they couldn’t afford and who simply had no way out. With so many homeowners facing foreclosure, and so many lenders forced to begin the foreclosure process, many homeowners looked to selling their homes via short sales to stop foreclosure.

How a Short Sale Works

A short sale occurs when homeowners sell their homes for less than what they owe in their mortgage in an effort to stop foreclosure. Short sales, which must be approved by the lender, are a way for the lender to avoid the costly process of foreclosure. A short sale is also a way for homeowners to avoid a hit on their credit that a foreclosure would create.

Although the lender essentially loses money on a short sale, they often agree to this type of sale to stop foreclosure, which has a lengthy and costly process. There are some important facts you should know about using a short sale to stop foreclosure.

* To sell your home via a short sale, you must convince your lender that it is in their best interest to stop foreclosure and sell the home now, instead of going through the foreclosure process.

* You may be able to refinance your current loan to avoid a short sale and stop foreclosure.

* The difference between the money you receive for your home in a short sale and the money still owed to the lender (in other words, any amount of debt that is forgiven by the lender) must be taxed as income by the Internal Revenue Service.

* Short sales are most commonly seen during buyer’s markets because of the lack of competition and lower home prices.

* Often times the lender will agree to a short sale only if the homeowner signs a promissory note to pay the difference between the original loan and the sales price of the home from the short sale.

Using the short sale strategy has become a very widespread phenomenon with homeowners across the country who want to stop foreclosure – and protect their credit scores.

Knowing how to short sale is one thing, but actually pulling it off is another thing entirely.  Once you’ve sold the distressed homeowner on the concept, you’ll need to walk them through the “why to” as well as the “how to”.  Short sale real estate investing isn’t rocket science, but you do have to convince both the seller and the lender that it’s the most sensible solution.

The seller can usually be convinced fairly easily, especially when you point out that their property isn’t worth nearly what they hope it is.  Because of the massive number of foreclosures taking place in today’s troubled economy, lenders are more open to the short sale transaction than ever before.  Knowing how to short sale is simply a matter of knowing how much a lender will settle for as full payment for a property.

How to short sale also involves having specific knowledge at your disposal – and knowing how to use this knowledge.  For instance, does the lender prefer you contact a specific loss mitigation specialist or will whoever answers the phone be able to help?  Knowing the ins and outs of how to short sale can vary from lender to lender.

The basic process of how to short sale will be the same no matter what:

• Submit packet to lender demonstrating you know how to short sale, consisting of a cover letter, a hardship letter, list of comps, a net sheet, etc.

• You negotiate for the lowest possible price, preferably in the range of 50%-60% of current value

• You close the transaction once they accept or you walk away if you can’t agree on a price

So learn how to short sale and put the profits in your pocket, while helping desperate homeowners to avoid the pain and anxiety that comes with foreclosure.

Millions of homeowners who are delinquent on their mortgage payments face certain foreclosure if they’re unable to work out an acceptable solution with their lender. Knowing the answer to the all-important question of “What is a short sale?” can help a savvy real estate investor to capitalize on the opportunity to snap up bargain-priced properties at a substantial discount.

The answer to the question of “What is a short sale?” is simple enough: It’s a negotiated discount where a lender agrees to accept less than is owed on a mortgage as payment in full for a property. For instance, if a homeowner owes $194,000 to the lender, the lender might be willing to accept as little as $100,000. This will allow the homeowner to avoid foreclosure, more extensive credit damage, and will also let them begin the process of rebuilding their financial life, while giving a real estate investor the chance to purchase a property at a massive discount.

While most homeowners can grasp the short sale concept, the biggest question they may have is: What is a short sale going to do to solve their short-term financial problem – and how will it keep their credit from being even more severely damaged than it already is? If you can answer this question to their satisfaction, a distressed homeowner will likely take the lifeline that you’re offering them.

By sitting down with the distressed homeowner and clearly explaining just what is a short sale to their financial future, you can provide a solution to their financial trouble and can help them to get on with their lives, you can often convince reluctant homeowners to do business with you, especially when they realize that they have relatively few good options when faced with impending foreclosure.