Many homeowners are now finding themselves in a situation where they cannot afford to pay off their mortgage any longer. This maybe because they had taken advantage of the short-term interest-only loans or had their properties valued lower than the loan they have obtained. In such an event, there are some options available to them rather than to go through the whole process of mortgage foreclosure and run the risk of being evicted.
Short sale is a good solution. It involves the sale of your mortgage property at a low price. Keep in mind that banks would rather take the money that your property. As the borrower, you can propose a short sale to the lender so that everybody is benefited. This strategy is getting very common in the U.S.
There are mortgage foreclosure specialists and buyers works as facilitators of short sales. If you’re lucky, you might even be approached by them and have you sign a release or an authorization form of your property. The specialists would write up all the paperwork involved, including the contract of sale. The contract would contain the offered amount and all the conditions involved in the agreement. You’re free to review the document before signing it. Also included in the contract is a hardship letter indicating the reason why you can’t pay for the property and how the short sale can be beneficial to the lender.
A short sale of the real estate can be advantageous to the homeowner or borrower because:
1. It can help them save their credit history
2. It can help them find a solution to an otherwise embarrassing situation
3. It could reduce the stress of finding funds to answer a certain financial obligation
4. It is the faster solution to mortgage foreclosure process
In today’s housing market, there are tons of property inventories. And that causes the banks to lose a lot of money each day. The whole foreclosure process can be a long and tedious one for the lender. For the borrower, it is a stressful, embarrassing, and dreadful experience. Short sale could actually stop the mortgage foreclosure process involved and benefit all parties involved. Through it, the lender gets his money from the sale and the homeowner can walk just away from the property that he can’t pay for any longer. The buyer gains advantage too as he ends up buying a good property at a discounted price.

Short Sale FlippingShort sale flip has become one of the most popular scenarios in the real estate market today. Short sale flip, back-to-back closings, transactional funding, and a million other terms are associated with short sales. In short sale flipping, a homeowner with a bad debt agrees to sell off his property on a lower price. The lender or the bank purchases the property at a price that is less than what the owner actually owes, in turn preventing the homeowner against foreclosure. This a win-win situation for both the buyer and the seller because the seller is able to dissolve his bad debts and the lender purchases the property on a lesser amount and can sell it off for more at a later stage. This kind of buying and selling is legal. However, there are many controversies associated with short sale flips. Many title companies and real estate brokers find it illegal and unethical to indulge in short sales. Bill Bronchick, a proficient attorney reveals the truth about this dissension. Short Sale Flips are Legal says Bill BronchickBill Bronchick opines that a short sale flip is not much different from a regular wholesale flip; the only exception being that in short sale flipping, investor pays off seller’s lender at a discount instead of paying in full in case of regular flips. Bill Bronchick puts forth certain points that are important to avoid falling in a legal battle in case you are indulging in short sale flips. According to Bill, it is a fair game to make profit in a short sale flip, as the seller is not entitled to get any money out of the deal in any case and furthermore, the lender will not agree to flip while the seller walks away with the money. He further affirms that if the investor keeps the property as a rental, it is absolutely legal and triggers no issues at all. In addition, if the property is sold off few months later instead of selling immediately, there is no contention involved with it. It is also imperative for a lender or an investor to disclose to the seller about the intention of reselling the property for a profit, asserts Bill Bronchick.To know more about short sale flipping and to get some more useful tips from Bill Bronchick, please visit http://www.legalwiz.com

When you work with the homeowner to put together short sale negotiations with the bank, you?ll also be assembling vital evidence in a short sale package. This package is very important in preforeclosure deals. It provides enough information to (hopefully) convince the bank to accept your short sale offer on the homeowner?s property.

Include everything you can in the short sale package that backs up your request for a short sale. Obviously, you?ll want to leave out extra evidence, (unless the bank specifically requests it), that may hurt your claim.

Common Items in a Short Sale Package:

Standard Purchase and Sales Agreement & Escrow Instruction

This is the standard sales contract between you and the homeowner, since you will actually be purchasing the property from the homeowner with the bank?s approval.

Authorization To Release Information

In order to get the bank to work with you, the homeowner need?s to sign this document stating that they authorize their lender, the bank, to share all vital information concerning their mortgage with you. If you don?t have this the bank won?t talk to you!

Letter Of Agreement and Addendum

This is the cover your butt document stating that you will work with the homeowner and the bank to stop the foreclosure, but you can?t guarantee that the bank will agree to stop the foreclosure during short sale negotiations with you.

Warranty Deed To Trustee

You?ll need to get a notary to authenticate this document. It basically shows who owns the property you are attempting to purchase.

Agreement and Declaration Of Trust

In order to keep your own name off of public records you?ll use this document to declare a land trust on the property, which you?ll have rights too.

Letter That Trustee is Making Payments:

This letter is used when you have an agreement with the homeowner that indicates you?ll be taking the property ?subject to? and notifies the lender that payments will be coming from a trustee.

Escrow Letter

You?ll use this letter to tell the bank to apply funds in an escrow account to the loan balance when the loan is paid in full and the short sale deal is complete. Be aware there is no guarantee the bank will comply with the instructions for your real estate investment. They may send the escrow proceeds to the original borrower, which is the homeowner. So, you?ll need to make arrangements with the homeowner just in case this happens.

Special Power of Attorney

You?ll get this signed by the homeowner in front of a notary. It applies only to the property and lets you make decisions concerning the property if something happens to it before the short sale deal closes.

Residential Real Estate Disclosure

This is basically to protect everyone involved. You?ll sign it as the purchaser. It discloses any defects in the property and prevents anyone from claiming after the deal is completed that they weren?t aware of certain defects in the property.

Hardship Letter

This is a very important letter in pre-foreclosure investing. The hardship letter allows the homeowners to explain in detail all of the reasons they were unable to make payments on their mortgage and why they?ll be unable to completely pay off the mortgage. A good hardship letter can really help you seal the deal.

Financial Statement

This is basically the homeowner?s pay stubs, copies of their past income tax returns and other items that show the homeowners really are in financial hardship. The bank will absolutely want to see this proof of hardship before discounting a loan and taking a known loss.

Suggested Extras to Seal the Deal!

There are a few extra pieces of foreclosure information you can include in your short sale package to get the bank?s attention in this preforeclosure deal.

Cover Letter

The cover letter helps your short sale package stand out. It basically states who you are as an investor and that you are requesting a short sale. It also states why the bank should take the short sale. You can also summarize the major points of your package in this cover letter for the bank officer reading it.

Proposed Closing Statement (HUD1)

Eventually you?ll find that a bank requests the HUD1form. It shows all the fees and payments that will be made to the parties involved in the short sale. It helps them know their bottom line on the deal at a glance. Plus, it ensures the seller is not receiving any compensation.

Opinion Of Value

This can be a professional estimate or your own statement. You?ll back it up with a quick list of all the negative points of the property, its needed repairs and the lowest comparable sales in the area.

Estimate Of Repairs

If this property in pre-foreclosure needs repairs make sure you get estimates for all of them and include those estimates in your short sale package to back up your discounted price. Use the highest priced estimates you get.

Notice Of Trustee?s Sale

This is the notice that the homeowner receives telling them that their property is going to the foreclosure sale. By including this document in your short sale package you are letting the bank know that you are aware of the foreclosure process. It also helps put a timeframe on the deal and can light a fire under them, so to speak.

Color Photos

You?ll get extra points with the bank by sending them pictures of the damaged and neglected areas of the house. They provide photographic evidence of the low market value of the property and encourages the bank to accept your discounted offer.

The short sale package usually contains quite a lot of foreclosure information. In fact, it?s an involved process and essential part of debt negotiation with the bank. The bank will want ample evidence to back up your short sale request for their loss mitigation department as can be seen by the bulleted list. This package contains information that the bank requests from you and your own research on the property including; damage estimates and the homeowner?s hardship letter, all of which work to back up your request for a discounted sale price on the property.

Often times an agent will list a home as a potential short sale and state the asking price too low. A short sale list price normally has no connection to the actual price a bank may accept. The list price may be too high to pull in an offer or too low for the bank to accept. The house needs to be listed at an appealing price to entice an offer from a prospective buyer, but not too low that the bank will inevitably reject it.

The seller may not qualify for a short sale opportunity. If the seller is asking for debt forgiveness and they have assets they are at a disadvantage if they are unwilling to work out a repayment plan with the bank. The bank will want to see documentation of their current financial status and a hardship letter from the seller that explains why they can not afford to continue making mortgage payments. The seller needs to explain what hardship they have suffered. Just wanting to walk away and get a cheaper house is not a reason to do a short sale and most likely the lender will deny the short sale request.

The downfall may also be on the buyers end. The desire that many prospective buyers have to purchase a home at a great (below market) price and the financial means to do so are two different are not contingent on one another. It is important to have a qualified buyer before an offer is made. Banks will require proof of funds or pre-approval letter at the time an offer is made. They want to see ability to obtain financing before starting any negotiations. If a buyer is unable to prove funds, the offer will be objected immediately.

It is extremely important to have assistance putting your short sale package together to submit to the lender. These lenders are overwhelmed and understaffed. If the package is not labeled or not packaged as they instructed, they may reject the short sale just because it did not meet their specifications. It is vital to include all the required documents at once. Although it seems simple, this may be the most common pitfall in rejected short sale offers.

There are many reasons why banks reject short sales. Short sales occur when a bank agrees to accept an amount for the sale of a home that is less than the balance owed. Typically, a highly motivated seller is looking to unload their mortgage obligation and avoid foreclosure.

The three most common reasons a property does not qualify for a short sale are: the offer price is too low, the buyer does not qualify, or the seller does not qualify for the short sale.

Typically, the bank will require an appraisal to establish the value of the home before going forward with any approval.

There has been quite a bit of discussion lately about short selling and the “uptick rule.”

A “short sale” happens when the real estate market will not support a price for property that is equal to or higher than the current owners? debt on the property plus any Realtor fees, taxes, and closing costs. The homeowner would have to bring money to the closing table to sell the home. Unfortunately, the most widely known

alternative is foreclosure.

Short sales are another alternative for the homeowner and they also provide opportunities for a savvy real estate investor.

Here’s an example:

Mark and Heather bought a home for $400,000 with 80 percent LTV (Loan To Value) financing. Later they opened a home equity line of credit and used the remaining value in their home of $80,000. A year later they decided to divorce, and Heather moved out. Heather stopped contributing to the mortgage payment.

Mark decided to sell the home and discovered the market value is only $380,000. So if they were to sell the house and get the full value of $380,000, they would have to pay the difference between the loans against the property and the selling price, in this case $20,000. They would also be responsible for any taxes, closing

costs, and any Realtor commissions, which could be as much as another $25,000. They don?t have any money. Mark and Heather are in a “short sale” situation.

The lender or bank’s loss mitigation specialist estimates that a non-judicial foreclosure will cost Mark and Heather about $5,000. Plus there are $2,000 in property taxes due. The property is worth less than the mortgage and with these additional costs, the bank will suffer a serious loss.

With no money, Mark feels he is on a sinking ship and stops making the mortgage payments. Soon he is in a pre-foreclosure situation.

A real estate investor, Tom, approaches Mark and Heather and then the lien holder (the bank holding the mortgage) and offers to buy the

house for $290,000. Everyone agrees, Mark moves out and the closing takes place. Now the savvy real estate investor has a property with almost $100,000 of equity.

What happened behind the scenes is that Tom borrowed the funds to pay the bank from a private mortgage lender, Mary. Mary uses her

self-directed IRA to loan money to real estate investors. She earns a competitive rate of interest on the loan. Everybody wins.

A ?short sale? is when no one gets the ?short end? of the stick.

There are plenty of methods you can use to make profits on that short sale property once you purchase it. As a real estate investor you could sell the property, you can also play at being a land lord and rent the property out, or you could lease to own the property to a new homeowner. Plus, there are lots more ways than these to earn money from a Short Sale. All it takes is a little creativity. Lease Option A lease option is also a good way to help people with bad or no credit get into a home. Most of your lessees will be people who want a home, but just don?t quite have the credit history or income to qualify for a traditional mortgage. In the process of renting to own with your buyers, you can help them rebuild that credit with a program such as homebuyers1st.com, so they can qualify for a traditional mortgage in a few years and be able to pay you the remainder of the home price in one large chunk. A lease option is a new twist on the old way of buying and selling pre-foreclosure properties. You?ll buy the properties, fix them up and find tenants to lease them to on a lease to own basis. You will eventually get all of your money invested back plus a sizable profit, however, the lease option isn’t the fastest way to earn profits. Plus, lease option provides you all the benefits of being a landlord without some of the negatives, since the property will be under the care and maintenance of your buyers as eventual owners of the property. Making inspections to make sure the tenant buyers are not damaging the home is vital to make sure that something small doesn’t turn into a big problem. Simultaneous Closing The Simultaneous Closing involves buying the mortgage note from the bank and selling it to another investor within moments by using the funds from the end buyer. Then, the original seller to places the name of the final buyer on the deed to the property. Simultaneous Closings are a great way for investors to make profits without ever using their own money by finding a buyer for the property before they even purchase it. This closing method involves using a title company and having the buyer transfer their payment for the property into an escrow account at the title company. This is an excellent way to buy and literally sell your pre-foreclosure property in a matter of moments. However, many title companies and even mortgage companies are refusing to perform simultaneous closings on pre-foreclosure properties because of a bad reputation that they carry with mortgage and underwriting companies. Some banks will strictly place in their closing instructions that money from another closing cannot be used to pay off their loan. It can be construed as fraud if not done properly. Disclosure is the name of the game with real estate and as long as things are disclosed, there’s usually no issues with fraud. Buy and Hold When you buy and hold you become a landlord in a sense fixing up the properties and renting them out to tenants. This is a good way to keep property for yourself and also bring in a monthly income on it. However, you must be willing to deal with the pros and cons of being a landlord or hiring a property management company. As a landlord you’ll have to balance the tightrope of respecting your tenants privacy and rights to a well maintained property, as well as your own need to earn a profit and dealing with troublesome tenants. It’s not uncommon for a landlord to have to evict tenants for lack of payment and this can take several months sometimes. It’s also not uncommon for the tenants to trash the house before leaving. However, not all tenants are like this, and just want a clean, safe place to live. As the mortgage note holder on this pre-foreclosure property you?ll find that there are plenty of other creative ways to make profits. You can include a short sale negotiation fee to the HUD (of course, Realestateinvestor.com always recommends outsourcing your negotiation for less hassle). Those who are also Realtors can receive a realtor commission on the sale of the property to your own buyer. Using these methods you can create a nearly fool proof exit strategy to help you sell that pre-foreclosure property at a profit. Short sales aren?t only about buying the property on the cheap; they?re also about selling the property high or higher than you paid for it! Real estate investors can find all of the information they need to research buy and sell pre-foreclosure properties right online at Real Estate Investor dot com. All it requires is a few minutes on the site and you?ll see just how helpful it can be for investors new and seasoned.

Every other person who has been profiting from short sales also faces rejection at some point or the other. Just like every number game, generating big money through short sales is a tedious task to accomplish. In reality, very few investors actually know how to negotiate short sales successfully. Many are under the impression that all they would have to do is submit the offer, sit back, and wait for the bank to respond. If things go fine, they might be lucky enough to get the offer. However, to make it easier to negotiate the short sales you ought to have a plan wherein you persuade lenders to agree to your offer.
Given below are some precautionary measures you should take while negotiating with the lenders:
Determine if you have an opportunity for short sale
Almost all investors believe that several homeowners that face foreclosure are good candidates for short sales. Many investors make the mistake of trying to fit round pegs in square holes. Sad but true, every deal is not a good short sale opportunity. You should always have the knowledge to tell a good deal from a bad one. Always make sure to analyze the deal and formulate an effective plan of action if you really want to master in the art of bagging short sales.
Be persistent
Never take no for an answer, it will not be the definitive factor to the negotiations. Try to find out the reason for the rejection. Was the offer too low? Will you be able to discuss the matter with someone? How exactly does a lender define the bottom dollar? You will always face many such questions whenever refused, so consider the clauses and terms put forth by the lender.
For instance, two properties in foreclosure of a certain person bought as rental homes were located on the same street and funded by one lender. While one of the two properties had a mortgage balance of $160,000, the other had a balance mortgage of $166,000 and was presently on rent for $1,100 per month.
Both the properties had less equity; however, the neighborhood real estate business was very active since the past few months. After assessing both the potential deals, the person decided to try short selling. He got in touch with the bank and initiated the process. He put forth an offer of $99,800 on the first and $98,900 on the second, but to no avail.
After numerous discussions and some more documents to validate the offer, the person was able to get both properties at $70,000 below the market value. He successfully rehabbed one property for $4,500 and put it up for sale in the market. The second property occupied by a tenant derived a mortgage of $500 per month, making $800 in monthly positive cash flow. This would not have been possible if he had retreated after the initial rejection. He successfully got hold of two great properties with plenty of equity and a continuous cash flow. Besides, the homeowners averted foreclosure, and eventually bank was satisfied with the deal.
So remember, always be prepared, and take charge of the short sale offer. Always make the most of the opportunities you have to make money.