Real Estate Profits

SHORT SALE INFORMATION

WHAT IS A SHORT SALE AND HOW DO I MAKE MONEY ON ONE?

HOW TO DO A SHORT SALE

When looking for foreclosures you’re going to run into a lot of properties where the amount owed is more than
what the property is worth. Most investors don’t even look at these, but this is where some serious money can
be made. Before you try to buy your first short sale I’d suggest you take a look at the short sale courses at www.
foreclosuresandflippers.com or www.foreclosureinsights.com . I usually get excited about a short sale when the
property is in need of work. The reason for this is when a property is in good condition the lender knows they
can list it if they take it back and have a reasonable chance of selling it. If it needs work you can generally
convince the real estate agent the lender sends out to do the BPO (Broker Price Opinion) that it’s worse than
what it really is and get a lower value from them which you can then use to negotiate a lower price with the
lender. For instance the property would be worth $400,000 if it was in good condition. It needs paint, floor
coverings, landscaping and some miscellaneous repairs which you estimate you could get done for $15,000.
When the real estate agent comes to inspect the property, be sure to meet them with some low comparable
sales in the area and an estimate of repairs for an odd amount, say $24, 848. This makes it look like you got
exact bids for everything that you’ll be pointing out to them that needs to be repaired. If you do this right, you
should be able to convince the agent that the property is worth in the area of $350,000. With that figure in mind
you would offer the lender $300,000 explain the reason for the offer is that they have to take into consideration
the selling fees, holding costs and the risk of vandalism, etc. You can also point out that values are still falling
in California. If you can settle on a price of $315,000 and put the $15,000 in you would have about $70,000 as
a potential profit. Remember you are also going to have holding costs while trying to find a buyer, so make sure
there is plenty of room in the deal. If you’re buying it to live in then you can pay a little more than you would as
an investment.

The way a short sale purchase works best is to be able to show the owner why it’s in his best interest to deed
you the property if he doesn’t want to or can’t sell it and may be moving anyway (don’t let the owners stay in the
property). Although an owner can’t receive any money from a short sale (you can usually find something of
theirs to buy at a premium price to give them moving money if the deal warrants it), it is still in their best interest
to not have the property go through foreclosure as it will hurt his credit even more than the short sale will.
Explain how much better for their credit if they do a short sale and how important a higher credit score will be.
The way the credit thing is going, before long you’ll need a good credit score just check out a library book.
When you have the property under contract you need to get the seller to write an authorization letter giving you
permission to speak with the lender on their behalf. Call the lender and find out where to send the letter and
have them tell you what documentation they need to do a short sale. Some of them have their own documents
that they want you to use and will fax or email them to you. When you call the lender you’ll most likely end up in
the collections department. Try not to waste too much time talking to them as they really can’t help you, instead
insist on them putting you through to the Loss Mitigation department. If they don’t know what that is ask them to
put you through to one of the following departments: work-out, foreclosures, short sale, loan modification or
reinstatement. Hopefully one of these will ring a bell with them. Generally after you’ve sent them the
authorization letter and you’ve been cleared to get information on the property they will want a signed sales
agreement, a financial statement to show the borrowers can’t afford the property and a hardship letter to
explain in personal terms why they can no longer afford the property. Some banks may want some other
documents, but these will likely be items the seller should have. After the lender gets this information they will
assign it to a mitigator and he will contact you to start negotiations. It normally takes a couple of days for the
lender to assign it and much of the time they have up to two weeks to contact you. I usually give them a three
or four days, after I’ve confirmed that they received it, and then I phone every day until someone talks to me.
If you have checked any of the courses the gurus are teaching you’ll see some pretty outrageous claims of
what the bank will discount their loan to. One thing to remember is that most of them are back East and prices
are quite a bit lower there than they are here in California so the percentages tend to be skewed. When you
see claims of 40, 50 or even 75% discount take it with a grain of salt. Having done this for a while and talking to
many loss mitigators I’ve come to the conclusion that you’re probably more likely to get discount of somewhere
around 15-20% plus repairs and costs. Although it costs somewhere in the neighborhood of $30,000 to
$50,000 for a bank to go through foreclosure some of them feel that it’s in their best interests to do it rather
than discount too much. Be realistic when you talk to the mitigators. Get greedy and they’ll probably just blow
you off.

The lender is going to require you as the buyer to have a signed contract of sale, loan approval letter and a
estimated HUD-1 from escrow. If you haven’t opened escrow you might want to check on this course at www.
easyHUD.com to be able to make a professional looking HUD-1 that will show the lender how much they will net
and it will be a form that they’ll approve of. Once you’ve sent in the required information it’s time to start serious
negotiations with the Loss Mitigation department. Be sure you build as much rapport as possible with the
mitigator right from the beginning and hope you keep the same one all the way through. Things tend to get
messed up when a different mitigator is assigned to your file because they all have different ways of doing
things. Try not to waste their time as right now they are extremely busy and they don’t have time or the
patience to work with you when you don’t send all the paperwork they want. Don’t forget to point out how bad
the real estate picture is here in California, how much it costs to do a foreclosure, how much the bank has to
hold in reserve, how much is costs to sell the property (for instance the sales commission alone on a $400,000
sale is $20,000 to $24,000), etc. Don’t do this blatantly but try to work it into the conversation.

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