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Due to the sub-prime mortgage crisis and declining real estate prices, many homeowners are finding themselves owing more on their mortgages than their properties are worth and facing pre-foreclosure. So, there are many short sale and pre-foreclosure opportunities for investors these days. Buying a short sale property is a good investment because the properties are purchased at a discounted price. In a short sale, the lender agrees to accept a discounted amount to pay off the loan balance and writes off the remaining amount. The short sale process can take around 90 days or longer so you need to be patient. There are some steps that you need to take in connection with a short sale process: Write a letter or call the seller and let them know that you are interested in purchasing their property. This can help them by closing the sale quickly. If you have cash, that's even better. Also let them know that you would like to talk to them about avoiding foreclosure by doing a short sale and why the short sale is a better alternative for them. Once the seller is receptive to a meeting, you can explain in more detail the short sale process and the benefits to the seller of not ruining their credit and losing the property to foreclosure. If the seller is interested, then you and the seller will need to decide on a purchase price. It is a good idea to have the seller contact the lender or give you authorization to contact the lender to find out if the property qualifies for a short sale first. Many lenders will not discuss the process until a notice of default has been filed on the property. You don't want to waste time on the transaction if the lender is not receptive. If the property does qualify for a short sale, then once you have the property under contract, you need to present a short sale package to the lender for their approval. The lender must approve of the short sale before the transaction can close.
Short Sale Packages You may want to hire an attorney to help you with the short sale process or you can do it yourself. Your short sale package should always include the following items: An executed letter of authorization from the seller advising the lender that you are the seller's authorized representative and authorizing the lender to release any information about the seller's loan to you. A preliminary Net Closing Statement. The preliminary closing statement is referred to as a HUD-1. It can be prepared by you or your attorney or a title company. I suggest you use a title company or an attorney to do it for you if you have never prepared one. A hardship letter stating the financial reasons why the seller can no longer make their mortgage payments. The reasons could be because of a job loss, illness, divorce situation, etc. Always include a comparable market analysis prepared by a Realtor® which shows the current active, pending, and sold listings in the area similar to the subject property. The information should be current and no older than 90 days given the current market conditions. A copy of the accepted purchase agreement signed by you and the seller. A copy of any real estate brokerage commission agreements. FHA or Federal Housing Administration properties require an application to participate and FHA Counseling Certification. If you need further information, you should contact HUD. For Veterans Affairs (VA) properties, you must submit a Compromise Sale Package. For more information, contact the U.S. Department of Veterans Affairs. The seller's W-2 or 1099 tax information for the last two years and bank statements.
The lender will need to approve both the sales contract and the broker commission agreement. Short Sale Tips Follow up with the lender within 3-5 business days after submitting the short sale package. Call the lender's loss mitigation department first until you reach the person who is in charge. Meet with the appraiser to determine the price that the bank will accept. [Note the rules regarding selection of lender appraisers may be changing soon due to new regulations that have been passed by Fannie Mae and Freddie Mac. Check the Fannie Mae or Freddie Mac websites to find out more about the new rules.] Once the lender accepts your offer, you can make your closing arrangements. Have your financing or cash ready to close quickly.
Keep in mind that not all lenders are willing to accept short sale transactions. You may have to walk away. However, if you are really interested in purchasing that particular piece of property you can track it and wait until it goes to foreclosure auction or becomes a bank-owned foreclosure (REO). Lenders are more willing to negotiate with REO's than short sales. Once the property is on the lender's books, they are more anxious to get rid of it because they are not in the real estate business. Right now lenders have many foreclosure properties in their inventory, so you can find favorable investment opportunities.
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