Short Sale in Real Estate:

There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a “short sale.” Click Here for a Complete Step-by-Step Short Sale Guide

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

If you are considering buying a short sale, there could be drawbacks.

For your protection, I suggest that all borrowers:

• Obtain legal advice from a competent real estate lawyer
  
• Call an accountant to discuss short sale tax ramifications
  

As a real estate agent, I am not licensed as a lawyer nor a CPA and cannot advise on those consequences. Except for certain conditions pursuant to the

Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.

Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect.

• Call the Lender
  You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the “real estate short sale” or “work out” department, you want the supervisor’s name, the name of the individual capable of making a decision.
  
• Submit Letter of Authorization
  Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
  
  • Property Address
    
  • Loan Reference Number
    
  • Your Name
    
  • The Date
    
  • Your Agent’s Name & Contact Information
    
• Preliminary Net Sheet
  This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.
  
  
• Hardship Letter
  The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
  
• Proof of Income and Assets
  It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
  
• Copies of Bank Statements
  If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it’s probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
  
• Comparative Market Analysis
  Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:
  
  • Active on the market
    
  • Pending sales
    
  • Solds from the past six months.
    
• Purchase Agreement &
  Listing Agreement
  When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to allow payment of certain items such as home protection plans or termite inspections.
  

Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.

Article written by: Elizabeth Weintraub,

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How to find foreclosure homes?

This is the key questions every investor asks when thinking about investing in foreclosure properties. One of the best ways to find foreclosure and pre-foreclosure properties is thru Realtytrac an online foreclosure listing service which in my opinion is the best. I have purchased many pre-foreclosure properties thru this service and they have a free trial service as well. Another valuable foreclosure educational resource is an online downloadable ebook called “Dominate Preforeclosures” which is a step by step guide in finding and investing in foreclosures for profit.
Foreclosure investing is a specialty all to itself within the world of real estate investing. It is a highly targeted and specific market dominated by competing investors who are highly educated in all the different ways money can be extracted and earned buying and reselling foreclosure properties. And these investors are out there right now devising ways to find and take your next deal before you even find it!

But take heart.

The good news for investors interested in making money in foreclosures (regardless of whether it’s residential or commercial) is that there are more than enough foreclosure properties available for everyone.

Is Foreclosure For You?

The image many of us tend to think about when someone says “foreclosure” is overflowing toilets, condemned homes, termites and mold and a sign nailed to the front door saying “rehabbers need only apply.”

The truth is that foreclosing property can range from lower income condemned buildings to million dollar mansions to multi-million dollar commercial property. You alone get to decide what properties you want to work with as an investor because money can be made from all of the above.

So What Is Foreclosure?

When you want to buy property the conventional way, you go to the bank and ask for a loan. When the bank agrees to lend you money to purchase your property, you sign a mortgage, which contains a promissory note. This promissory note states that if you don’t pay the bank back the money they lent you, they will take back your house which is their collateral.

The foreclosure process is simply the process of the bank taking back its collateral for the loan they made.

Houses Are Foreclosing At Record Speed

Foreclosures have reached epidemic status. According to the Mortgage Brokerage Association there were 200,000 foreclosures nationwide in 1986. It’s estimated that the total number of foreclosures across the United States for 2003 will be 500,000!

Does you see a growing market screaming with opportunity!! If that didn’t wake you up and grab your attention try this: Mecklenburg County alone had 7,472 notices of default served in 2003. That means over SEVEN THOUSAND homes in just Mecklenburg county were served notices stating that because the homeowners were so far behind in their house payments the lending institution was beginning the foreclosure process on their homes.

And if all of those homes heading towards foreclosure in Mecklenburg wasn’t enough, how about all the other counties that are close to Mecklenburg including Ire dell, Cabarrus, Union, Gaston, Lincoln, and Rowan county to name a few.

The opportunity for an investor to make money in the foreclosure market locally is staggering.

But Why Are People Foreclosing?

Interests rates are lower than they have been in 40 years and banks have lots of money they want to lend you to buy your home. They are often willing to lend you 85% of your homes value as a first mortgage and then lend you the remaining 15% as a second mortgage. The homeowner has now purchased a home with mortgage payments that are quite high. Possibly high enough that if anything changes in their financial life they may not be able to afford to make these payments.

Unfortunately, many things can cause your financial world to crumble. Divorce remains the number one reason for foreclosure. It took two incomes to make that mortgage payment before and now with the divorce there is only one income.

Other causes that force people to stop paying their bills and eventually foreclose include bankruptcy, credit card debt, unemployment, job transfer, health problems, and balloon payments to name just a few.

The Different Stages Of Foreclosure

The foreclosure cycle in the United States has three stages that correspond to the time when the distressed property is for sale.

1. Pre-foreclosure
2. Auction/trustee sale
3. Real Estate Owned (REO)

Some investors specialize in purchasing during one specific phase of the cycle while others will invest during any of them. Each has its advantages and disadvantages.

Stage 1: Pre-Foreclosure

Pre-foreclosure is the first step in the foreclosure process. Simply stated, the homeowner has fallen behind enough payments that the bank is getting nervous. You owe them money and you haven’t been making your payments. It begins when you receive a certified letter telling you that if you don’t bring your payments current and give the bank the money you owe them by a specified date, the sheriff will come over and evict you from your home.

And yes, that’s exactly what happens.

Remember the bank makes money by lending you money, not holding property. The bank doesn’t want your house, but it will take it from you if you don’t pay back your loan.

During pre-foreclosure an investor can approach the homeowner and offer to help them by purchasing their home, which will stop the foreclosure.

There is great opportunity here because during pre-foreclosure the investor has little risk, no liability, and many times, no need for money or credit.

The only real risk is the need to know what mortgages, liens, and judgments are coming with the property you are buying. This is your biggest risk when working the pre-foreclosure market but is easily handled with a little research. Remember all liens loans and judgments are public record and are recorded at the county courthouse. You can do the research yourself or ask your attorney if he’ll do a preliminary title search for you. If you have a good working relationship they will often do this at little or no charge.

Buying before the auction (Stage 2) gives you the advantage of time. Time to inspect the property, research its liens and other judgments and also find out its value and ability to rent or quickly wholesale.

Stage 2: The Foreclosure Auction

Stage 2 in the foreclosure process is the auction (sometimes referred to as the trustee sale). If the homeowner does not pay the lender what they owe them by the date specified (by the lender), the property goes up for auction at the county court house. This stage is the banks chance to let an investor buy the property and pay them for it so they don’t have to take it back. Remember the bank doesn’t want the property back- it wants its money. The house was there collateral and they are happy to sell it someone else, often at a discount if they need to.

As an investor, you can often purchase property at the auction for a discount but you have to have accurate knowledge of property values before you bid. Properties at these sales are normally sold at a discount from retail prices, but they are sold “as is.”

You should also know something about the property you are about to purchase. Have you been inside? What’s its condition? What kind of repairs will be required? Be careful- the 50% you saved at the sale could easily be spent repairing the outdated and neglected interior, replacing the old roof, removing mold, exterminating termites and overhauling the heating and air system. And this will probably need to be done before you can rent or resell the property.

Some of the disadvantages of purchasing at the auction include the need for cash, and the fact that you are purchasing the property “as is,” and usually don’t know the condition of the interior or the extent of the needed repairs.

Some of the benefits to buying at the auction include the ability to often purchase at a discount, not needing to deal with the emotions of the seller, little negotiation skills are required and there are very few legal hassles.

Stage 3: REO, Real Estate Owned

The third and final stage of foreclosure happens when no one purchases the house at the auction, forcing the bank to buy the property back itself. Remember the bank didn’t want the house back, but the property was the collateral for the money lent to the homeowner. The property now becomes Real Estate Owned, it’s owned by the bank.

The bank can now sell it at any price, high or low. They want their money back and they are happy to make a profit doing so if they can. The investor must be careful when looking at bank owned property to know what the real value of the property is. If the bank can sell this property and make a profit it will.

If the property is in need of repair or if the market is such that the house will not sell at retail value, the banks will often accept significantly less for the property.

The benefits of purchasing REO property include the banks willingness to often accept deep discounts to free themselves of the property, and your ability to do your homework before you purchase. The disadvantages include the need for cash to purchase the property and often times the needed skills to rehab it to bring the property up to a condition that it can be occupied or sold.

Which Stage Of Foreclosure Is The Best For You?

As an investor, the foreclosure market offers a great opportunity to earn large sums of money while helping distressed homeowners. Each of the three stages of foreclosure offers something unique for every real estate investor. With foreclosures occurring at record numbers and no end in sight, there has never been a better time to look at foreclosures. Explore all three stages and see which one is a fit with your current or planned real estate strategy.

Article written by: Jeff Newman