Short Sale
A Short Sale is a process during a pre-foreclosure procedure, whereby the bank will accept a lower percentage amount of the face of the loan, as well as deduct the interest and penalties, due to the financial hardship of the homeowner. These houses are generally owned by people who have purchased their home with little, or no money down, or own homes that are in areas that are very slow to appreciate. They are also homes that are distressed to the point of value depreciation, or cannot be compared to other homes in the area because of the disrepair.
This is the way it works: Upon request, the bank foreclosing on Bill’s home will send him an application to apply for a Short Sale. On this form, he will state his particular financial hardship. The bank will then, in most cases, send out an appraiser to determine the market value of the property. If the appraisal determines the value of the home is considerably less than the face of the mortgage note held by the bank, and after final review of the homeowner’s particular hardship, the bank will usually accept anywhere from 30 to 50 percent less than the amount of the face of the loan, and deduct any interest and penalties due.
Every mortgage bank offers this process with homeowner loans. The division of a mortgage bank is called loss mitigation. Each bank’s loss mitigation department works differently from state-to-state. But the one common thread country wide is that all banks want to recoup as much money as possible and avoid getting stuck with a bad loan.
For Example: Let’s go back and apply this process to Bill’s situation and get him out of his dilemma using the short sale procedure. Bill has not paid his mortgage in three months. He owes $2,970 in back mortgage payments, plus interest and penalties. His mortgage loan is $150,000; with no money down. It’s been about two years now and his house has not appreciated much, it still only values about the same $150,000.
We offered Bill’s bank $120,000 ( 20% less than the face value of the loan), plus forgiving the $2,970 in back payments. After review the bank accepted this offer with a contingency that we close the deal within a 30 to 45 day period, and Bill makes no profit from the sale. You would be surprised with how cooperative banks can be in this kind of situation. Because the bank stand to lose more money when taking the property all the way to foreclosure— with legal fees, nonpayment’s adding up, and putting the property up for foreclosure auction involves additional legal fees to evict Bill, clean and prep the house for resale while paying real estate commissions—it makes perfect sense.
In addition, banks are insured against this kind of loss, anyway. They are not documented as “bad loans” since it was a settlement case. And the bank does get to write the loss off on there accounting books. Money can be made with a short sale and gives the homeowner who is in a bad situation a second lease on life!
As an investor in this situation, you would acquire a new mortgage from a different bank, or buy the property outright with cash. Either way, you stand to make a
gross profit of $30,000 later on by selling the house or refinancing with an equity loan and pulling out the equity that you created.
AT A GLANCE
· Bill’s property market value $150,000
· Bill’s mortgage company payoff (negotiated short sale) 120,000
· Interest and penalties paid 00.00
· Profit Bill wants 00.00
· Your potential future profit $30,000
Note: You can represent the seller or homeowner in distressed situations like this one, as long as you are purchasing the property yourself. The main thing you need to do is ask yourself these questions.
How much does the person owe on their mortgage, including interest and penalties?
How much time is there before the house goes up for foreclosure sale of default?
How much is the house worth at market value after repairs, upgrades or renovations?
Does the person have additional liens on the property, such as a second mortgage, equity lines of credit, tax liens, or mechanic liens?
Does that person have a current bankruptcy, such as Chapter 13—all bankruptcies must be dismissed before ownership can transfer?
Are there any additional owners on title—all owners must participate in the Short Sale process.
And most importantly, ask yourself if the profit you will make is worth going through the Short Sale process?
This is an excerpt from the national best selling book Getting the Real out of Real Estate by Carl Agard
http://www.carlagard.com/
http://www.adelphipublishinggroup.com/
http://www.amazon.com/
http://www.target.com/
A Short Sale is a process during a pre-foreclosure procedure, whereby the bank will accept a lower percentage amount of the face of the loan, as well as deduct the interest and penalties, due to the financial hardship of the homeowner. These houses are generally owned by people who have purchased their home with little, or no money down, or own homes that are in areas that are very slow to appreciate. They are also homes that are distressed to the point of value depreciation, or cannot be compared to other homes in the area because of the disrepair.
This is the way it works: Upon request, the bank foreclosing on Bill’s home will send him an application to apply for a Short Sale. On this form, he will state his particular financial hardship. The bank will then, in most cases, send out an appraiser to determine the market value of the property. If the appraisal determines the value of the home is considerably less than the face of the mortgage note held by the bank, and after final review of the homeowner’s particular hardship, the bank will usually accept anywhere from 30 to 50 percent less than the amount of the face of the loan, and deduct any interest and penalties due.
Every mortgage bank offers this process with homeowner loans. The division of a mortgage bank is called loss mitigation. Each bank’s loss mitigation department works differently from state-to-state. But the one common thread country wide is that all banks want to recoup as much money as possible and avoid getting stuck with a bad loan.
For Example: Let’s go back and apply this process to Bill’s situation and get him out of his dilemma using the short sale procedure. Bill has not paid his mortgage in three months. He owes $2,970 in back mortgage payments, plus interest and penalties. His mortgage loan is $150,000; with no money down. It’s been about two years now and his house has not appreciated much, it still only values about the same $150,000.
We offered Bill’s bank $120,000 ( 20% less than the face value of the loan), plus forgiving the $2,970 in back payments. After review the bank accepted this offer with a contingency that we close the deal within a 30 to 45 day period, and Bill makes no profit from the sale. You would be surprised with how cooperative banks can be in this kind of situation. Because the bank stand to lose more money when taking the property all the way to foreclosure— with legal fees, nonpayment’s adding up, and putting the property up for foreclosure auction involves additional legal fees to evict Bill, clean and prep the house for resale while paying real estate commissions—it makes perfect sense.
In addition, banks are insured against this kind of loss, anyway. They are not documented as “bad loans” since it was a settlement case. And the bank does get to write the loss off on there accounting books. Money can be made with a short sale and gives the homeowner who is in a bad situation a second lease on life!
As an investor in this situation, you would acquire a new mortgage from a different bank, or buy the property outright with cash. Either way, you stand to make a
gross profit of $30,000 later on by selling the house or refinancing with an equity loan and pulling out the equity that you created.
AT A GLANCE
· Bill’s property market value $150,000
· Bill’s mortgage company payoff (negotiated short sale) 120,000
· Interest and penalties paid 00.00
· Profit Bill wants 00.00
· Your potential future profit $30,000
Note: You can represent the seller or homeowner in distressed situations like this one, as long as you are purchasing the property yourself. The main thing you need to do is ask yourself these questions.
How much does the person owe on their mortgage, including interest and penalties?
How much time is there before the house goes up for foreclosure sale of default?
How much is the house worth at market value after repairs, upgrades or renovations?
Does the person have additional liens on the property, such as a second mortgage, equity lines of credit, tax liens, or mechanic liens?
Does that person have a current bankruptcy, such as Chapter 13—all bankruptcies must be dismissed before ownership can transfer?
Are there any additional owners on title—all owners must participate in the Short Sale process.
And most importantly, ask yourself if the profit you will make is worth going through the Short Sale process?
This is an excerpt from the national best selling book Getting the Real out of Real Estate by Carl Agard
http://www.carlagard.com/
http://www.adelphipublishinggroup.com/
http://www.amazon.com/
http://www.target.com/
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