What is a Short Sale?

In exploring the world of Real Estate investment, you are going to find a great deal of properties that are on the way to foreclosure. If you know how a Short Sale works, you might be able to make some very good deals.

A Short Sale opportunity in Real Estate is a situation where a bank is about to foreclose on a property and the property has no equity in it at all. In fact, the loan amount might be even more than the market value of the property. This is a situation where everyone involved is on the verge of losing. The bank is not going to get their loan back in full because after the cost of the foreclosure proceedings and the other associated costs of getting the buyers out of the property and reselling it, even a fair market sale price is going to result in a loss.

The buyers are losing their home, and since they are in default, they most likely are in some serious financial trouble. So, here is an opportunity for you as an investor to step in and turn this bad situation into a win/win deal for everyone. What you are going to do is make an offer to purchase the property at a price below the market value. Usually, your offer is going to be considerably below market value which gives this the name "short sale."

In order to do this you need to work with a department within the lending institution that is usually called the "loss mitigation department." Some banks and lenders call this something else and you might have to go through some telephone hassle before you get in touch with the right person. The loss mitigation department, or whatever name they call it, deals with loans gone bad. They are looking to cut the lenders losses as much as possible in the case of defaulted loans. This is where you come into the picture. You have to convince the lender that the best course of action is to sell the house at the reduced price and be done with it.

The important thing in a Short Sale is the personal negotiation between you and the loss mitigation officer. You are going to have to convince him that the loan holders have no equity in the property. It might help to be able to convince them that the loan holders are nice people who deserve a break and you are willing to take on the Short Sale to help them out of a bind. You need to do a loan application in reverse where you convince the lender that the house owners are unable to come up with enough money to clear the defaulted amount.

While telling the truth is essential, the truth needs to be slanted as much as possible toward the idea that the Short Sale is a good idea for the lender and the home owners. The lenders will not be as willing to do this when they think the real winner is going to be the investor. The investor does stand to be a big winner in a Short Sale, however, because he could acquire a property at a price substantially below market value. The Short Sale investment takes a bit of legwork and some good negotiation techniques and skills, but can be a very good investment tactic when done correctly.

View properties for free or list your home for sale by owner for 1 month free at FSBOAmerica.org.