A “short sale” is negotiating with a mortgage holder to accept less than what is owed as payment in full on the mortgage.
A short sale is a fantastic strategy to use when you have found a real estate foreclosure, however the homeowners owe the bank close to or more than what the property is worth.
Here’s the breakdown:
The homeowners owe $100,000 to their first mortgage holder and the payments are in arrears. Their property is worth $100,000 in the current market condition. With proper negotiating strategies, you get the bank to accept $60,000 as payment in full. Therefore, purchasing a $100,000 retail property for $60,000. Interesting, eh?
Please keep in mind there must be a defaulting situation for the bank to entertain your short sale. No lender who is receiving current mortgage payments would accept less than what is owned as payment in full. The number of delinquent payments vary, however sometimes one late payment is enough to entertain the bank.
It doesn’t matter which lien is foreclosing when you attempt your short sale, only that there is a delinquency. Some homeowners will be in foreclosure on their first mortgage, yet their second mortgage is current.
When making an offer to the bank, be sure your starting offer is low but still reasonable enough to be taken seriously, and not too high that you cannot go up. In the example above, a starting offer of $50,000 would be worthwhile; approximately 50% of the retail value, assuming the mortgage amount is also high. We’ll discuss negotiating later in this program.
A short sale can be done anytime during the default prior to the lender taking the property via the sheriff’s sales, courthouse steps, or foreclosure sale. It is called different names in different areas. We’ll use “sheriff’s sale” for the sake of this educational material. Also, many areas have what’s called a “redemption period” after the foreclosure sale. This period gives the homeowners one last opportunity to get their home back. During this time the bank is still not the owner.
The homeowners own the property until the last day of the redemption period. The homeowners many find the money to pay off the bank and keep their home, thereby redeeming the home. You can still negotiate a short sale during the redemption period. When you see that a home has “gone back” to the bank at the sheriff’s sale, ou can contact the homeowners and speak with them about working out a short sale agreement with their bank. Some areas have very long redemption periods (up to one year), which make it almost impossible to actually bid on property at the sheriff’s sale itself. During the redemption period is another great way in which to create a superb deal. Call you county courthouse and ask for the foreclosure department. The folks who answer the phone are usually very cooperative in answering questions and can tell you how long the redemption period is in your area. This is “Must Know” information. Make the call today!