Seller Agrees To Finance The Property For The Buyer Paragraph How to Buy a Single Family Home Via Short Sale

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How to Buy a Single Family Home Via Short Sale

What is a short sale and how do you buy one?

short sale –A short sale is a sale of a home and/or other real estate in which the value of the home is less than the outstanding balance on the property’s loan. If the owner can sell, it won’t generate enough cash to pay the mortgage. The term short sale means that the bank will fall short of the full amount required to repay the loan in the event of a sale. In other words, the bank may agree to allow the homeowner to sell their home for less than what they currently owe on the loan. Note that this is a long and drawn out process.

The short sale process usually begins with the homeowner hiring a real estate agent to list the home for sale on a local multiple listing service. The homeowner and real estate agent agree on a price for the listing. The listing price is usually based on a real estate agent performing a comparative market analysis (comps) of current sales in the neighborhood. Here is where real estate investors come in. The bank will not process a short sale unless a valid offer is made, and an agreement for sale is signed by both parties.

Homeowners must prepare and submit a detailed financial package, hardship letter, and authorization letter to the bank(s) holding their loan. Also included when submitting to the bank, a copy of the sales contract, proof of funds for the buyer, and comparable sales provided by the real estate agent. The bank will determine if the homeowner qualifies for a short sale and the price the bank is willing to accept.

The short sale process will take months, it’s just a question of how many. In the coming months, the bank will make periodic requests for additional documents, request signatures on addendums, and request documents already submitted, which the bank has lost. It happens a lot. Finally, the bank will determine if the homeowner qualifies for a short sale and if the lender is willing to accept the offer submitted by the investor.

It is in the seller’s best interest to be represented by an experienced real estate attorney in short sales. They protect the seller’s rights by trying to ensure that the bank pays off the loan when the property is sold, otherwise the seller could be responsible for the unpaid portion of the loan for up to 20 years. Another positive aspect of a lawyer is that they can negotiate a short sale with the bank. There is an art to negotiating a short sale, and it is best left to attorneys or others trained to deal with the loss mitigation department at the bank. As an investor, it is always in your best interest to be represented by an attorney, or title insurance company. Sellers applying for a short sale may have a lot of debt against the home. They may have unpaid utilities, homeowner’s assessments, mechanics liens against the property, and need competent representation to make sure you’re getting clear title, unencumbered by any additional debts you owe.

In a very short sale, there is more than one lien on the property. Many homeowners took out a first mortgage when they bought the property, and then took out a second mortgage as prices rose during the real estate bubble. They may have a first mortgage, second mortgage, and home equity line of credit (HELOC). Essentially, they have three mortgages on the property. When negotiating a short sale, all lenders must agree to the sale, and that can be very difficult. A year ago, when the house was under water, it might have been much easier to deal with second and third mortgage holders. They may settle for 10% or even significantly less to release the property. Today, some subordinated mortgage holders are asking for more money because they believe they can sell.

Once the lender(s) complete an analysis of the seller’s hardship and financial situation, they may qualify the property as a short sale. As the offering investor, you are in first place with the bank. If the bank thinks your offer is satisfactory, they may accept your offer…or, they may ask you to increase your offer by a certain amount to accept it. In the end, they may reject your offer as low. In this case, you can always counter. In any of these scenarios, you have helped the homeowner as an investor. The bank agreed to the short sale, and if they don’t accept your offer, they will give the homeowner, and the real estate agent, an accepted price.

If we see a short sale property that we are interested in, we always make an offer. This gets the short sale ball rolling for the seller, and puts your offer first with the bank to be reviewed. That may be all the bank says no. When dealing with a short sale, knowing only that it will take months, there can be a lot of frustration and wasted time, but when you get it right, there are huge potential rewards for the real estate investor.

Here are some more tips:

Hire a good real estate attorney – Once the bank agrees to the sale they move quickly and before you know it you will have more documents to read and sign, and all of them are written for the benefit of the bank. Often times these documents are difficult to read and understand, and are usually simply not negotiable.

Look for paragraphs hidden in the appendix where banks take away the rights you have in a standard real estate contract. Get a real estate attorney on your team to help you get through it all quickly and efficiently.

Visit the property before you make your purchase– With so many foreclosures out there you have a lot of angry homeowners who lost their homes. Some issues at home can be minor or the ultimate deal breaker. Protect yourself and your investment. Never close at home without a walk-through inspection on closing day. Investors who failed to do so have recently found that the interior of the house has collapsed.

Get the real estate education you need now!

How you educate yourself on buying and selling foreclosures is critical to a successful transaction. If you don’t get some education, you can get a very expensive seminar at a school of hard knocks.

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