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What is a Short Sale?
A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, the property is purchased directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $600,000. An offer would be written to the lender for $440,000, which is accepted as full payment for the loan. This is a short sale.
Why are they willing to take such a discount?
Several reasons. First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can sell the property without a huge loss, they will do it. Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.
It is best to do a short sale when the property is in the pre-foreclosure state?
There are two stages within pre-foreclosure. The first stage being those individuals who are behind on payments and the second stage are those who are behind on payments with a notice of default.
There is a certain process for calling the bank when your doing short sales.
An important step in the short sales process is the BPO. This stands for Brokers Price Opinion. Basically a real estate agent will come out and give their opinion on what the house is worth. The key to short sales is the BPO.
A real estate agent who has expertise in this market is vital to an investors success. |
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