The Federal Deposit Insurance Corporation (FDIC) stated that

as of August 2007, the percentage of noncurrent (delinquent) loans was up 36%

from one year ago. They further stated that net charge-offs (the amount of

money lost due to unpaid loans) rose 51% from one year ago (as of August 2007).

In general, the mortgage business is in a whole lot of trouble. The number of

homes in the US 'in foreclosure' has risen 58% in the first six months of 2007

and that percentage is continuing to rise at an alarming rate.

Federal regulations exist regarding the ratio of bad loans a bank

can have to the amount of liquid reserves the bank has on hand. That

means, the more bad loans they  have, the more money they have to have on

hand (that they cannot loan). Of course they also usually lose money

when they foreclose on properties. What all this means is that the banks have a

whole lot of bad loans that the banks would very much like to get rid of and

they're willing to pay dearly for it.

This all stacks up to big bucks for anyone who

knows how to cash in on the situation. The key to making money from this

situation is knowing how to get the mortgage banks to sell you their

bad mortgages at a discount - a deep discount. This is known as a Short

Sale. Here are 8 easy steps to making big money with

Short Sales:

1. Find properties that are currently in pre-foreclosure:

You can find these properties very easily. Every County in the US has a records

department. When a bank begins foreclosure proceedings they must record a

document stating their intent. Different States are governed by different laws

so you'll have to learn what documents are recorded in your State. In Florida,

a Lis Pendens is recorded. Find the Lis Pendens recorded for this month and you

find all the properties that have gone into foreclosure this month. Don't

bother contacting the owners, it's too early. Keep watching the records and

find out when the foreclosure auction is to take place. Contact the owner about

a month before the auction. By then, they really know they're in trouble and

they're ready to 'talk'. Get the owner to sign an agreement to purchase

the property (a purchase contract) with you. Be sure to include a clause

stating that the contract is contingent on a.) the buyer being able to

negotiate a  Short Sale with the lender(s) and b.) the buyer is satisified

with the results of a property inspection.

2. Get an agreement to discuss the loan with

the lender: Before the bank will begin negotiations with you they

require that you have authorization from the owner (borrower) to discuss the

loan. You need to get the owner to sign an agreement to that effect. Also,

quite often, it's a good idea to get the owner to talk to the lender with you

on the line.

3. Begin Negotiations with the lender: When you

call the lender you want to talk to a decision maker in the Mitigation

Department. Almost invariably you'll get a lot of run around before

you can actually talk to someone with the authority to approve a short sale.

You need to find out what specific criteria is required to submit a proposal to

purchase the loan. Sometimes they will tell you on the phone. Be sure to take

notes and get the instructions exactly correct. Usually they have a written

document that spells out the criteria required. Occasionally they'll want you

to make an offer right on the spot. Try starting at 50% of the loan's current

balance.

4. Send the lender a Short Sale Packet:

Prepare a packet of information for the lender. Include a cover letter stating

the purpose of the packet. Include formal estimates from contractors on

the cost of any repairs that may be needed. Include pictures of the

property if you can come up with pictures that make it look bad. Include a

financial statement of the owner (borrower) and a statement from the borrower

stating what circumstances prevent them from being able to bring the loan

current. Include your offer. You might start negotiations at 50% of the current

balance of the loan. Make sure you send the packet to the person in the

mitigation department who has the authority to make a decision on the loan.

5. Continue negotiations until final: Keep close

communication with the lender. If your offer is rejected ask what is the

lowest offer they would consider. Then make another offer just below

that number. Continue negotiating until you either have a deal or conclude that

they will not accept an offer low enough to be worth your while. Do NOT

purchase properties where the total final price is more than 70% of the actual

market value minus repairs.

6. Secure the money: This is where most

people panic and it's the easiest part of the process. Go to your favorite

Internet search engine and type in 'hard money lender'. If you've got a good

deal you can easily acquire a short term loan for 100% of the

finances needed, repairs included. If you've got really bad credit you might

have to hunt just a bit, but even still, you can pretty easily secure

money if the deal is good. If you don't want to borrow hard

money, you might opt to use a home equity loan, find a 'partner' like a friend

or relative and cut them in for a percentage of the profit or even use a credit

card. Generally, you'll work on this at the same time that you're negotiating

the deal. Get your ducks lined up.

7. Close on the property: Just find a local

title company that your seller is content with. Talk to them about the closing.

For a very small fee, they'll handle everything. At the closing you'll use the

money you borrowed to pay the discounted price you negotiated with the lender

for the mortgage.

8. Sell the property: If you decide to sell the

property, market it at 85% of the current market value. Be sure to get the

repairs completed as quickly as possible. New paint, carpet and landscaping go

a long way toward getting a property sold. Don't try for even close to 100% of

the market value in this market (2007) unless you're prepared to wait a

long time to get it sold (often over a year these days). Optionally you could

just rent the property (you'd probably have to arrange longer term financing).

You might even consider leasing with an 'option to purchase'. That is, a Lease

Option. You can get a much bigger deposit (actually a down payment) and it's

generally a good bit easier than selling the property outright.

That's it! Real estate investors are raking in millions of

dollars doing exactly what is lined out in the steps above. Once in awhile some

tragic thing happens in the economy that actually provides great opportunities.

Did you know that some people made fortunes as a result of the Great

Depression? Opportunity knocks. Will you answer?