As a home buyer in today's market, "short sales" have really turned into two buzz words you almost cannot get away from. If you do have time to work with, short sales may be great option for you to find a nice property at a great price. If you do not have time, they probably are not your best bet. Let's take a look at some options in regards short sales in today's real estate market.
First of all, what is a short sale? A short sale takes place when a seller needs to sell their home, however, the price at which he or she is selling does not cover the mortgage balance due. A seller in this position needing to do a short sale, also must have some sort of financial strain that is causing him or her to have to sell short. In other words, a person cannot just arbitrarily decide to sell via short sale. It has to be a last case resort that a lender will entertain, versus the lender getting the home back on their books via a foreclosure.
As a buyer, there are some important items to consider. Even if you find a property where the seller will accept your offer, do not consider it a "done deal." The seller of that home still needs to get final approval from their lender in order to move on with the transaction. And this approval can take a considerable amount of time. Often times it can take up to four to six months to hear back from the lender. And it should also be noted, just because you hear back from the lender, this does not mean that you will automatically get the home.
A bank generally speaking loses the most amount of money in a foreclosure. Often times they lose a considerable amount however in a short sale as well. Before they approve any sort of short sale, they need to know this is an absolute last resort. In other words, the seller is close to letting the home go into foreclosure, or perhaps the seller is in the foreclosure process already.
Long story short: a short sale can be an outstanding buying opportunity. Remember however, the bank will respond on their own time line. And this can often times means months, not weeks.
With the high rise in foreclosures these days, even those who do not invest in real estate are starting to hear the term “real estate short sale" or “mortgage short sale." A simple definition of a short sale of real estate is an investor or buyer making a deal with the primary mortgage holder to accept less than the amount due on a mortgage; rather than the lender taking over the property through the foreclosure process and then ultimately loosing money on the property by selling it at a foreclosure auction.
Once a property goes into foreclosure the lender passes along the file they have on the property over to their loss mitigation department. It is the loss mitigator’s job to deal with the foreclosure and help the lender to retain as much money from the deal as possible. While the loss mitigation department may not act like they want to conduct a mortgage short sale, the truth of the matter is that generally they loose less money that way than having to auction off the property on the courthouse steps.
Dealing with a loss mitigator can be very challenging, especially to new real estate investors. The best advice I can give you is to try and always remember that it is in the loss mitigator’s best interest to ultimately deal with you. While they may act like they are not interested in negotiating with you, they are from the first time you reach out and contact them. For those who will not deal with you, there really is nothing you can do but go find another deal to make and leave that one on the table. There is nothing you can ultimately do about it and you are much better off finding other deals which will make you money.
Many real estate investors ask what is a reasonable offer to make to a lender for a mortgage short sale? Generally the rule of thumb is about 80% of the current mortgage balance on the property. But, the absolute rule is that you should never offer more money than you want to have into the property, and never more than you think the property is worth to work with and either sell or rent out.
By making a reasonable short sale offer, and treating loss mitigators well, you can generally close a deal with a mortgage short sale to your benefit.
Both Ryan O'neill & Judson Voss are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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