With the recent explosion of foreclosures, many banks are hurting financially and do not want to foreclose on another property. A short sale is simply when the bank agrees to sell a house for less than what is owed. To find good short sale candidates, you need to subscribe to a list that provides Notice of Defaults. This list indicates which homeowners have defaulted on their loans and will probably be heading into foreclosure soon.

Step-by-Step Process

Step 1 - Get the sales comps to determine value and if this house is worth your time.

Step 2 - Get the deed. Use a Warranty Deed and transfer it to your Trust. If the owner does not give you the deed, tell him goodbye and go to the next deal. When you approach the bank, the first question they will ask is if you have the deed.

Step 3 - Call the Loss Mitigation department at the bank and request their short sale package. Make sure you talk to a live human being or use the contact name and fax number from the voicemail machine. Fax your cover sheet to the bank respectfully requesting a short sale package and reference their Notice of Default they sent to the seller. Make sure you tell them you are holding the deed in escrow, give the loan number and the Authorization to Release Form signed by the seller.

Step 4 - Get a signed sells contract with the price on it (make sure you are not the buyer). The buyer will be your Land Trust (e.g. 123 Main Street Land Trust). You should present yourself as the intermediator between the seller and the buyer. If you present yourself as the buyer, it is much harder to get the bank to work with you.

Step 5 - Do a title search to make sure you have a clean title.

Step 6 - Hardship letter from the homeowner that mentions the word bankruptcy.

Step 7 - Get a HUD-1 (settlement statement showing that seller is not making a profit and also indicates exactly how much the bank will net after closing costs, taxes, etc. are paid).

Step 8 - Financial Statement signed by seller showing they do not have any assets. This may include W-2 and any debts.

Step 9 - Repair spreadsheet showing all repairs that need to be done. Get a bid from a contractor showing estimated list and cost of repairs. Use retail repair prices the normal homeowner would pay for these items.

Step 10 - Include a note indicating the date the seller bought the house.

Step 11 - Include pictures of the house if it is in bad condition.

Step 12 - Express mail your short sale package to the bank.

Step 13 - Know your exit strategy. Are you going to retail or wholesale the house?

It normally takes 7-10 business days to get a response back from the bank after you send them the short sale package.

If the seller balks at you making a profit, tell them the bank has not accepted your offer yet. Furthermore, you have to make a profit or there is no reason to get involved. They will have a foreclosure on their credit for many years if nothing changes. You are there to help.

Houses with second mortgages on them are really good candidates because many times you can go the second lien holder and get a deep discount. If the house goes to foreclosure, the second lien holder will get completely wiped out and receive zero dollars for his/her lien.

Filing bankruptcy only temporarily pauses the foreclosure process, but does not stop it. However, the bankruptcy gives you a little more time to work the short sale angle.

You have been given a blueprint to succeed in the short sale business. The wise investor will make hundreds of thousands of dollars in the next few years. What you see today will not be here five to ten years down the road. How much of the pie are you going to take?