For Gold, Peace, and Freedom


Successfully Investing in Short Sales

November 20th, 2008

short-sale-mortgage-foreclosure.jpgWhen I first saw the title of this article by Claire Billips, I thought that it was referring to short sales of stocks, a “bear market” technique in which investors sell stock they do not actually own in the hopes of buying it later at lower price. However, upon closer inspection, I discovered that the article is actually about short sales of mortgaged properties. Apparently, in some cases it is less expensive for mortgage loan providers to settle for slightly less than what the borrower originally owes than it is to go through the process of foreclosure. Consequently, this can provide some interesting opportunities for real estate investors.

A short sale describes what happens when a mortgage company settles for a lesser amount of money than that which the borrower owes in order to avoid the expense of foreclosure. A short sale still involves the loss of money for the mortgage provider, but it doesn’t cost quite as much as the foreclosure process. The number of short sales here in the United States has increased dramatically in the past year or so because of the struggling real estate market.

Many investors have made a lot of money buying short sale residential properties then reselling them quickly or renting them out. However, unless you do your research before buying it is possible to lose money investing in a short sale. There are guidelines to follow and certain pitfalls to be avoided if you wish to make a lucrative investment.

If you want to invest in a short sale property, first contact the current home owner to get the foreclosure information. You need to know what property is worth, how much is owed and the name of the mortgage provider. Once you have this information, contact the loss mitigation department of the bank that secured the mortgage. They will request certain information from you before considering a deal, and there is generally a lot of paperwork involved.

The bank will send a real estate assessor to determine what the property is worth, and you should do the same. The bank will want to get as much money as they can for the property, while you will be negotiating for a lower price. You can do this by providing evidence that the property is damaged or located in an economically depressed area. Don’t lie, but do find out as much negative information as you can to persuade the bank to sell for less. The current home owner must also provide evidence that they are insolvent before the bank will agree to a deal. Once you have all of the required information, you are ready to do business with the bank.

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