Understanding a Short Sale through the Real Estate Investing Recipe Way!

This is also called a pre-foreclosure sale on FHA loans.

The lender may allow you sell the home yourself before it forecloses on the property, agreeing to write off any shortfall between the sale price and the mortgage balance.

Understanding short sales enable you to avoid a damaging foreclosure on your credit report.

You may face a tax liability on the amount of debt forgiven.

Simple Keys to make a short sale easy!

1. Reach an agreement with the homeowner and get the property under contract.

Use a Memorandum of Option which can be recorded if necessary.

Then you will have an interest in the property and the homeowner can't easily back out of the deal after you've spent hours working on it.

2. Contact the lender and ask for the short sale or workout packet.

The information in the packet will tell you exactly what you need to do.

The lender will request information on the homeowner, including a letter explaining why he has not been making his mortgage payments, bank statements, pay stubs, a copy of the real estate purchase and sale agreement, etc.

Put this information together and return it to the lender as quickly as possible.

Remember, the foreclosure clock is ticking.

3. Broker Price Opinion, or BPO.

This is an alternative to a market appraisal.

Usually conducted by a local licensed real estate professional.

The BPO is the secret to a successful short sale.

You need this as low as possible.

Real Estate agents try to go for the highest appraisal possible, but you need for them to see the situation through what can make the deal happen fast.

The lower the BPO, the better your chances of getting the discount you want.

4. Wait for the Proposal to be Accepted or Rejected!

Allow the Lender time to contact all the Junior Lien Holders, at this stage it’s out of your hands, this is where the Homeowner will become nervous, just stay calm and let them know they did all they could and you have to wait, deals can be won or lost with too pushy of an Investor.

After the BPO is turned in, the lender will either reject or accept your Short Sale Offer.

If it's rejected, you can renegotiate and request a second BPO.

If it's accepted, congratulations-you've solved a problem for the homeowner and the lender, and made money for yourself in the process.