Short Sale

The term ‘real estate short sale’ is being bandied about more and more as of late. Anyone who has read newspapers or watched TV has probably come across some sort of stories about the declining real estate market leading banks to consider real estate short sales as an alternative to foreclosure. Real estate prices have dropped dramatically, and the sell time has risen as well. Detroit is one such example of this. Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.

What is a short sale, you might ask? A real estate short sale is the name given to the process where banks allow properties to be sold for less than the amount owed to them. There are two conditions that must be met before a bank is likely to approve this: Firstly: Market values are such that the property’s sale price cannot cover the outstanding mortgage balance(s). A further condition is that the owners of the property must not be able to continue making mortgage payments on the property.

As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. Let’s say that two years after purchasing the property the owners took out an additional 10,000 dollars second mortgage, which means that today the owners owe 227,000 dollars on the property. Also, we have to remember that in five years, the amount of time that the mortgages have been paid off is negligible.

Remember that in five years the amount that the mortgages would have been paid off is negligible. In the same amount of time, the market values for similar properties are going for 215,000 dollars, while the adjustable rate has risen from 7 percent to 11 percent. Additionally, we end up with a real estate short sale situation once one of the owners has lost their job.

In avoiding time delays and expenses, the bank will probably decide to go with a short sale. The reason for this is that the banks believe it is better to get the property off their books and accept a smaller amount of money they are guaranteed to get than to accept an unknown amount in the future. This is generally how a real estate short sale works, though there are other complications that can arise from having owners and lenders not agreeing to the terms of the sale.

A real estate short sale is not a very pleasant experience, but it certainly isn’t the worst experience they could have. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. These short sales can give the smart real estate investor a great buying opportunity.

The sad state of our economy and the declining values in real estate has created an opportunity for home buyers and real estate investors.

If you are considering taking advantage of the opportunity, you will find the following information to be helpful:

Finding Great Deals

Taking a closer look at the current economic situation, I call it the “Perfect Storm” Over supply of bank owned and foreclosed properties Troubled economy and unemployment Lower interest rates than we’ve seen in years

We are in a buyer’s market! There are many great deals available on real estate in all types of neighborhoods across the nation. You would be surprised at how low some of the asking prices are for houses.

Taking Action

So, how do you get started if you are limited on funds to invest or if you already work full time? If this is something new for you, the best thing you can do to ensure success is to work with a real estate investing professional. A partnership with an investor who has knowledge and expertise in the market can help you maximize your real estate investing experience. Team up with a professional who provides top notch service so that your business grows and thrives.

Good business breeds more business (referrals) and bad business, puts a Realtor out of business!

A good realtor knows the housing market and can help you to avoid time wasted, missed opportunities and financial loss. Going it alone could set-up you up for disaster as a beginning real estate investor.

There are plenty of on-line real estate investors and listings for great deals, which are accessible to the general public; there are also data bases for licensed agents who pay for the service. Your real estate agent will have access to the necessary tools and will possess knowledge of the latest technology so you will be the first to be informed about great real estate buys.

Closing the Transaction

Realtors use many strategies to help their clients finalize their transaction, whether purchasing bank owned properties, HUD homes, wholesale deals or negotiating a short sale. A real estate investing professional knows how to structure many types of transactions for a successful closing.

Locating a Realtor

There are realtor directories on line; you can talk to family or friends who have recently purchased a home or invested in real estate. Join a local real estate investors association and attend their meetings. Attend seminars and workshops for real estate investors.

The market is right for real estate investing; experienced real estate investors know how to recognize opportunities in today’s market. If you are considering entering the real estate world, it is recommended that you find a mentor to work with. Real estate partnerships are also valuable to the experienced investor.

The monthly payment for long term fixed rate mortgages are just one fundamental thought for many individuals who are looking to purchase a home. A large number of couples these days have decided to wait and are buying homes later but they also want to pay off their mortgage early. Although before signing any documentation, there is a great deal to consider.

Over the course of the mortgage, it’s fundamental to remember to make sure the rate of interest doesn’t change. It is always wise to avoid arrangements that appear to too good to be true because they invariably are. Loans arranged for a long term fixed rate mortgage keep the same rate of interest throughout the entire life of the mortgage agreement.

In addition to considering loans for a long term, fifteen year fixed mortgage rate we also looked into loans that spanned 30 years as well. The problem was that we weren’t very happy about having a mortgage still running close to when we both retired and hoped that a fifteen year fixed mortgage rate would still be accessible to us. We felt there was lots of insistence to have the house settled as soon as practicable and for the most part we agreed with this.

Taking everything into account we finally went for the easier 30 year fixed mortgage rate plan instead. My wife’s donation to the monthly finances would in all likelihood be unreliable since she preferred to raise our child at home. The trouble we could see was the raised financial commitment with a higher monthly repayment if we had chosen for the shorter 15 year fixed rate mortgage. For us it just wasn’t practicable as we would just be in over our heads and in all likelihood be worrying about money every month.

My wife’s donation to the monthly finances would in all likelihood be unreliable since she wanted to raise our child at home. The problem we could see was the raised fiscal commitment with a higher monthly payment if we had opted for the shorter fifteen year fixed rate mortgage. For us it just wasn’t possible as we would just be in over our heads and likely be worrying about money every month.

As such the thirty year fixed mortgage rate brought the monthly installments down quite a bit. During the year, if we have some spare cash, we can make additional installments which helps to lower the sum of money owed. Just by making a handful of supplemental payments throughout a twelve month period you can knock years off of your loan period. Although this takes some discipline, it is well worth it in the long term. Under different conditions, we would have preferred to have taken out a mortgage with a 15 year fixed mortgage rate but we had to consider our other commitments as well. Despite all our worries, things turned out well for us in the end and we don’t regret our decision.

I was on my way home the other day after I’d just met with a seller when I receive another phone call from a seller in the same situation. They had a property that they were extremely motivated to get rid of due to tenants. And something I’m finding more, and more is that there’s a lot of people that couldn’t get out of their houses, they couldn’t sell them, so now they’ve rented them out. And as a result, you’ve seen a huge increase in the amount of landlords.

Now, these aren’t landlords that are in the business. They’re people that may have two houses that couldn’t afford to make the second house payment, so they decided to rent the other one out. And, that was the only solution that seemed feasible.

With the current downturn in the real estate marketplace and with lack of management of tenants, many of these owners are disgusted because now they’re upside down in a property that needs enormous amount of work.

Now, if you’re in the house buying business, you’re seeing a flood of these people literally begging for someone to buy their house. See, they’ve grown real weary of the rental game and are literally begging to get out from under these houses that they rented them out two, three, four years ago.

Some of these homeowners are now facing foreclosure, while others have just witnessed their tenants completely destroy their homes. And now, the house has become more than they can handle. And after all, these former homeowner - landlords aren’t in the management side of the business. Remember, they just wanted out from under their home.

Now, here’s the good news…

You can still make money with these types of deals easily.

These leads are a prime candidate for obtaining a short sale.

A short sale is when you make an offer to the bank for less than what is owed against the property. And since, foreclosures are at an all time high, banks are more willing than ever to accept these discounts. Short sales can be a lengthy process, so be sure to educate the seller before you ever submit an offer to a bank. You’ll call the bank and speak to the person handling the file and ask for a short sale package. They’ll send this package out for you and your seller to fill out.

Get all of the short sale package completed and sent back as soon as possible with your offer letter and let the negotiations begin.

If you face foreclosure today, you are among many in the same situation. You are no doubt feeling desperate, helpless and you don’t realize what options are available to you.

Foreclosure is devastating! You have trouble eating, sleeping and just functioning!

The phone drives you crazy! The mortgage company, again! Asking when you will be catching up your past due payments. They don’t care that you just sat down to a meal with your family or if you are sleeping.

Hundreds of thousands of people are in this terrible situation. There are many reasons people are in foreclosure, including unemployment, or circumstances like death in the family or divorce leading to financial distress. Many are in an adjustable rate mortgage (ARM) and the time has come for the interest rate to be adjusted. In many cases, it increases significantly and people are unable to make this much of a payment each month. When they try to refinance, to get a lower, fixed rate, they find that their home does not appraise high enough to pay off the existing mortgage.

This is a rough situation for anyone to be in. You’re overwhelmed and would like to just relax and go back to the way it was before, when you could come home from work and enjoy your family without the annoying phone calls from your lender.

The good news is you have options and there are people who specialize in helping, no matter where you are in the foreclosure time-line. If you’ve done all you can and you just want out, you can walk away from this debt while satisfying your lender with a short sale.

Your lender might be willing to accept a lower price than what is owed on the home if you want to sell it for what it is worth in today’s market. Your lender is familiar with this and he will have an appraisal or value check done on your home before deciding to agree to a short sale offer.

You can work with a foreclosure specialist who has experience in working with short sales. The short sale negotiator will also perform a market analysis on your home to determine market value. They will help you submit other documentation to your lender to qualify you for the short sale option, including a hardship letter, financial statements, bank statements, pay stubs and other supporting information to show financial hardship and the declining value of your home.

The short sale benefits both the homeowner and the lender. The homeowner is allowed to satisfy their debt with a short payoff and not have a foreclosure recorded on their credit report. If the short sale negotiator is really doing their job, they will get a written release from the lender to the homeowner, on the debt owed, so that the homeowner is not forced to pay the deficiency.

The lender benefits by cutting their losses and taking what they can get now, rather than incurring the additional legal and financial expenses of foreclosure, while market values continue to plummet. If they wait out the redemption period, which varies from state to state, and evict the homeowners, fix the home to make it marketable, by the time the property sells, chances are good that it will be worth even less and their loss will be greater.

A short sale is an option when you feel that there is no reason to or no possibility of keeping your home. When you sell it on a short sale, you do not expect to get any of the closing proceeds. You do get the benefit of satisfying your mortgage debt and preventing further damage to your credit report. You also get to put a stop to the relentless phone calls and intimidating letters from your lender, not to mention all the letters you may be getting from attorneys or foreclosure consultants offering their services.