What Are Foreclosure Short Sales and How Do They Benefit the Investor?
People who want to invest in real estate look for opportunities such as foreclosure short sales which allow them to buy at a low price and sell at a high price. This way they can make huge profits. Homeowners that fail to pay their mortgage payments face foreclosure on their property and through a short sale this property is sold to avoid foreclosure auction. Short sales highly benefit the investor because in such a case lenders accept a markdown on a mortgage. In a typical short sale scenario, instead of buying from the owner you buy the property from the creditor or the company who paid for the property.
Banks involve in short sales to avoid possible bankruptcy and this can be a huge opportunity for the investors. Moreover, they also want to keep away from foreclosure auctions because in such a case they would lose much more money than selling the property at a discount through short sale. Short sales can be bought at two stages: before the property faces foreclosure and is still in the owner’s hands, and when the property faces the actual foreclosure and goes in the bank’s possession. It’s better to invest in a short sale when the property is in the pre-foreclosure state.
However, the process is not as simple as it sounds. The seller has to be contacted to issue a letter in which the details of the loan are authorized to be released by the bank. Then, it’s not easy to convince the lender to initiate the procedure of a short sale. The seller also needs to write a hardship letter to explain their financial position and to make the process of evaluating their assets easier for the lender. If the suggested price of the property is acceptable to the lender, they initiate the procedure of a short sale.
The lender saves many costs associated with the foreclosure process by initiating a short sale. However, they will hire a real estate agent or broker to find out the value of the property. It’s your responsibility to convince the lender that your suggested price is in accordance with the condition of the property along with other factors that may have an influence on the value of the property. Short sales are also beneficial for homeowners, because this way they can avoid a negative rating on their credit report. They have at least 6 months’ time period to sell their home at its market price.
Homeowners place ads in local classifieds to find potential buyers before their property goes into foreclosure. Be on the lookout for such ads to find properties you can buy directly from the seller. To benefit from a short sale you will have to find homeowners who are more than 3 payments behind on their mortgage. If you are late in contacting such a homeowner, you will have to buy the mortgage from the lender instead of the property which will be offered at a discount. So, it is advisable to act fast if you decide to be part of a short sale.