Short sale
properties are sold at below-market prices.
A short sale of real estate occurs when the bank is willing to sell a property for less than what the seller, the homeowner, owes on the mortgage. There are three parties involved in a short sale: the potential buyer, the bank that made the mortgage and the seller. A short sale is preferable to a homeowner because it is less damaging to the seller's credit than a foreclosure, and also because the seller does not have to repay the balance on the mortgage. Short sales may also be advantageous to the bank because it does not have to bear various costs associated with the foreclosure and frees itself from the hassle of subsequently off-loading the property to another buyer. The short sale process, although tedious and complicated, allows the buyer to realize significant savings in the form of a discounted price for the home.
Instructions
1. Identify potential short sales by locating preforeclosures. Sources for the information include online databases, advertisements, courthouse listings or an experienced real estate agent. The best candidates are those in which the owner owes a significant sum, relative to the home's fair market value. If the owner already has a lot of equity in the property, it may not be a good candidate.
2. View the properties. Once you have the list, visit the homes to determine how much you will have to spend on repairs. Narrow the list, keeping only the ones that are the best bargains, considering costs for repairs and maintenance.
3. Compare the properties and research. Determine the market value of the properties in the list by comparing them to similar properties in the area that have sold recently. Choose one property from the list that you want to pursue.
4. Arrange financing beforehand. Pre-approval of financing will work in your favor because the bank will want to see that you qualify for a mortgage loan. Timely financing is also important. If the bank accepts your short sale offer, they may want to close the transaction as soon as possible.
5. Determine the liens and mortgages. Having an estimate of how much the seller still owes will allow you to make a realistic offer on the home. Obtain the information from the seller or seller's agent. Make sure the seller is at least 90 days late on mortgage payments, otherwise the bank will not consider the short sale offer.
6. Obtain a notarized authorization letter from the homeowner. The bank will not discuss the seller's mortgage situation with you unless it has written authorization from the lender (seller). Present the letter when contacting the relevant department in the bank. Contact the bank's loss mitigation department rather than collections or customer service.
7. Fill out the short-sale application, if the bank has one. Some banks do not have a specific application for short-sale transactions.
8. Arrange the necessary paperwork for the proposal. Include a purchase and sale contract signed by both the buying and selling parties; state a specific price and demonstrate the buyer's ability to make a sizable down payment. Other necessary documents include a letter of hardship that details the reasons for the seller's inability to pay, an appraisal of the property, an estimate of damages and repair costs and a settlement statement.
9. Negotiate the offer. The bank may reject your price and quote another offer. Determine the highest amount you are willing to pay for the property and negotiate a deal. If the bank does not accept your highest offer, consider looking at another short sale property.
10. Finalize the transaction. If negotiation is successful, make it official and get it in writing. Make sure the bank and seller understand and accept the terms of the transaction.
