In a short sale, a mortgage debtor who is facing foreclosure sells his or her property for less than is owed on the mortgage with the lender’s consent to accept that amount. A short sale is less expensive than a foreclosure. Nonetheless, lenders traditionally have been reluctant to agree to short sales.
A previous article discussed the push by the U.S. government to encourage more lenders to consent to short sales through the Home Affordable Foreclosure Alternatives program (HAFA), which took effect April 5, 2010. However, not all homeowners who are in trouble will be able to meet the specific criteria and requirements of HAFA.
Even before HAFA, realtor.org and other sources were reporting that the economic downturn, with its widespread unemployment and plummeting home prices, was leading to an increasing number of short sales, although the actual figure was still small. Thus, homeowners who do not qualify for HAFA may still have a chance to convince their mortgage lenders to consent to short sales instead of going through the costly and time-consuming foreclosure process.
What all of this means for real estate investors who want to add to their portfolios is an increased opportunity to hunt for and find worthwhile bargains. “Worthwhile” is key here; a homeowner who has been unable to keep up with the mortgage payments often has also been unable to keep up with the maintenance of the property.
Finding Properties for a Short Sale
Investors who are interested in going the short-sale route need to track properties that are in or about to go into foreclosure. One way to do this is by signing up for one of the many Web-based services that can track foreclosures in the area in which the investor is interested and that notify the investor when a foreclosure action is being initiated against a homeowner. Entering the words "foreclosure tracking services" in a search engine yields many such services.
A local real estate agent or broker who specializes in marketing pre-foreclosure and lender-owned properties is another good source of information about properties that are in trouble.
Once the investor comes up with a list of possible properties for a short sale, it is time to go into high gear to put a short-sale deal together.
Buyer’s Objective with Lender in a Short Sale
As the prospective buyer of a distressed property, the investor has the objective of convincing the mortgage lender that it makes more financial sense to get rid of the property than acquire it at foreclosure and then be stuck with a non-performing asset.
As they do with any property they consider buying, investors must become familiar with the local economy and real estate market, not just the national economy. Among other things, this means ascertaining the local unemployment and crime rates, the quality of the schools, the prospects for economic development of the local area, and other factors that negatively or positively affect the value of the target home and similar properties in the area.
Investors Must Do Due Diligence in Short Sales
Experienced real estate investors know that the best way to protect themselves from buying properties that are more expensive than they are worth (after repairs and renovations) is by doing their due diligence before making an offer.
The same is true in a short-sale situation. Investors must find out as much as they can about the neighborhood in which a target property is located, about the state of title to the property, and about the condition of the property. However, this should not involve a protracted period of time because there will be other investors shopping for short-sale bargains.
E.E. Mazier - I view life as a smorgasbord of unlimited new experiences for those willing to withstand the occasional queasy stomach. This is why my ...
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