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This is where the lender agrees to discount the loan payoff and also possibly negate certain arrearages in effort to consummate the sales of the property.
Short Sales are one of the most effective techniques for discounting loans in real estate. They create huge investment opportunities and are a must if you want to be competitive in this market. One of the most important steps in the short sales process is getting the deed. Too many times, beginning investors will skip this vital step. Why do we want to get the deed from the homeowner(s)? Because all too often, homeowners change their minds, want to back out of deals because they are scared, or they want to re-negotiate. Without the deed, they can back out of the potential short sale even after you have spent hours working on their property. This only has to happen once and I guarantee it will never happen again.
The lender will usually request a hardship letter. A hardship letter is telling the lender why the homeowners are not making their mortgage payments. Sometimes they will request bank statement, pay stubs, income statements, and so on. Be prepared to send them everything they ask for because if you don't it will not be accepted. They will almost always ask for a HUD-1 and a real estate purchase and sales agreement. Do not waste any time! Send everything the lender asks for back ASAP. It usually takes 3 weeks or more to get an answer back from the lender, so you can't afford to wait. If the auction is approaching, you can ask to extend the auction which in most cases they will, if they know it is a legitimate offer.
Next in the short sales process is the BPO. This stands for Brokers Price Opinion. Basically a real estate agent will come out and give their opinion on what the house is worth. The key to short sales is the BPO. You want to try everything you can to influence the BPO to come in as low as you can. The lower the better. It takes a few times to get good at this, but once you do, I guarantee you will try to get short sales on every real estate foreclosure you encounter. You will also receive larger profits when you invest in a more expensive home. This is because you are able to get bigger discounts from the lender on properties over $500,000. The great thing about this is that it will cost you about the same no matter what the property is worth.
The real estate "short sale" can be a useful and very powerful technique for turning "no equity" deals into big profits. In a short sale, you negotiate with the bank holding the mortgage and get it to accept less than owner owes.
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