Tax & Financial Consulting Services
Anyone actively investing in foreclosed and distressed properties has no doubt come across one major problem… Finding deals with equity! Trust me, this is a nationwide problem.
There are so many foreclosures out there; unfortunately most of the homeowners owe what their property is worth. I find that most investors walk away from deals with no equity. They either don’t know what to do with a no-equity deal or they are unwilling to put forth the effort necessary to make the deal work. In situations like this, I SHORT SALE the mortgage.
“What is a short sale?” You ask. To short sale a mortgage means getting the bank to accept less than is what is owed as payment in full. There are several steps that will ensure your success when short selling mortgages.
First of all, you must have the homeowner under control. Many investors are under the misconception that they can buy the property directly from the bank while it is in the foreclosure process. Not true! The bank does not own the property until the moment of the courthouse sale. You can buy the mortgage and finish the foreclosure process, but you cannot buy the property. You’ll have to work hand-in-hand with the homeowner if you plan to short sale mortgages.
Here is how it works: A homeowner calls you and talleys he is in foreclosure; owes $95,000 on his property; it’s worth $100,000 and he is 8 months in arrears. He wants to move on with his life but can’t sell his house because he owes what it is worth. Here is where you come to the rescue. You meet with the homeowner and have him sign an “Authorization to Release” form (this gives the bank permission to speak with you about the account) and a sales contract for the amount you are willing to pay for his property. In this scenario we are going to offer $50,000.
Next, you call the bank and ask for the Loss Mitigation Department. This is the department that handles properties that are in foreclosure. Tell the person handling the account that you are trying to help Mr. Jones with his foreclosure and you are willing to buy the property from him. However, due to its poor condition you are only willing to pay $50,000 as payment in full. Fax the sales contract for $50,000; comps in the area; an extensive list of repairs that are needed to bring the property up to marketable condition; a net sheet (a title company will help you with this); and some really bad pictures. The bank will then review the information and make a decision. Let’s say they counter at $65,000; you counter again at $55,000; they accept! It’s that simple! I short sale many, many mortgages every year. Banks are not in the business of owning properties. They would rather short sale a mortgage than go to the courthouse steps.
So… the next time you get a call from a distressed homeowner with no equity, what will you do? Walk away or make a few simple calls and turn your time into cash? I certainly hope you will make the small effort it takes to short sale the mortgage. It is such an easy way to make money in an industry where great deals are tough to come by. When you short sale a mortgage, not only are you helping yourself; you are helping a very distressed homeowner and giving them the chance to start over. One can never go wrong when win/win is the solution.
If you come across a deal to Short Sale let me know and we can work on closing it.
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
"One main reason people work so hard is that they never learned how to have their money work hard. So they work hard all their lives, and their money takes it easy."