Buying a Short Sale
Interested in buying a short sale? Than first you should learn how to find short-sale opportunities. The concept of buying a short sale sounds much easier than it is to actually execute. The main problem is trying to identify the properties where the owner of the property is behind on payments but the lender hasn’t filed a Notice of Default.
With foreclosures, you can generally find lists available from real estate agents and even the lenders themselves, or you can drive through the neighbourhoods that appeal to you and find signs that say “bank owned”. But with preforeclosure properties that are still owner-occupied and candidates for a short sale, there may not be an indication that anything is wrong. This is particularly true with many lenders now being asked to be extra patient with borrowers who are a little behind on their mortgage payments.
Buying a Short Sale Advantages
If you’re looking for these opportunities, there are many ways to find them. Some companies specialize in assisting homeowners who know they’ll have difficulty in making their mortgage payments; they work with the owners and the lenders to try and make loan modifications or alternative payment plans. These attempts may be successful, but many times they aren’t, and they pro- vide one source for identifying owners who are short-sale candidates.
Another way to identify potential short sale properties is when the mortgage holder sends a Notice of Default. But this document is public information, so many other real estate investors may be in contact with the owner seeking to arrange a short sale.
Just like in a regular foreclosure, you can find this information, and in the early days of the preforeclosure period many buyers may be willing to con- sider a short sale. Of course, you need to convince the lender and not just the current owner.
Note that lien holders may have purchased the underlying loan at a discount, and they may be more willing to negotiate with you to accept less money, which will enhance the prospects of a sale of the property. Your research will often reveal whether the loan that is in default has recently been sold; this is important information that can assist you with your negotiating strategy.
The concept of short sales often comes up if you have foreclosures in your area, but be careful: You need to check out the property just as thoroughly. You actually should have a better opportunity and better access to the prop- erty. It’s not as bad as with foreclosure properties, but it has been our experi- ence that short sale properties can also be properties that the owner is willing to walk away from for a reason. So be very careful because what may seem like the deal of the century may actually be a money pit.
Convincing a lender to agree to a short sale
In addition to the difficulty inherent in finding an opportunity for a short sale, you may also have a difficult time convincing the lender to agree to a short sale. The recent trend by the federal government has been to require lenders to work with borrowers at an unprecedented level of patience and cooperation. Some lenders become overwhelmed with the large numbers of negative equity loans and the thousands of requests they receive to restructure financing. On one hand, lenders are motivated to consider short sales, but they’re also under pressure to formulate a workout strategy with the current borrower. This trend may actually reduce the motivation for lenders to coop- erate with short sales.
The viability of short sales is really a function of the lenders and their busi ness strategies to minimize their losses. The lenders know that the payments aren’t being made and it’s inevitable that they’ll complete the foreclosure, have to hold the property for some period, and incur costs before they ultimately sell it.