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Saturday, July 15, 2022

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No matter the state of the economy, food, shelter and clothing will always be critical.

Real Estate is a hedge against inflation.
It is an inflation-fighting investment.


– Dr. William Paul

Why Foreclosure Short Sales are Good for Homeowners



With today’s troubling economy with potential issues for the real estate market, there is good news.  That good news is that those in good financial standing are eligible to make a profit.  If you have the ability to get a line of credit or the needed financial resources on hand, you can and should profit from foreclosure short sales.


Foreclosure short sales involve buying a home that is nearing foreclosure.  At first, many unfamiliar with the real estate market assume this is an illegal or bad practice.  It isn’t.  It is completely legal.  In fact, foreclosure short sales are done with cooperation of the home lender!  That lender agrees to allow the homeowners to sell the soon-to-be foreclosed on home for less than what is owed on the outstanding mortgage.  Why would a lender do this?  It minimizes their risk.


From reading or watching the news or watching late night infomercials, you will see it a buyers market.  This is particularly true with foreclosures and short sales.  Buyers are not only able to save money and turn a profit.  Unfortunately, many new to the game make a costly mistake.  That mistake is believing they don’t have the heart to take a home away from a family.  If you are sitting at home thinking about this very fact, but know you want to make money, stick with short sales.  As previously stated, short sales are done with the cooperation of both the lender and the borrower.  In fact, the delinquent borrower usually makes the suggestion. 


Not only is the delinquent borrower usually who suggests a short sale; they are usually the one who benefits the most from the process.  How?


They owe less money.  With short sales, lenders have the final say in debt forgiveness.  Most will consider the situation at hand.  If the borrower made poor financial choices, they may be required to pay back the difference.  This is done in the form of an unsecured, standalone loan.  Yes, it stinks they have to pay money back, but owing $20,000 is a better alternative than having an unpaid $250,000 foreclosure on their credit report.


Mortgage lenders may forgive their debt. As previously stated, mortgage lenders have the ability to forgive debt.  With short sales, the loss taken and the causing circumstances influence the decision.  Those who suffered financial problems due to costly health complications or job loss are more likely to profit from the sympathy card.  If the loss the lender takes is small, such as $5,000, they may be willing to just take the loss.


Their credit history doesn’t take a huge hit.  When a home enters into foreclosure, that foreclosure stays on a person’s credit report for at least seven years.  Those who suggest a short sale know the damaging consequences.  They may be unable to pay for their children’s college educations, purchase a new car if their breaks down, get a good rental unit, or buy a new home.  Short sales will appear on a credit report if the lender takes a loss, but many short sale sellers are able to purchase a new home and secure additional financing in less than three years.


As you can see, homeowners can benefit from short sales many ways.  The greatest benefit is they get to avoid embarrassing foreclosure proceedings.  To most unfamiliar with the process, it will just look like they are selling their home.  So, if you want to try profiting from the real estate market, but fear your good heart getting in the way, don’t.  Target short sales instead.  In a way, you are doing the family a favor by purchasing their home.

How to Find and Buy Short Sale Homes



In terms of the real estate market, it is a COMPETITIVE buyers market.  Those who have the needed financial resources are urged to act now.  Whether you want to buy a cheap first home or buy and resell for a profit, now is the time to act.  Speaking of acting, be sure to move short sale properties to the top of your list. 


Short sales are when a mortgage lender agrees to sell a home for less than the outstanding mortgage due.  For buyers, this means many opportunities to make or save money.  For example, if a home is valued at $150,000 and the delinquent borrower still owes $75,000, you may be able to purchase the home for around $65,000.  Not bad considering the home’s fair market value is $150,000!  The poor real estate market makes it difficult for these properties to sell at fair market value, thus the acceptance of a short sale.


You now know that short sales are a good value for the money.  It is a cheap way to buy a first home and an easy way to turn a profit with real estate flipping.  So, what comes next?


Hire a real estate agent to represent you.  This step is optional, but recommended for first time buyers.  It is always a good idea to have an expert in your corner.  When choosing a real estate agent, don’t opt for the first you see.  Instead, perform a series of interviews.  Your intent is to buy short sale properties, so use a real estate agent who is familiar with them.


Find short sale properties.  If you use the services of a professional real estate agent, this step is very easy.  Many states allow real estate agents to disclose the status of properties with each other.  This means that your agent can call another and ask if they have any short sales available for sale.  It really is as easy as that. 


If you are not using a realtor, it is still easy to find short sales.  They are sold either directly through the mortgage lender or through a real estate agent.  Pickup the phone and call all financial lenders in your area.  Ask if they have short sale properties available for sale.  As for realtor sold homes, use the internet to view MLS websites.  Most realtors drop hints about a property’s status.  Look for telltale signs, such as “lender must approve,” or “this property is in pre foreclosure.”


Make an offer.  Most short sale buyers are unable to see the property before making an offer.  Use your best judgment.  The good news is that you can submit multiple purchase offers if one is denied.  So, aim low at first, as you have nothing to lose.  If represented by a realtor, heed their advice.  If they have experience dealing with short sales, they may know how low a lender is likely to go.  To profit from short sales, never pay more than the home’s last appraised value.  In fact, pay less.  How much less depends on you.


Wait.  After submitting a purchase offer, you will start to play the waiting game.  An offer can come as quick as a few days, but you could wait months.  It all depends on the property.  If a lender just agreed to a short sale, they may still be comparing foreclosures and short sales to see what yields the most money.  If the property is deemed a hot seller, they may be waiting for other offers.  If the home has two mortgages, both lenders must approve the purchase offer and this can take time.


If your offer is accepted, the next step depends on your finances.  If you already secured financing ahead of time or have the needed financial resources on hand, the sale can close in as little as 30 days.  During this time, the current home occupants are vacating the property.  As soon as this is done and all paperwork is signed, you can either move in or state preparing the home for resale.

Which Short Sales Are the Best to Profit From? 



 Do you want to profit from the buying and reselling of foreclosure short sales?  If so, you may find a long and bumpy road ahead.  For most lenders, short sales are an ideal alterative to foreclosure.  For others, they can’t seem to make up their mind.  This may result in a purchase offer denials, months of going back and forth, and a deal falling through at the last minute.  How do you prevent this from happening?  Know which type of short sale properties are the best and easiest to profit from.


So, how do you know?  There aren’t any guarantees.  Each property, borrower, and lender is different.  Borrowers who want to avoid any damaging impacts on their credit are likely to suggest and push for short sales.  Lenders who know they will only lose money with foreclosure proceedings are likely to opt for them.  A big deciding factor is also the property in question.  Still, there are signs you can and should look for.


Homes with only one mortgage.  When in financial distress, property owners often put their homes up as collateral.  This results in a second mortgage.  Usually, this means that two different lenders have rights to the home.  In this aspect, two different lenders must approve a short sale.  Unfortunately, one will be shorted what they are owed.  This is the second lender.


As a short sale buyer, you must wait until both lenders agree to a short sale.  Unfortunately, this is a very lengthy process.  The second lender will drag their feet.  No one wants to lose money, why would they?  They are hoping for a higher purchase offer, a traditional sale, or that a foreclosure auction yields more money.


Homes with small lenders.  In the United States, banks and lenders come in all different sizes.  A lender has the final say with short sales.  If a large lender is involved, you will get the go around.  Yes, you are speaking to the loan supervisor in your local office, but they have someone higher up to answer to and so forth.  You do not experience this problem with local lenders.  Financial institutions with the deciding supervisor right onsite can have an answer for you in half the time!


When discussing the sale of a short sale property with a real estate agent, inquire about the lender.  Don’t give up if it is a large lender, but make your move right away if that lender is locally owned and operated.  Unfortunately, there is a double sword.  Small financial institutions are not experiencing as many financial troubles as larger banks.  They were wise in how they handed out money.  Most opted to avoid the troublesome adjustable rate mortgages.  Less of these borrowers are in financial distress.


Homes with borrowers who want a short sale.  As previously stated, typically the borrower suggests a short sale.  These individuals know the damage a foreclosure does financially.  Mortgage lenders have the ability to forgive the debt or recuperate the difference though an unsecured loan.  If the borrower must pay back the $10,000 difference, it is still better than unpaid $150,000 foreclosure.  What does this mean for you?  Help from an unlikely source.


Although short sales are an alternative to foreclosure, some lenders avoid them or take months to give a response.  This is when a cooperative homeowner provides assistance.  If they continue to apply pressure, along with yourself, and a real estate agent, a quicker response is likely.


In conclusion, most short sales are an amazing value.  For example, if a borrower owes $50,000 on their mortgage, you may get a $100,000 home for only $45,000.  Yes, the property would cost less at a foreclosure auction, but your chances of outbidding the competition are lower.