Are Short Sales Your Path to Riches?

There are millions of properties today approaching foreclosure and homebuyers and investors are seeking the best deal towards pursuing short sales.  Our current real estate market has no doubt seen better days and investors know short sales are a sure path to big profits. In a conventional home sale, the property is sold for enough money to pay off the existing mortgage or mortgages, and to pay the sellers’ closing costs.  When the mortgage amount plus closing costs equal more than the selling price, the sellers are “short” the amount needed to close the sale. Sellers with sufficient financial resources can use money from other sources such as savings, to pay the amount they are deficient and complete the sale.  Sellers unable to do this may convince their lender to accept a loan payoff that is less than the amount owed.  A “short sale” refers to a sale where the lender agrees to accept a reduced loan payoff.  Some lenders call this a “workout.” Wondering why a lender would agree to accept less than full payment?  Today most lenders will accept a BIG deduction because their books are full of foreclosed homes or homes steadily approaching that phase.  These lenders would prefer to clear the loan from their books, even at a loss.  When a borrower becomes delinquent on loan payments the lender is often faced with a foreclosure procedure, which is very costly. Negotiating with the lender can be difficult. Many lenders will not consider a short sale until the property is marketed and the sellers are sure they cannot sell for enough to pay of the loan off completely. Anyone purchasing a short sale will need a lot of patience.  This process usually takes time and will require persistent savvy negotiation on the part of the sellers and their agent. You probably will have difficulty negotiating the price on a short sale property than on a property where the sellers are making a profit.  But even though the lender will want the highest price possible to minimize their losses, they usually have a strong motivation to sell.  If they didn’t have an urgent need to sell NOW, they would just wait for the market to improve.