Real estate investors who have tried creative real estate investing will not argue that short sale is one of the best ways to make a guaranteed profit. There are times when you come across a property worth $150,000 and a mortgage of $146,000, meaning that the owner almost owed the full value of the property. This is an ideal situation to make a short sale. You could talk to a person who owns a house with almost no equity and negotiate with him a deal to buy the property. He agrees to sign an authorization to release form. It is recommended that you get the deed conceded to you fast or you could lose the deal in the last minute. Once the owner is agreeable to working with you, you contact the lender - let us say in this case a bank - and offer to buy the house at, say, $90,000 in cash. After a bit of careful negotiation, the bank agrees to a deal of $120,000. These kinds of deals are referred to as short sale because the lenders agree to sell the property for much less than what is owed to them. The lender is usually willing to do a short sale because he wants to get the property out of his hands and get money without wasting any more money such as expensive foreclosure procedures, etc. The clever investor then sells the property for, say, $135,000 on account of some repairs that are needed, making a net profit of $15,000. This is profit just made by one quick short sale deal! You have also helped the homeowner out of a tough situation by getting the lender to sign a ¡°payment in full without pursuit of any deficiency judgment¡± agreement. They agree to the amount received from the short sale and will not bother the borrower in future.

The toughest part of a short sale deal is to convince the lender to accept your deal. You will have to contact the right person and negotiate with him. The lender will study details about the property, its value, the deal between you and the homeowner, etc. It will be helpful to include any negative factor that may be detrimental to selling the property as well as an estimate from a contractor for the repair work if any that may be needed, to convince the lender to agree to the short sale. The lenders will want extensive financial details of the borrower to ensure that he is indeed broke and that there are no hidden assets, which can be used to repay the money owed to them. A hardship letter has to be submitted by the borrower to help convince the lender he is better off making a deal with you and getting what money he can rather than waste any more money such as hiring attorneys and filing for foreclosure; and to avoid the responsibility of resale, they will scrutinize the deal between you and the seller to make certain that he receives just the short sale money, nothing more. 

Probate Short Sale

The estates of a deceased person have to go through a legal process called probate, where the property is taxed and divided as per the will. In case of a bad debt situation, the property ends up with a lender, who turns out to be a highly motivated seller, wanting to get the property off his hands and get some cash instead. They are willing to agree to a short sale if the property has no equity, and the scenario of further losses daunts them. Let us say the homeowner had a property worth $400,000 and mortgage of $390,000. When the homeowner died suddenly, the property on probate had a very worried lender who was willing to short sale the property to an investor who offered him $350,000 deducting some for repairs on the property. The lender was glad to have money and not waste further money such as expensive attorney fees and foreclosure procedures. The investor using short sale technique has selected a no-equity property and has converted it into a property with almost $40,000 equity. He could buy and hold the property or flip it to make a quick profit of a cool $40,000!

Real estate investors can make fortunes by being quick to act and quick to seize an opportunity and utilize their negotiation skills. Short sale is one area of real estate where properties with no equity can be converted into a highly profitable deal by experienced and creative investors. Probate short sale is an even better option, as the seller is the lender and most often they are highly motivated.

 

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