When investors find out I specialize in short sales, they always have so many questions. Here are the answers to some of the most common. Hopefully, these answers will give you a better understanding of a short sale and how to do one.
Why Do The Banks Short Sale?
The mortgage is in arrears or foreclosure.
The property is in poor condition.
The homeowner has hardships and cannot afford the payments.
New homes in the area are being chosen over existing homes.
The area or neighborhood has depreciated in value.
The bank’s shareholders are concerned when there are too many defaulting
loans on the books.
Some banks are required to prove a loss each month… let’s help them out.
Some banks are required to have an amount equal to or up to six times the
retail value of each REO “on hand” – ouch, that hurts.
An REO is a liability, not asset. Too many liabilities will cause any
business to go under if not dealt with quickly.
Can I Short Sale A Nice Property?
Absolutely! As you can see, banks short sale for many reasons other than the poor condition of the property.
What Steps Do I Take To Complete A Successful Short Sale?
A. Find a property owner in distress.
B. Put a deal together with the homeowner.
C. Have the homeowner sign an authorization to release form.
D. Fill out a sales contract for the amount you want to offer the bank and have the homeowner sign it.
E. Call the Loss Mitigation department at the bank.
F. Fax them your offer along with the following:
Your cover letter explaining why you can’t offer full price.
The sales contract.
Justifying comps of the area.
Pictures, if you have them.
A net sheet or closing statement (a sheet that shows the bank exactly
how much they will net after closing costs, taxes, etc. are paid).
A hardship letter from the homeowner that mentions the dreaded word….
bankruptcy.
Estimated list and cost of repairs, using retail repair prices that the
normal homeowner would pay for these items.
What Happens To The Homeowner's Credit?
When you negotiate a successful short sale, keep in mind that the agreed upon price is payment in full. However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a “deficiency judgment.” If granted, this judgment will affect the homeowners and their credit report just as any other judgment. You must get the bank to agree to accept “payment in full without pursuit of any deficiency judgment.”
In addition, you need to explain to the homeowners that the discounted amount (the difference between the mortgage balance and the short sale) may be declared as income on their income tax return by means of a “1099.” The homeowners can speak with their accountant for advice. Since the homeowners have been in such duress and probably haven’t made much income, a 1099 may not adversely affect them.
I hope this sheds some light on short sales. As you know, nine out of ten deals have no equity. To be successful in this business, trends call for you to be a short sale expert.
Dwan Bent-Twyford, the Queen of Foreclosures, learned the “foreclosure” business the old-fashioned way, by knocking on doors. Her motivation to become an investor came out of sheer desperation. She went through a divorce and found herself a single mom not wanting to raise her child in daycare. She needed a career that would allow her the freedom of working from home and raising her daughter at the same time. Investing in foreclosures was the perfect solution. She made $22,000 her first deal and never looked back.
She now successfully handles every aspect of wholesaling, short sales, buying, rehabbing, marketing, and financing foreclosures and distressed properties. In a business dominated by men, this amazing woman quickly learned how to apply her unique experience to create win-win situations when buying property. With so many folks asking Dwan, “How can I learn this business?”, she developed a complete training series as well as a five-day “boot camp”.
Dwan Bent-Twyford now enjoys traveling and sharing her vast knowledge with new as well as seasoned investors. Don’t miss this exciting lady!
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