With the foreclosure rate high, pressure is on lenders to avoid foreclosure whenever possible. One strategy is for the lender to approve the home to be sold for less than the mortgage amount. This strategy, called a short sale, requires the bank to discount the loan, but it also has benefits to the lender. It allows the lender to convert a non-performing loan into a smaller advantageous loan and avoids having the property sitting in inventory for months, possibly even years.
The Advantages of Short Sales
Short sales are good for real estate investors because they allow them to pay less for the property during the pre-foreclosure stage. While the homeowner may owe $250,000 on the mortgage, you could purchase the property for less, possibly in the $180,000 to $200,000 range. This new loan allows both the homeowner and the bank to avoid the foreclosure process while still recovering most of the loan value.
How to Find Potential Short Sales
With foreclosures at an all-time high, banks are motivated to make short sales. This creates many buying opportunities for an alert real estate investor. These opportunities may not be advertised, so you may have to work to find deals.
The best time to purchase a property in a short sale is during the pre-foreclosure period. At this point, the bank knows that the property is likely to be a loser on their books. They are motivated to make the deal work. Once the major expenses of the foreclosure have been paid, the bank will need to get more money for the property to recover their losses and expenses.
Look for homeowners who are currently in default on their mortgage and are motivated to sell to avoid foreclosure. You can purchase a list of these homeowners or you can find them at the county courthouse. Court records will list homeowners who have been served with a notice of default. This information is public record, but requires some work to find and compile the list. Foreclosure list services send experienced people to the courthouse daily to keep their lists up to date.
Once you have a list of potential short sale properties, contact the homeowners to discover whether they might be interested in a short sale. Some will not be interested, but others will be highly motivated. Do your homework at this point to be sure that you have accurately assessed the value and condition of the property before approaching the bank with an offer.
Finding short sales prospects is easy if you use a foreclosure list. Foreclosure lists do the legwork for you at the courthouse and provide a list of homeowners who may be open to a short sale. You can make a short sale offer at any time before the actual foreclosure sale takes place. You will need to act fast if a property is nearing foreclosure sale, but the potential profits make this worthwhile.