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The Definitive Guide To Understanding Short Sales and Pre Bank Foreclosures
With bank foreclosures are at record levels as many homeowners find themselves owing more than the current value of the home. Faced with this situation many homeowners are willing to walk away from their house which provides an investor the opportunity for a short sale.
Short Sale Definition:
A short sale is an “agreement” between the current owner of the house and the lender to accept an offer for less than the total amount owed to pay off the home. The “deficiency” is the difference between the amount owed and what the bank collects in accepting the short sale.
Contrary to popular belief a short sale can be completed anytime and a person need not be facing a bank foreclosure. However, the lender is more inclined to accept a short sale and deeper discounts when a property is in foreclosure. As a general rule the closer to the foreclosure date the more willing lenders are to negotiate short sale discounts.
What Lenders ASK For On A Short Sale
Lender requirements may vary but most will request the following items:
- Completed Financial Statement
- Hardship Explanation Form or Letter
- Most recent checking and savings account statements for all borrowers
- Proof of all sources of monthly household income
- Documentation showing the complete listing history of the property
- A signed sales contract subject to lender approval (DON’T give them the contract they ask for. Use mine)
- An estimate settlement statement (HUD 1)
- Proof of buyer’s financing
- Third Party Authorization
The lender does not want to do a short sale! Why? Because a short sale is the lender’s willingness to lose money and one should never forget they are in the business of making money.
So why is the lender asking for all this information? The lender is looking for proof that the borrower is not financially able to make the payments. The lender wants to be certain that there is no way to get money from the borrower before agreeing to a short sale.
To be successful in short sales and pre bank foreclosures you must understand the lender does not want to do a short sale in the first place. The short sale package you present to the lender must show WHY it is in the lenders best interest to accept your short sale offer. Just giving the bank what they ask for is unlikely to produce a significant short sale discount. (Homeowners should avoid Realtors when doing short sales because Realtor’s do not have the training or experience in putting together successful short sales packages that result in deep discounts below market value).
When submitting a short sale package you must give the lender supporting documentation on how and why they should accept your offer. Do their job and their analysis for them and document it in black and white. Then after submitting the package to loss mitigation you are prepared for the loss mitigator and the phone and fax negotiations that follow.
Priceless Investing Tip: If you are trying to put together short sale packages without a system you are working way to hard and wasting time. I use a short sale system where I can create the best short sale packages ever and it takes me less than 10 minutes per property. That package includes everything I need to analyze the deal and everything needed to give the lender a compelling package. For more information and details Click Here.
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