How Short Sales work
Short Sales are one of the most effective techniques for discounting loans in real estate. Short sales create huge investment opportunities and are a must if you want to be competitive in this market. There are several important steps when conducting a bank short sale. Too many times, beginning investors skip vital steps that ultimately cost them the deal. Many of the rules have changed regarding what the banks will and will not allow you to do. The process on average is taking longer because of all the inventory. However, there is almost 3 times the opportunity for real estate investors and a good time to start doing short sales.
There is a certain process for calling the bank when doing short sales. Banks can usually tell if you've never done this before. When you call the bank, you never want to tell them you are an investor. This one of the biggest mistakes rookies make and will almost always result in the lender not accepting short sales. Therefore, when you call the bank to request the short sales packet, you can either tell them you are the buyer or you represent the homeowner. Sometimes they may ask if you are a real estate attorney. Just restate what you told them before. Then you'll want to request the "short sales packet" or "workout packet". When the packet arrives it will explain exactly what you need to make this short sales deal successful.
The bank will usually request a hardship letter. A hardship letter is telling the lender why the homeowners are not making their mortgage payments. Sometimes they will request bank statements, pay stubs, income statements, and so on. Be prepared to send them everything they ask for because if you don't it will not be accepted. They will almost always ask for a HUD-1 and a real estate purchase and sales agreement. Do not waste any time! Send everything the lender asks for back ASAP. It usually takes 3 weeks or more to get an answer back from the lender, so you can't afford to wait. If the auction is approaching, you can ask to extend the auction which in most cases they will, if they know it is a legitimate offer.
Next in the short sales process is the BPO. This stands for Brokers Price Opinion. Basically a real estate agent will come out and give their opinion on what the house is worth. The key to a successful bank short sale is the BPO. You want to try everything you can to influence the BPO to come in as low as you can. The lower the better. It takes a few times to get good at this, but once you do, I guarantee you will try to get short sales on every real estate foreclosure you encounter. You will also receive larger profits when you invest in a more expensive home. This is because you are able to get bigger discounts from the lender on properties over $500,000. The great thing about this is that it will cost you about the same no matter what the property is worth.