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Find a new home or apartment
10 steps to follow
1. Identify potential short sales.Locate properties in your area in danger of foreclosure. You can use an online database, search courthouse listings and legal ads or tap an experienced real-estate agent as a buyer's agent.
First, try to determine how much is owed on the house in relation to its approximate value. If the amount owed seems high, the property is a good candidate because it indicates that the seller might have trouble selling it for enough to satisfy the loan. Pass on those in which the owner has a lot of equity in the home; the lender likely would prefer to foreclose and resell nearer the market price.
2. View the property.
Gauge its condition and come up with a rough estimate of how much it's going to take to repair or renovate. If it needs work, many "normal" buyers won't consider it, which is good for you.
3. Do your research.
What is the property worth? What's the profit potential? If you're an investor or even a homeowner planning to live in the home a short time, you'll want to profit from the deal.
4. Find all liens and mortgages.
Ask the seller or his agent what liens are on the property and which lender is the primary lien holder.
5. Figure out the financing.
This is critical. You have to know how you're going to pay for the property. If you're a good credit risk, the existing lender may be willing to give you a loan. Because the lender already may have a lot of your information in the short-sale paperwork, it may be able to expedite the loan application process.
It's important to understand that in a short sale you have to have the ability to move quickly. Once an agreement is worked out, it is common for the lender to require closing in as few as 20 days. That's too late to start shopping for a mortgage.
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You or your agent should speak with the loss-mitigation department (or perhaps the resource-recovery department) rather than the collection or customer-service department, which is interested only in recouping past-due loan payments.
Finding the decision maker can be one of the biggest initial challenges. You will first need to have the homeowner complete and sign (notarization is usually required) an authorization letter, which gives the lender permission to discuss the mortgage situation with you.
7. Complete the lender's short-sale application, if there is one.
Many lenders have an application specifically for a short-sale request.
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The proposal generally consists of a package of materials, including the application and authorization letter, plus:
- A purchase and sale contract -- signed by you and the seller -- to buy the property for a specified price. The lender is not going to entertain tentative offers. You're not going to get the chance to ask the bank, "Would you take X number of dollars?" In most cases this also means posting a sizable amount of money to demonstrate your desire and ability to go through with the transaction if it is accepted. If you can't make a sizable down payment, the lender has no reason to believe you can do any better than the last owner. It's also very important to the buyer that the contract be contingent upon all lenders approving the short sale in writing.
- A hardship letter. It's important to remember that a lender will not even discuss a short sale until the homeowner has fallen behind on payments -- usually 90 days. The lender must be convinced taking a smaller loss now is better than a bigger loss later. To make that case, start with a letter written by the seller giving an overview of the seller's desperate situation. The lender must recognize the seller's inability to pay the loan -- immediately and in the foreseeable future -- and that the situation is irreversible. The seller should supply as much evidence and documentation as possible, such as divorce papers, evidence of job loss, delinquent accounts, utility shutoff notices, car repossession paperwork, the last two years' tax returns, recent pay stubs and recent bank statements. If the lender thinks the seller has money or assets stashed away, it will never go along with a short sale.
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- A statement of the property's value. This can be an appraisal or a broker's price opinion. The lower the estimate of the property's current market value, the better it will be for you. You want to show the lender that the seller would not be able to get enough for the home via a normal sale to satisfy the loan. Compile a list of all the negatives and problems of the home that negatively affect the value and make it undesirable to the average buyer and tougher for the lender to resell. If the lender realizes the property will bring it nothing but headaches, it will be more likely to OK a short sale. MortgageReliefFormula.com's Geller, who has participated in hundreds of short sales, says this step is critical and advises taking it before the lender does a valuation. "There are ethical and legitimate ways to get a low valuation, and if you show this to the lender to start with, your offer won't look so low," he says. Geller adds the offer to the lender can be below the amount of valuation. "The offer can be 85% in areas that are slow but not terribly distressed and as low as 50% in really distressed areas."
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