buying a short sale home

A Guide to Buying a Short Sale Home for Investors

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If you are planning on investing in a short sale home, you have the opportunity to buy a home at big bargain prices. However, these great prices don’t come without the investment of a lot of time and hard work.

Making the right choice and learning how to buy a short sale can be difficult to know how to do the first time.

To make things easier for you, here’s our guide to buying a short sale home for investors.

What is a Short Sale

One way a short sale can occur is if there is a homeowner who would like to sell however they owe more money on the property than it is actually worth.

An investor will then communicate interest with the owner’s lender to purchase at a low price. They will then try to resell the property at a later date for an increased profit.

In a short sale, the seller does not own what is up for sale. Instead, they will place a sale order through the broker-dealer.

Short sales are margin transactions. This means the current amount of equity the investor has put in and its value in the market.

The reason why you should consider buying short sales is because of the potential to get the best cost due to a drop in value and the possibility of profiting from the investment in the future (a.k.a. buying low and selling high).

Generating Leads

You might find success in networking with local real estate agents when trying to find short sale leads.

Working with these real estate agents can help build powerful (and profitable relationships) especially if working out terms for the commission.

Another way to work on generating leads when buying a short sale home is to focus on online marketing. This can be in the form of starting a website to drive traffic to your services or even through social media advertising.

Look at the Terms and Conditions When Buying a Short Sale Home

If you are looking to resell your short sale property, make sure that you carefully look at your acceptance letter from the mortgage servicers.

The acceptance letter will have certain terms and conditions that you have to comply with when you purchase the home.

The terms may put certain restrictions on how soon you are able to resell the property.

These restrictions may also apply to renting out the property.

Some buyers will buy the property with plans to rent it back out to the original seller who was the borrower.

Unfortunately, this might not be a possibility if there is a requirement to sign an affidavit with everyone involved (agents, sellers, buyers) saying this will not happen.

The Buying Process

You will need to start by verifying the homeowners and understanding the circumstances that are causing them to sell.

Once this checks out, you will then be able to send them a package that explains the short sale process.

The packet will also have a checklist of things they will need to complete and information to gather. This information will be helpful for you to use later on when submitting to the lender.

You will need to add any supporting documents from your end after you get the packet back.

These supporting documents can be in the form as:

  • Values of other homes in the area
  • Any possible sex offenders living near
  • Sales information that is comparable
  • Anything that can devalue the property

Remember, you might have to send the information packet to multiple lenders depending on how many the current homeowners have.

You will then need to make an offer and make sure to verify receipt so that you can get a confirmation that the offer and proper paperwork has been received.

After this is complete, get a negotiator and a broker’s price opinion. It is then when you will be happy you have done your homework.

Overvaluing the property can quickly ruin the deal. In order for this not to happen, prepare and help out by showing other comparable home values in the area. This can help get their value of this property approximately where you want it.

The negotiator will help you work with the lender. This will help you be on the way to getting an approval letter for the short sale. You will need these from all lenders involved which can prove to be tricky.

A written agreement with the homeowner will make sure that they understand any liabilities and any other information they need to know in order to get closer to finishing the process.

Now you will need to complete the transaction by getting together the funding and working with a real estate attorney to finish the deal.

This Requires Full Disclosure

Everything will need to be out on the table in order for everything to go through when buying short sale houses.

This includes whether or not you will be using the assistance of an investor.

An investor will help contribute funds to your efforts in hopes for approval of the deal. Record any additional cash and you will need full disclosure of the investor.

Do Your Homework

If you want the deal to go as smoothly as possible, you will need to do all your homework.

This means, make sure to do research on the current real estate market in your area and most importantly always prepare in case things don’t go exactly as planned.

Although there is nothing to do to guarantee success, preparation like this will help you to the best of your abilities avoid the deal falling through after months of work to secure it.

Buying a Short Sale Home

Buying a short sale home isn’t always easy, but hopefully, this guide has made it easier to understand.

The Short Sale Blog is your one-stop shop to teach you all that you need to know about short sales.

Take a look at our blog to read up on more tips and tricks when it comes to buying and selling short sale homes.

Short Sale Process for Sellers

A Guide to the Short Sale Process for Sellers

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You are unable to pay your mortgage and haven’t been able to make payments in months. You’re facing foreclosure.

What now?

A short sale may be the answer to your problems. You may be able to prevent a foreclosure by working with your lender to short sale your home.

The short sale process for sellers can be confusing. We are going to go over how you qualify, the documents needed, and the team of people who are there to help you.

What is a Short Sale?

This type of sale happens pre-foreclosure. You will be selling the home with your lender’s permission for less than the balance that you owe on your mortgage.

Do I Qualify For a Short Sale?

It isn’t an option for everyone, but if you qualify for a short sale may be a great option. For starters, you must be ineligible to refinance or modify your mortgage.

If you were able to refinance or modify your mortgage then those options would take precedent. Both of these options would lower your monthly payment thereby making it possible for you to continue to make payments.

Are you facing a long-term hardship? The hardship needs to be a life-changing event that prevents you from paying your mortgage for the long term.

This one should be obvious, but you should be behind on your mortgage payments. This solution is for people who are facing the threat of foreclosure.

You need to owe more than what the home is worth. This often happens when the real estate market become unbalanced with extreme growth and then a crash in property values.

Homeowners will borrow a large sum to buy during the height of the market. When they go to sell property values have dropped and they must sell for significantly lower than what they paid for.

Finally, you need to show the bank that you’ve made the attempt to sell your home at a price that would cover the mortgage. These attempts have been unsuccessful, however.

Short Sale Benefits

The most obvious benefit is that you will eliminate or reduce your mortgage debt. You’ll also avoid the negative impacts of having a foreclosure on your credit history.

The smaller hit that you do take on your credit score can be repaired sooner. You can also start qualifying for a new mortgage sooner, as little as 2 years. It would take up to seven years after a foreclosure.

Short Sale Process for Sellers

Once you determine that you are a candidate for short selling your home, you will work with your mortgage company and a real estate agent to sell your home. Your mortgage company must approve of the short sale.

The mortgage company will be involved in setting the sale price based on the current market. They will collect the financial information of other lien holders and negotiate an outcome with them.

All acceptable offers will be reviewed by your mortgage company. Finally, the mortgage company will approve the final sale agreement.

Choose an Agent Who Knows Short Sales

Not every real estate agent is familiar with and knows how to do a short sale. You will want to find an agent who is experienced with the intricacies and potential pitfalls.

When looking for an agent ask how many short sales the agent has closed. Ask for references of clients who have used the agent for a short sale.

Short sales can take months, you’ll want an agent who will stay on top of the sale from start to finish. The agent will also need to be experienced in communicating with mortgage companies and look out for your best interests.

Get the Advice of an Attorney

A real estate agent is going to help you coordinate the sale, an attorney is going to look out for your legal rights. An experienced attorney will look at the original agreement, the new agreement, tax implications, and any future liabilities from the sale.

Will Your Balance Be Forgiven?

Make sure it is very clear from the beginning and in writing whether or not the remaining balance of your mortgage will be forgiven. The mortgage company is not obligated to waive the deficiency.

If you do your short sale through the Home Affordable Foreclosure Alternatives program (HAFA) then the lender must forgive the remaining balance. Lenders are not required to approve a short sale through HAFA.

If your mortgage company does not agree to relieve you of the remaining balance, you will have to pay it. If this is the case, be prepared for a bill to arrive once the short sale is completed.

Negotiate

This is where having an experienced real estate agent and an attorney can be helpful. Mortgage companies aren’t going to offer to forgive your loans, but they will negotiate with you.

You may be able to agree to pay a smaller portion of the remaining balance post short sale. This is usually pennies on the dollar or a lump sum.

Letter of Authorization

You’ll need to submit a letter of authorization to your lender. This letter lets your lender disclose you and your loan information to your attorney, real estate agent, title company, and closing agent.

The letter will include the following information: property address, loan reference number, your name, date and the effective time period, your agent’s name and contact information, and your attorney’s name and contact information.

The Documents You Need

A preliminary net sheet is an estimated closing statement. This will include estimated closing costs, unpaid loan balances, outstanding payments and late fees.

You’ll need to write a hardship letter, the sadder the better. This explains why you need a short a sale and the circumstances that led you to this place.

The lender will require proof of income and assets. Be truthful and disclose all of your assets.

Submit copies of your bank statements and 30 days worth of paystubs. If there is unusual activity on your bank statements be prepared to explain it.

The Timing for a Short Sale

A short sale can take up to 120 days. This is an average though and can take more or less time depending on your current situation and the market.

Prepare to Sell Your Home

The actual short sale process for sellers works just like putting any other home on the market. Your agent will promote the listing, have showings, and probably an open house or two.

During this time you’ll want to maintain the home and pay any HOA fees. You’ll want to get the best price possible to assist in reducing liability.

Be proactive during the short sale process, the quicker you gather the needed materials the smoother the process will go. Be honest about your situation and disclose everything.

Selling your home via short sale isn’t about getting out from under a loan. You are selling your home. This can be an emotional experience and you need to be prepared for the feelings you will experience.

what happens when a house goes into foreclosure

What Happens When a House Goes Into Foreclosure?

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Are you worried that your home might go into foreclosure?

If you’ve missed consecutive payments for your home, there is the possibility your home might go into foreclosure. Foreclosure is what happens when the homeowner fails to make their mortgage payments and eventually loses all the rights to the home.

According to national statistics, 1 in every 1776 homes in the US results in a foreclosure.

While foreclosures can present much difficulty to the homeowner, it doesn’t always have to be the end of the world. Fortunately, there are steps one can take to prevent a foreclosure from happening.

If you’re wondering what happens when a house goes into foreclosure, you’re going to want to keep reading.

What Exactly is a Foreclosure?

A foreclosed home is a home that once belonged to the homeowner but may belong to the bank.

The reason for the bank owning the home is because the homeowner simply stopped or was unable to continue making the necessary payments for the home. In these situations, the homeowner either vacates the home or voluntarily deeds the home to the bank.

In this event, the homeowner forfeits all legal rights to the property.

However, it’s important to consider in these situations that the home never technically belonged to the bank. This means that the bank does not have the ability to simply “take back” the home.

Instead, the bank must foreclose on the mortgage or trust deed and then seize the home.

Why Do Sellers Go Into Foreclosure

Sellers may stop making payments on their mortgage for a number of reasons.

If the seller is unable to pay the outstanding debt of the home or sell the property with a short sale, the property will then go into foreclosure. With this process, the property is attempting to be sold via auction. If the property fails to sell through the auction, the lending institution takes possession of the home.

While most foreclosures happen on an involuntary basis, some sellers do voluntarily fall into foreclosure. For example, during the housing market crash between 2005-2008, many homeowners simply walked away from their homes.

This was due to the fact that the value of the home had fallen so dramatically that they owed more to their mortgages than what the home was worth.

While this temporary solution had adverse effects on these homeowners, it was common during the housing crisis.

It’s important to understand that a foreclosure is the last resort for banks. And, while the specifics of foreclosure can vary from state-to-state, it’s most simple to break the process down into five stages:

1. Missed Payments

To understand how foreclosures work, remember that most homeowners need to take out a mortgage on their home. This mortgage entails making monthly payments to eventually “pay off” the home.

If the homeowner fails the make these mortgage payments on time, this has the potential to transition the home into foreclosure.

But, all is not lost if the homeowner fails to make a few payments. The reality is that foreclosures cost the bank a lot of money and headaches. Because of this difficulty, the banks want to avoid the process just as much as the homeowner.

That being said, there are options before the house falls into foreclosure. If you are in jeopardy of missing your mortgage payments, be honest and upfront about your troubles with your lender. Together, you can determine other strategies to hopefully keep your home and avoid foreclosure.

2. Public Notice

After 3-6 consecutive months of failing to make the necessary mortgage payments, the lender will record a public notice. This notice is registered in the appropriate office and indicates the homeowner (borrower) has defaulted on the mortgage.

In most states, the lender is required to post this notice on the front door of the property. This notice services as a means of making the homeowners officially aware that they may lose the rights to the property and face a potential eviction.

In other words, the homeowners are in danger of facing a foreclosure.

3. Pre-Foreclosure

Next comes a period of known as pre-foreclosure.

After receiving the notice from the lender, the borrower has anywhere from 30-120 days to work out an arrangement with the lender. These options are generally selling the home via short sale or to pay the outstanding amounts owed to the lenders. This grace period offered to homeowners generally varies from state-to-state.

If the homeowner fails to satisfy these arrangements and the default is not paid off, the process of the foreclosure continues.

4. Auction

This is when things start to get very serious for the homeowners and the period in which they are likely to lose their home.

Assuming the said default is still not remedied by the given deadline, the lender will set a date for the home to be offered for sale via a foreclosure auction. This is also known as a Trustee Sale.

The notice of the sale is posted on the homeowner’s property and is also advertised in the newspaper/online publications. Though, in many states, the homeowner has the right of redemption up to the moment the home will be auctioned off.

If the homeowner fails to come up the with the necessary cash to re-purchase the home, the home is sold to the highest cash bidder.

5. Post-Foreclosure

Sometimes foreclosed homes are auctioned for sale but with no success. In this event, if the home remains unpurchased, the lender (usually the bank) will take ownership of the property. The home, then, becomes a bank-owned property.

What Happens When a House Goes into Foreclosure

If you find yourself wondering what happens when a house goes into foreclosure, the odds are you may have missed a few mortgage payments.

If you’re worried your home might go into foreclosure, be sure to consider the many options outlined above. And, remember, failed mortgage payments don’t always have to result in irreversible damage. Knowing the facts is the best way to avoid or prepare for a potential foreclosure.

Alternatively, if you are considering purchasing a foreclosed home, be sure to acquaint yourself with the facts and how this process works. While it can present unique opportunities to buyers, it’s essential to understand the costs and benefits of foreclosures.

Are you interested in real estate? Be sure to visit our blog to learn more about how foreclosures and short sales work.

buying a foreclosed home

8 Tips for Buying a Foreclosed Home

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Are you considering buying a foreclosed home?

Buying a foreclosure can be a great way to score a bargain while househunting.

What exactly is a foreclosed home, you ask?

These are homes in which the owners default on their mortgage payments and were unsuccessful in selling their home. As a result, the lender(s) assume ownership of the home and try to sell it to recoup costs.

While foreclosures are not exactly common, they do still happen. Studies reveal that 1 in 13,000 homes results in foreclosure.

Although foreclosures do often present a unique set of challenges to buyers, there are many benefits to purchasing a foreclosed home. If you’re considering opting for a foreclosure, you’re going to want to read these eight tips for buying a foreclosed home.

Find a Realtor Specializing in Foreclosures

Just like any other real estate transaction, you’re going to want to use a realtor to guide you in your search. But, not just any run-of-the-mill realtor is going to be able to represent you in this particular search.

Foreclosures are a whole new animal when it comes to purchasing a home and a realtor is a must.

A realtor familiar with foreclosures will be able to provide you with essential information on the listing such as:

  • How long the property sat vacant
  • Whether it endured freeze and thaw seasons
  • Pitfalls associated with foreclosure homes

These are all essential elements that will help you understand if a particular foreclosure property is a sound investment.

Get a Pre-Approval Letter

It’s important for buyers to understand that although the bank might be selling the home, this is not to assume the bank will also finance the mortgage as part of the deal. These are two entirely separate entities.

Unless you are paying for the home in all cash, buyers are going to need to arrange financing with a lender. This will come in the form of a pre-approval letter from your lender. As with most pre-approval letters, it will document how much money you can borrow from the lender.

Because foreclosure homes are sometimes priced under market-value, they can move quickly. For this reason, buyers are going to want to ensure they have their pre-approval letter prior to beginning their search for a foreclosed home.

If not, the buyer is likely to lose out on the deal to other buyers who already have their financing arranged.

Budget Carefully

A pre-approval letter outlining your maximum budget should not always dictate the amount you are willing to spend. This is especially the case in buying a foreclosed home.

Remember, a foreclosed home is typically purchased in as-is condition. That being said, you’re going to want to ensure you are budging carefully for all of the required work. This could include both damages that appear to the naked eye as well as damages that are not visible to the naked eye.

Some foreclosed homes are in such poor condition they are not liveable for the first few months of the renovations. That being said, be sure to also plan your accommodations accordingly.

Hire a Home Inspector

Hiring a home inspector for a foreclosure is more important than any other real estate purchase. As foreclosures are often sold as-is, the possibility of structural damage is always a risk.

A typical home inspection report will cost $500-$600 and is worth every penny.

The home inspector will be able to give you an overall report on any damages and an estimate as to how much money it will take to make repairs. They will also check the state of the appliances, electrical, plumbing and rooftop.

Most importantly, they will be able to let you know whether or not the home is in a dire state of repair. This is an essential factor as homes in such a state may not be eligible for a conventional mortgage.

Look at “Comps”

Many buyers unfamiliar with foreclosures make the mistake of assuming the property will sell under-asking. This is often due to the belief that the bank is looking to rid of the home quickly or that the “as-is” condition of the home should minimize the asking price.

This, however, is not always the case.

The reality is, sometimes the banks price the home purposefully low in hopes of generating a bidding war. That being said, it’s important to have your realtor closely examine the recently sold properties in the neighborhood. From here, the realtor and the buyers can work together to arrive at a sound asking price.

Get Ready to Move Quickly!

While the negotiation process for foreclosures may require some added patience, the closing process is usually very quick.

What does this mean for the buyers?

This means buyers will more than likely have to close on the property very quickly. The fact of the matter is, most foreclosure properties are vacant and the banks are looking to transfer title to the new owners ASAP.

When drafting an offer for a vacant property, be sure to input a sooner-than-later possession date to stand out against other buyers. An early possession date could be what makes the bank choose your offer as compared to another.

Check the Title of the Property

Conducting a title search for a foreclosed property is essential to protecting the new buyers.

What is a title search?

A title search ensures that the seller has the legal right to sell the property. It also ensures that there are no encumbrances placed upon the property. These are things such as liens, mortgages, unpaid taxes, etc.) that could result in a nightmare for the new buyers.

Let’s consider this situation: The IRS places a lien on the property for the seller’s unpaid taxes. Rather than following the sellers, this debt stays with the property making the new buyers responsible for this debt.

Conducting a title search eliminates this risk as it gives the new buyer’s the legal details of the home.

Practice Patience

Last, but certainly not least, be sure to practice your patience with a foreclosure home. After all, buying a foreclosed home is never exactly a quick nor seamless process.

It’s important going into a foreclosure with the understanding that the process can take longer than a traditional real estate transaction.

Because the buyers are negotiating with the banks as opposed to the original owners, negotiations are bound to take a lot longer.

But, alas, the long wait is almost always worth it!

Are You Looking Into Buying a Foreclosed Home?

While buying a foreclosed home presents a unique set of challenges to buyers, it’s a great opportunity to purchase a home on a budget.

This is especially a great opportunity for first-time homebuyers or investors.

If you are in the market for a foreclosed home, be sure to read our blog and better acquaint yourself with the process.

Happy house hunting!

buying a short sale

8 Tips for Buying a Short Sale Home

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Buying a short sale home offers buyers a great opportunity. The sellers are looking to get out from under the home and will offer the sale at a discounted price just to get rid of the property.

This means that if you’re looking for a home for yourself — or as an investment property — you can save tons of money and still find the home you’ve always wanted.

There are a few things you need to consider, however, before you start looking for short sale properties. The short sale process can be tricky, so you need to arm yourself with the foreknowledge you need to find the right deal.

Luckily, we’ve got you covered with some tips that’ll help you determine whether you want to start looking at short sales and what you need to do to find a great one.

So read on!

What Exactly is a Short Sale?

A short sale is when a seller is motivated enough to take less than they owe on the home. This usually happens because the seller needs to get out from under the home quickly or to avoid foreclosure.

It sounds simple enough, but there are a few problems.

The biggest problem is that the lender has to agree to accept less than the value of the loan. Since no company wants to take a loss on their investments, you can see the difficulty in a seller convincing a lender to do so.

Again, this doesn’t mean it’s not possible. The process just may take some more time than an average home sale.

The other problem is that foreclosure is always a possibility. If things don’t go right, the lien holder will force a foreclosure and all will be for naught.

But sometimes, the possible deal is just too good to pass up trying and it’s worth the effort.

Buying a Short Sale

Let’s get into the nitty-gritty. If you want to buy a short sale home, here some the most important things you need to consider.

Find a Professional

Anytime you are looking to buy a property, you should hire an agent. it’s even more imperative to find one when considering buying a short sale.

There’s a lot more paperwork that goes along with a short sale. And there are a lot more potential problems you’ll have to face.

Finding an agent that specializes in short sales can save you headaches and the possibility that you don’t fill out everything correctly which can jeopardize the sale. That agent can also find out all of the details of the current lien, the conditions of the house, and all of the vital information on the seller you will need.

Find the Short Sales in Your Area

Your agent will obviously help you do this, but you can also do a little research yourself to find sales you like.

Many listings will say outright that the property is on a short sale, but some will not. Look for keywords such as “preforeclosure,” “must meet bank approval,” and “headed for auction,” as clues to possible sales.

Understand Your Expectations

Know what you are looking for in a short sale and tell your agent. Are you going to be living in the home or renting it out? Is it an investment opportunity to resell after some upgrades?

Understanding exactly what you are looking for in a property will help you narrow down your choices and make everyone’s life a little easier.

Get Your Budget Together

Even though you could be saving thousands of dollars when buying a short sale, you need to know exactly how much you are willing to spend and how flexible you are willing to be.

There are tons of resources online that can help you manage your money and give you a full account of what you can spend on a new home. The earlier you know your total budget, the better your chances will be at finding the perfect short sale to buy.

Don’t Expect Negotiations

Short sales are stressful for the sellers and the lenders are wary of losing too much money. This means that you shouldn’t expect the standard negotiations that come with buying a home the traditional way.

When you see a sale price on a short sale, assume that’s the best they can do. The home is already undervalued, so don’t expect any wiggle room.

This means that you need to…

Give Your Best Offer

Don’t try to lowball a short sale. It won’t work and it’s just wasting everyone’s time.

Instead, find out the most you’re willing to pay and offer it. Chances are, you’ll already be getting a great deal, so don’t let someone else swoop in and take it from you because you tried to get cute and save a few more bucks.

Go with a great offer on your first try and you’ll save time and have a great chance at landing the property.

Add a Contingency

You need to be able to walk away if the house needs more repairs than you originally thought.

Make sure you add a contingency on repairs and other possible problems on the property that gives you a way out of things aren’t as expected. This is a very common practice in real estate and should be no problem, even with a short sale.

And if it is a problem, maybe it’s time to look for something else.

Have Patience

Because of the special nature of short sales, the process will take a little longer.

Don’t let the length distract you from your goal. You set out to buy a short sale to save money, so some extra time shouldn’t hurt. Stay focused, and it’ll be worth it when you finally close.

Short Sale Knowledge

These are some of the most important tips when it comes to buying a short sale home. There are many nuances and unexpected challenges you may face, but a short sale provides a great investment opportunity.

For more information on short sales, you can visit our blog.

Good luck!