Mark & Kristin Stampini

Foreclosure:  At the sheriff’s auction lenders bid against everyone else to gain control of the property (deed). Most liens against the property are extinguished after this action.

Post-Foreclosure:  Majority of the properties that are subject of a foreclosure end up in this category. The property then becomes a liability to the Lender, FHA (HUD), or VA and all except VA hires a Real Estate Broker to list and sell the property. HUD and VA properties are on the Internet (HUD.org and Vahomes.org) bids must be placed thru a registered Broker/Realtor®.       

HOW & WHERE TO FIND A PROSPECT FOR A SHORT SALE?

5) Run a classified ad in the newspaper offering help to property owners to avoid foreclosures.

6) Stay in touch with Realtors® that may turn down listings because there is not enough equity to payoff mortgage balance and pay their fee from the sales proceeds.

7) Keep your eyes & ears open to see if you hear of any property owners getting over their head or having financial problems.

8) Divorce, bankruptcy, separation, loss of employment and illnesses are very common causes for short sales especially if there is little or no equity in the property.

9) Sellers that are either behind in payments or facing financial adversity.

We need to be aware of some important issues while dealing with a short sale as it applies to: the Seller, the Lender, the Purchaser and the Real Estate Professional.

2) Net proceeds to seller must be ‘zero’ on the (settlement) HUD statement.

3) Lender may release owners from any further liability in connection with the loan, meaning no “deficiency” judgments to be filed.

4) Have plenty of time to make their moving and relocation plans.

5) A possible third party “investor purchase and lease-back or resell” to the current sellers on creative basis until their financial challenges are resolved.

6) Seller can avoid or offer an explanation of a “foreclosure” showing up on their credit in order to improve their credit ratings.

7) May be able to avoid a Bankruptcy; if there are no other major non-real estate related debts.

LENDER:

1) Net amount with this short sale process will be equal to or greater than proceeds from a possible sheriff’s sale without months of foreclosure procedures and the extra expense of the attorneys involved.

2) Net proceeds from the sale are available in certified funds within 24 hours.

3) Reduces inventory of non-performing assets in their books quickly.

4) Lender normally performs a full-blown appraisal to justify the lower listing or selling price based on the comparable market analysis done by a Broker/Realtor® (BPO) to support the price.

5) May choose issue a form 1099 for the shortage as a “forgiven debt”, on which the seller may have to pay income taxes. 

6) May threaten the owners to come after them for the “Shortage.”

PURCHASER OR INVESTOR:

1) Pick up extra 10-30K in equity per property

2) Properties are occupied with utilities still on. Most systems should be functional

3) Very little competition unless the property is listed for sale

4) Possibility of seller buy back or lease back, with no rehab work at all

5) Some of these properties are great for owner occupied for Investors, and capital gains free (up to $500K for joint returns) if you sell after living in it for just two years or more.

6) Steady supply of short sale properties from your favorite Realtors®

7) Possibility to wholesale once property is under contract with current lender’s consent.

REAL ESTATE PROFESSIONAL:

1) Realtors® can pick up a few extra listings per year in this specialty area where 95% of realtors are not exposed to or unwilling put in the effort to learn.

2) All short sales are “AS IS” and seller/lender will not agree to any repairs.

3) No emotional sellers to deal with, since sellers net “Zero” at the closing.

4) Investors quickly “grab” these properties; there is no “hard selling” involved.

5) Promote themselves as specialists and work with Investors and offer other Realtors® a “Referral fee” for such listings.

6) Chances of a “double dip”, where a Realtor® sell their own listings are much greater!

There are very few Books and Seminars for this specialty. Mostly, its just word of mouth and networking with professionals (Realtors® and Attorneys) and or fellow investors that have knowledge and experience in this area and work these short sales frequently.

TIPS “N” TECHNIQUES (TNT)

1) First things first: Get the sellers to give you written authorization to talk to their lender(s) concerning their mortgage loans and a possible short sale.

2) Most lenders don’t even consider a possible short sale situation if the mortgage payments are not behind by at least two or three months.

3) Make the lender’s “Loss Mitigation Department” or “Foreclosure Department” aware of the owner’s financial situation and market conditions combined with deferred maintenance to justify the lower net proceeds than the mortgage balances (if more than one exist).

4) Offer must be made from a pre-approved purchaser or with proof of funds.

5) Make sure you do preliminary title work to determine if there are other liens on the property. Seller still needs to get all the liens released to get a clear title conveyed to the purchaser at closing. In most cases the lenders that have a second or third mortgage on the property know that they have absolutely no leverage or protection in a short sale situation, and are willing to negotiate for what ever you can offer with the consent of the first mortgage holder ($2000 in FHA/VA loans).

6) Do a “Net sheet” on the worst-case scenario with all possible expenses including back taxes, delinquent water bills, deferred maintenance, repairs and other seller expenses associated with a typical real estate closing including title company charges, tax pro-rations, recording fee, transfer fee to county (Stamps) etc.

7) Current owners or their relatives are not allowed to purchase the property on a “short sale” for the owners. A “third party” not related to the owner may purchase the property and later could sell it back to owner if they elect to.

8) Lenders may require a “Financial Hardship Package” submitted to them by the current owners or some times simply a letter describing their financial hardship may be sufficient.

9) Sellers are not allowed to take any money from the proceeds except in case of FHA and VA where there are exceptions with limitations.

10) Most lenders prefer working with Realtors® who could make sure all the state and local real estate laws are complied with including proper disclosures as in a regular sales transactions. Lenders don’t want any future liability dealing with non-licensed Investors or consumers directly.