How to Be a Real Estate Investor by Phil Pustejovsky

Author:Phil Pustejovsky [Pustejovsky, Phil]
Language: eng
Format: epub, pdf
Publisher: FreedomMentor.com
Published: 2011-09-28T18:30:00+00:00

Short Sales

A short sale is an agreement from a lender to accept less than their total amount owed as payment in full for their loan. A short sale is also commonly referred to as a pre foreclosure sale because it typically occurs prior to a property being foreclosed upon by the lender (although a short sale can be done on a property that is current on payments too). A pre foreclosure deal can also be a short sale, but not always. If a borrower has plenty of equity, it can be a pre foreclosure but not require a short sale. A short sale is only needed when the loan payoff must be discounted in order to purchase the property.

Lenders typically will accept a short sale to save money over conducting a foreclosure. However, lenders do not always accept a short sale offer. The amount must be high enough to justify an approval. For example, if a lender’s internal information suggests that by foreclosing they will only net 79% of the fair market value of the property, then so long as a short sale investor offers the lender more than 79%, the offer will usually be approved. On the other hand, if the investor offers 70% of fair market value, the lender may reject it. This has been the cause of so much misunderstanding and confusion surrounding short sales.

Lenders rarely accept random low ball short sale offers. They approve offers that make fiscal sense to them. If a lender thinks they will make more money by foreclosing than from accepting a low short sale offer, most lenders are not afraid to foreclose on the property. Our team has developed the Lender Database, which is the only system of its kind to provide detailed information on what lenders are approving for every major lender in the country. This allows you to be one of the rare few who know what the lender is going to agree to before you submit the offer. Without this tool, a short sale investor is operating blind. With short sales, the most important aspect is having as much knowledge about the approval process as the lender does.

WISDOM KEY: You will see the term “lender” used to describe a company or a group of companies that owns and/or services mortgage loans. A loan servicing company is responsible for collecting the loan payments from borrowers. However, rarely does a loan servicing company also own the loans they service. Most mortgage loans are actually owned by institutional investors (such as pension funds, insurance companies, etc). In the lending industry, these institutional investors are referred to simply as “investors,” not to be confused with what we refer to as investors, which is you. With short sales, the loan servicer handles the preparation and negotiation. However, the final approval of a short sale offer is usually determined by the investor, not the loan servicer. Since these two entities work so closely together, the term “lender” will be used to refer to both the loan servicer and the investor.

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