Tips for Buying Short Sales from the Lender
With more and more sellers unloading their homes for less than what they owe on their mortgages, now is a good time for investors to start negotiating “short sales” with lenders. Real estate investors can find good deals as long as you are aware of the extra time and work required to make it happen.
Your chances of success with the seller's mortgage lender improve if your communication with them is organized and complete. Your first contact with the lender's “loss mitigation department” is crucial in making a good impression.
The first thing you need to get from the owner is what's called a “release” or “authorization to release information,” which is a letter signed by the seller that allows the mortgage lender to talk with you about the seller's mortgage. Laws prevent lenders from releasing mortgage information without the homeowners’ written consent.
Next, when you talk with the lender's loss mitigator, you'll want to find out three things:
• Will the lender agree to a short sale;
• What additional information they'll need to complete the process;
• Request the “payoff quote schedule,” which is what the lender thinks they are owed.
Loss mitigators sometimes receive bonuses based on how many defaulted loans they can clear up, so they're more likely to pay attention to your sale if you can show them you're taking care of as many details and objections as possible.
The lender, on the other hand, will be considering many factors in deciding whether to approve a short sale, including:
• Whether the seller is deserving of a break, due to financial hardship caused by unforeseen circumstances such as layoffs, divorce or illness;
• Whether it would be cheaper to simply repossess the house, make any necessary repairs and sell it through a real estate agent or broker;
• How many other properties the mortgage lender currently has in default.
Additionally, the lender may require what's called a "hardship letter," which explains the seller's financial difficulties in writing. The lender may also require owner payroll stubs, copies of medical bills, checking account statements, financial statements, two years of tax returns, a signed purchase contract and other appropriate evidence from the seller. The lender will also look at the seller's credit reports to verify the seller's financial predicament. This will all take extra time.
While buying a home on a short sale can be frustrating and time consuming, your hard work can pay off in a home that's worth considerably more than you paid for it. For more detailed information, read Make Money in Short Sale Foreclosures, by Chantal Howell Carey and Bill Cary (Wiley, New Jersey), 2006, $29.95, 267 pages.
At RealtyTrac we want to arm you with all the information you’ll need to successfully achieve your real estate goals.