A short sale happens when a property is sold and the lender agrees to take less than what is owned as payment in full. For example, it a homeowner owes $150,000 on their mortgage, but the bank allows $100,000 as the payoff amount, this is known as a short sale. The difference between what the homeowner owes and what the bank accepts for payoff is known as the short fall balance. Short sales are usually done to avert a foreclosure.
If you are interested in buying a short sale you need to first get permission from the homeowner to talk to the bank. You should ask the homeowner to sign a "Disclosure permission to talk to the bank on their behalf.
Next, you will want to call the lender's Loss Mitigation Department which deals with foreclosures as ask for a short sale booklet. This booklet will include the forms and instructions you will need for carrying out a short sale. You will likely need to tell the person you are speaking with that you represent the homeowner. You will probably have to give some basic details about the property and the planned deal, as well as the value of the property and the financial status of the homeowner.
To get an idea of what the property is worth the bank will order a broker's price opinion (BPO)from a local real estate agent. You should contact the realtor doing the BPO and let them know of the condition of the property and any work or repairs that will be needed. If the property needs a lot of work it will be harder to sell on the MLS and the bank will be more open to doing a short sale.
Once you have the short sale booklet complete you will need to submit it to the lender. Included in this will be the offer letter, your contract with the seller and any information about the seller's financial status. Give the lender a call to ensure they have received your completed short sale booklet and they have all the details they need to come to a conclusion. It usually takes four to seven weeks to hear back from the lender
A lender can accept your short sale proposal, or they can counter and ask you to pay more. You can make a counter offer, which they can counter again or accept.
Properties that are in bad condition and or have a second trust are usually good short sale opportunities. Second trust holders do not want to end up with a property at auction. Plus, they must pay the full balance owed ion the first trust if they wind up with the house at auction.