What's All the Fuss About ShortSales? Print
Written by Dwan Bent-Twyford   
Monday, 01 March 2010 18:19

Why Short Sales Are Always a Profitable Strategy for Real Estate Investors

What is all the fuss about short sales?  Everywhere you turn, there is another seminar, another guru, or another boot camp all teaching the same thing.  Can so many people be right?  How many different ways can there be to do the same thing?  Folks, believe it or not, there are not one hundred different ways to do short sales, there is one and everyone is trying to put a spin on it to seem original.

Since my partner and I were the first to bring this topic to the surface, it’s exciting to see how this incredible topic has exploded.  I’m going to review the short sale concept and show you just how easy it actually is.

A short sale is simple:  Through simple negotiations you get the bank to accept less than what is owed as payment in full. For example, you find a homeowner with a property worth $100,000 that has a $100,000 mortgage balance.  You work with the bank to negotiate a discount on the payoff.  The bank agrees to accept $50,000 as payment in full and you have just completed your first short sale.

Is it really that simple?  Sometimes!  The key to successful short sales is to understand the mindset of the people involved and make the deal appealing to each person involved. There are basically three parties involved in a successful short sale:  The homeowner who is interested in getting out of foreclosure, the bank who wants to get a bad debt off its books, and the rehabber who wants a great property to fix-up and sell retail.  In each situation, there is a win/win outcome.

Let’s start with the homeowners.  Their motivation is obvious.  They are behind in payments or already in foreclosure.  They are getting called by creditors, banks, attorneys, mortgage broker’s and more everyday.  They just want to sleep at night and get out from under the stress this situation has placed on their lives.  Their downfall:  they have no equity.  They have called every investor in town and been turned down by everyone because they have no equity.  They call you and you say, “No equity?  No problem!”  You explain the short sale concept, get the property under contract, and get busy.

Why would the bank accept less?  The bank can take the property back at the sheriff’s sale and then retail it. With all of the foreclosures now banks are sitting on 1,000’s of REO’s  So, let me ask you this, “Are banks in the business of lending money or owning homes?  Correct, lending money.  Is a foreclosure an asset or a liability?  Right again, a liability.  Folks, banks are in the business of wholesaling money.  They borrow money from bigger banks and then lend it to you.  They have to show their credit report, just like you do, to get a low interest rate on the money they are trying to borrow.

If you were going to lend millions of dollars to a bank, would you lend your money to the banks with the low default rates or the banks with the high default rates?  Right again, you would lend to the banks with the smallest number of defaulted or foreclosable loans.  The banks motivation to accept a short sale is to clean up its books so that it can borrow more money, at a cheaper rate, and then lend it to you.

Where does the rehabber come into play?  You have to have someone to sell your properties to once you negotiate a successful short sale.  Rehabbers are the perfect outlet.  Rehabbers like to purchase fixer-uppers at 65% of the retail value.  In the case of the $100,000 property, a rehabber wants to buy it for no more than $65,000.  In order for this to happen, you must get the bank to say yes to your offer.  Rehabbers would like to buy at 55% to give them the cushion they need to fix and flip in today’s market.

So, how do you get the bank to say yes?  You build a great case.  Think of it like an attorney defending a case.  The better case you build, the better your chances are to win.  I send as much information as I can to the bank to show the bank why it should accept my low offer now instead of waiting out the foreclosure and bankruptcy process and getting the house later.

How do you build a good case?  Send: a sales contract, signed by the homeowners, for the amount you want to offer the bank; an “authorization to release information” form; low comps; bad pictures; a detailed list of repairs; a hardship letter written by the homeowners - backed up with proof such as late notices, shut off notices, bank statements, job layoff papers, medical bills, tax returns, or whatever you can find; a crime report; a list of sex offenders in the area; articles from the newspaper showing negative items – job layoffs, crime, natural disasters, foreclosures up, bankruptcies up, and whatever you can find that is detrimental to the neighborhood; net sheet; and a cover letter from you stating why you couldn’t possibly pay full price for the property.

Submit that information to the Loss Mitigation department of the bank and you are in business.  The rep will negotiate with you and once you settle on a price, wholesale the property to the rehabber.  You become the middleman and make the difference between what you negotiated with the bank and the rehabber.

Folks, short sales are not that hard.  There are millions of dollars being left on the table.  Get busy and put some of it in your pocket.

Dwan Bent-Twyford  has been a real estate investor for over 15 years.  She has purchased and sold over 1,000 properties, totalling well over $200 million in real estate transactions.  Her niche is cornering the market in foreclosures and teaching people to become investors - without damaging the people in distress.  As a believer in Christ, she feels that the golden rule should apply in all situations.  In a world dominated by men - she has certainly made her mark!