What is All The Fuss About Short Sales?

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 only one. What you have is people trying to put a spin on it to seem original. My partner and I were the first to bring this topic to the forefront. It is very exciting for us to see how this incredible topic has exploded in the last few years. I am going to review the short sale concept and show you just how easy it actually is. My students and I have done hundreds of short sales. If you will do what we do, you can expect the same incredible success.

A short sale is simple: Through simple negotiations you get the bank to accept less than what is owed as payment in full on a property. 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? You bet! The key to successful short sales is to understand the mindset of the people involved and make the deal appealing to each person. 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, we strive for a win/win outcome.

Let us start with the homeowners. Their motivation is obvious. They are behind in payments or already in foreclosure. Creditors, banks, attorneys, mortgage brokers and more everyday, are calling them. They just want to sleep at night and get out from under the stress of this situation. Their downfall: they have no equity. They have called every investor in town and have 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?" you ask, "The bank can just take the property back at the sheriffs sale and then retail it." Well, let me ask you this: do banks want to lend money or own homes? Correct, lend 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 for more.