You know that it's possible to buy a house that has little or no equity in it for less than is owed on the mortgage! Yes, it's possible. Let's say that you, as a property investor come across this homeowner who is behind in their mortgage with the bank. On the current real estate market the defaulted property is worth $100,000, but the homeowner is actually in debt for $115,000. It is possible for you to get that homeowner's house for just $70,000.
This seems impossible, but a little known practice called, 'Short Sales' in defaulted note buying allows you to purchase property that is over financed and has little or no equity in it! This is basically when you work with the bank to renegotiate the selling price of the house and the bank writes off the remainder of the mortgage.
Getting Started with the Short Sale
When you work with this homeowner, you will become the homeowner's advocate or intermediary with the bank. So the first thing you'll need to do is get an 'Authorization to Release Information', and fax it to the bank so that you can negotiate with the bank. This basically means that the homeowner is giving the bank permission to speak with you concerning their mortgage.
When you contact the bank you'll want to explain to the bank the reasons why they should be willing to let go of the house for less than it is valued and for less than is owed on the mortgage. This involves putting together a little package with information that the bank may request from you and extra information that you include on the condition of the house.
For example; the house may need a new roof. There could be all kinds of deferred maintenance and it needs all kinds of repairs. You could even point out that the housing market is declining in the area or point out that there are loads of other houses on the same street that haven't sold. Basically, you present your case to the bank explaining the reasons that they should let the property go cheap. Be sure to include digital photos of the damage to the property or the decline.
Using the Short Sales technique it is possible for you to work with the bank to reduce the selling price of that defaulted property. You are able to purchase it from the homeowner for a reduced price and the homeowner can get out from under this mortgage without it being on their credit.
All you need to do is approach the banks professionally, put together a good case for reducing the price (such as needed repairs to the property) and for good measure include some digital photos of damage or neglect on and around the property.
