If you are a real estate investor looking for a deal that may provide instant equity, consider a short sale. Everyone involved in a short sale can benefit. The seller can avoid foreclosure and his/her mortgage lender avoids foreclosing and reselling, reducing their losses. And the investor (or buyer) gets a property with fair market value often with instant equity!
A group of real estate investors were considering purchasing an apartment complex in Dallas. Unfortunately the property was run-down — especially the roof, which needed to be replaced due to weather damage. Their real estate agent negotiated with their out-of-state lender, who agreed to having the roof replaced.
The outcomes were great for everyone. The out-of-state owner avoided a foreclosure and the investors who bought the apartment acquired it at a reduced price agreed to by the lender. After holding it for a relatively short time, they sold the property and made a significant profit and were very happy. The Lonergan Law Firm was pleased to serve these investors and to close the title on the property.
What could instant equity in a single deal mean for you? It could help you accomplish a lot of goals!
Learn what a short sale is and is not, the pitfalls to avoid, and actions to take.
A short sale happens when the sales price of a property is lower than the mortgage amount owed by the homeowner and when the mortgage lender agrees to a discounted payoff to fully satisfy the loan. This situation often occurs when the home owner cannot continue to make the mortgage payments due to health, job change or other dire circumstance, so the lender needs to verify the financial situation of the homeowner. The lender is more likely to agree to a short sale when it is determined that a short sale is a better solution than a foreclosure, particularly for the lender. They have learned that taking a reduced payoff is often more beneficial economically for them rather than incurring the holding costs and resale expenses associated with reselling the property.
This is a complex transaction because everyone affiliated with the deal must agree to take less than originally agreed or possibly no money.
Be prepared. Here is a list of 6 important realities about short sales.
- Short sales don’t happen overnight. They generally take a longer time to close than a traditional closing. You should expect 3 – 6 months on average.
- This is not a DIY! You will need a team of real estate professionals, each of whom fully understands short sales — from the lender to the realtor to the title company.
- Rock bottom offers can slow down the process.
- Take extra precautions with the inspection, as potentially serious maintenance issues may not have been readily revealed. These issues need to be made known to the lender.
- Make sure the realtor representing the seller can and will provide all the information needed by the lender, such as a hardship letter, a list of any liens against the property, proof of assets, proof of income, and fair comps.
- Check out the terms of the property’s current mortgage insurance. The mortgage lender must consent to the short sale and may or may not cooperate.
Why can short sales be a great deal for investors?
- If the purchase price of the short sale is lower than the appraised value, then the investor (buyer) gains instant equity.
- There are several sources for locating short sale deals, including MLS, real estate professionals who are experienced in such transactions, and research on properties described as “preforeclosure”, “pre-approved by bank”, or “subject to bank approval.” These terms may indicate that the property is a short sale.
- As an investor, you have the financial resources, which the bank will want to know in order to approve the deal.
You can help a seller avoid foreclosure and potentially enjoy instant equity on a complex real estate transaction. The Lonergan Law Firm and title closing office specializes in non-traditional real estate transactions and we look forward to working with you on your future short sales.
© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2016. All rights reserved.