Colin Egbert asked:


Investing in Foreclosures – Why do Short Sales?

If you're in real estate, or looking to get into it, investing in foreclosures can be very profitable, especially if you get that property while it’s still in pre-foreclosure. There are great benefits to investing in these pre-foreclosures through methods such as bank short sales and later on going to sheriff’s sales to pick up the foreclosure properties. In a way you are benefiting from the homeowner's loss. Many an unscrupulous person involved in real estate investing has even taken advantage of the homeowner’s predicament, giving foreclosure investing a bad reputation.

However, most investors involved in bank short sales benefit in the way that the Goodwill stores benefit from donations. The investor buys the property that the homeowner wants to get out from under. The same property that banks just don’t want to hold onto and resell it to interested buyers, with a bit of a profit built in so the investor can continue working and saving for their own future. There are benefits for all parties involved in these properly arranged pre-foreclosures deals.

Benefits for the Homeowners

If the owner does nothing, a foreclosure is certain, meaning that he or she is certain to lose the property and any equity that is built up in the property. In addition, he or she will also incur a myriad of other problems, including a severely compromised credit report that will take years to repair.

Therefore, when you talk to the homeowner about getting involved with bank short sales before foreclosure, you can explain that this will have the following benefits:

Protect their credit profile.

If they work with an investor, it might be possible to stop the foreclosure. This also means that they can start rebuilding their credit profile or at least stop it from deteriorating further. This is especially important because your credit rating affects everything from credit card rates, to property insurance rates, to buying a car or even finding employment.

They'll protect the equity they've built up in the home.

If a home is ultimately foreclosed upon, the homeowner will lose any equity they've built up in it. The investor may be able to recover some of the equity that the homeowner has accrued in the property and even prevent the foreclosure.

They can rebuild their life.

Being under threat of foreclosure is one of the most significant strains one can face. It can affect everything from mental state to job performance, as well as decision-making. If the foreclosure is stopped, the homeowner can at least breathe a sigh of relief and begin rebuilding their financial and home life.

Benefits for the Investor

You can significantly profit from bank short sales. It's also a great emotional boost to know that you can help someone move on with his or her life, stop foreclosure and the resulting financial difficulty.

Make a Large Return in Profits

Of course, as an investor, there has to be a profit involved or you will not benefit from this process yourself. You can purchase the property from the seller at a discount. Short sales tips always involve negotiating a good deal, but that’s not hard when the bank is willing to sell the property at below market value because they'll see that is to their advantage to cut their losses. When you rent or resale that property you can sell it for current market value and make a great return from investing in foreclosures.

Find Property in a Niche Market

You’ll have an easier time with your real estate investing if you start out with foreclosure properties. These properties are often less desirable than properties being marketed by real estate agents and they are cheaper. Plus, if you get into pre-foreclosures you’ll have less competition for picking up cheap property. You’ll be catching those properties before they get to the sheriff’s sale.

Super Motivated Sellers

It’s heart-breaking to see, but most homeowners with defaulted properties are very motivated sellers. By the time their bank files for foreclosure, the homeowner usually just wants to walk away from the property without fear of what will happen to their credit. Plus, you’ll be able to negotiate a great price on bank short sales because the bank just doesn’t want to own a property. They want to liquidate their assets and get out while they can too.

Benefits for the Banks

Believe it or not, the banks also benefit from short sale investing. They don’t want to hold onto that property. Any defaulted property is considered a non-performing asset on the bank’s books and affects their lending ratio. So just getting the property sold is a benefit for the bank.

Something is finally done about the mortgage

When the bank has a property mortgage in default they are require to reserve enough cash to cover that loan should the foreclosure go through and they aren’t able to recover their loan. Some banks may even keep as much as 8 times the loan in reserve. They can’t use that money as long as the mortgage is in default.

Frees up their reserve money

As mentioned above the banks must reserve enough money to cover the loan. If they can’t use that money that’s less money they have to invest for their own profits.

Saves time and fees associated with the foreclosure

By taking over the effort involved in putting together a short sale deal you’ll end up saving the bank a lot of effort in completing the foreclosure and managing the property if it doesn’t sell at the sheriff’s auction.

In the end investing in foreclosures provides benefits for everyone, all around the table. The homeowner gets a load off their shoulders, you’ll pick up a discounted property and the bank gets to improve their lending ratios. This is all because you decided to step in and help out with short sale investing.



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Robert Lam asked:


Before you dive into the exciting world of property foreclosure investing, you should probably be aware of the pros and cons of buying a pre-foreclosed or foreclosed home...

Pros

1. Lower price and higher profit

Pre-foreclosures and foreclosures usually always sell for less than their actual market value - sometimes 20 to 50 percent below the market cost. Among other things, this means that if you turn around and sell the property, you should make a sizable profit.

Nowadays, you can use a short sale to negotiate a lower price with the lender. This is an extremely powerful technique for building equity out of thin air.

2. Rehab potential

Many pre-foreclosures and foreclosures need repairs and renovations. If you know how to rehab a home without spending too much money, you may be able to substantially and cost-effectively increase the value of the home.

3. Lower settlement costs

Since you are often dealing with vendors wanting to get rid of the pre-foreclosed or foreclosed property as soon as possible, you can often get them to agree to lower down payments, better financing options, lower closing costs, and reductions on other settlement costs.

4. Access to the property

Most foreclosure homes are vacant, which means you can often get access to a foreclosed property as soon as you buy it.

Either that or the homeowner knows he/she needs to move out in a short amount of time.

5. More attractive financing

If you're buying a foreclosure from a bank, they may offer you attractive financing to make the deal more appealing to you.

So what are the cons to investing in pre-foreclosures and foreclosures?

Cons

1. Hidden liens and liabilities

It's not uncommon for pre-foreclosed and foreclosed homes to carry liens and unpaid taxes. As the new owner, you'll have to pay these. Sometimes a home owner or seller may not reveal these liens and liabilities to you. However, the good news is that you can find this information relatively easily with a title search and, if necessary, some other research.

2. Poor condition

Just as many pre-foreclosures and foreclosures are ripe for rehabbing... you can also expect many of these to be in extremely poor condition. Unless you've budgeted for the required repairs and/or renovations, you may be in for a nasty shock. On the other hand, if you inspect the property or (if buying the property unseen at auction) budget for the worst, such repairs may be well within your budget.

3. Learning curve

Buying pre-foreclosures and foreclosures requires an understanding of the legal foreclosure process. You also need to be familiar with how to locate potential investment properties and, ideally, discover them when they first enter the pre-foreclosure stage of foreclosure proceedings. This can be a hassle for some property investors who prefer the relatively straightforward process involved in buying regular properties. However, once you're familiar with how to buy pre-foreclosures and foreclosures, you may discover that it isn't really all that burdensome at all.

Overall, pre-foreclosures and foreclosures are a great investment... provided you're willing to understand what buying such homes involves, and are prepared for the educated risks. You need the proper education such as with http://www.ForeclosuresUnleashed.net. Most importantly, you need to apply the information that you learn!



Kansieo.com

Colin Egbert asked:


When you work with the homeowner to put together short sale negotiations with the bank, you’ll also be assembling vital evidence in a short sale package. This package is very important in preforeclosure deals. It provides enough information to (hopefully) convince the bank to accept your short sale offer on the homeowner’s property.

Include everything you can in the short sale package that backs up your request for a short sale. Obviously, you’ll want to leave out extra evidence, (unless the bank specifically requests it), that may hurt your claim.

Common Items in a Short Sale Package:

Standard Purchase and Sales Agreement & Escrow Instruction

This is the standard sales contract between you and the homeowner, since you will actually be purchasing the property from the homeowner with the bank’s approval.

Authorization To Release Information

In order to get the bank to work with you, the homeowner need’s to sign this document stating that they authorize their lender, the bank, to share all vital information concerning their mortgage with you. If you don’t have this the bank won’t talk to you!

Letter Of Agreement and Addendum

This is the cover your butt document stating that you will work with the homeowner and the bank to stop the foreclosure, but you can’t guarantee that the bank will agree to stop the foreclosure during short sale negotiations with you.

Warranty Deed To Trustee

You’ll need to get a notary to authenticate this document. It basically shows who owns the property you are attempting to purchase.

Agreement and Declaration Of Trust

In order to keep your own name off of public records you’ll use this document to declare a land trust on the property, which you’ll have rights too.

Letter That Trustee is Making Payments:

This letter is used when you have an agreement with the homeowner that indicates you’ll be taking the property “subject to” and notifies the lender that payments will be coming from a trustee.

Escrow Letter

You’ll use this letter to tell the bank to apply funds in an escrow account to the loan balance when the loan is paid in full and the short sale deal is complete. Be aware there is no guarantee the bank will comply with the instructions for your real estate investment. They may send the escrow proceeds to the original borrower, which is the homeowner. So, you’ll need to make arrangements with the homeowner just in case this happens.

Special Power of Attorney

You’ll get this signed by the homeowner in front of a notary. It applies only to the property and lets you make decisions concerning the property if something happens to it before the short sale deal closes.

Residential Real Estate Disclosure

This is basically to protect everyone involved. You’ll sign it as the purchaser. It discloses any defects in the property and prevents anyone from claiming after the deal is completed that they weren’t aware of certain defects in the property.

Hardship Letter

This is a very important letter in pre-foreclosure investing. The hardship letter allows the homeowners to explain in detail all of the reasons they were unable to make payments on their mortgage and why they’ll be unable to completely pay off the mortgage. A good hardship letter can really help you seal the deal.

Financial Statement

This is basically the homeowner’s pay stubs, copies of their past income tax returns and other items that show the homeowners really are in financial hardship. The bank will absolutely want to see this proof of hardship before discounting a loan and taking a known loss.

Suggested Extras to Seal the Deal!

There are a few extra pieces of foreclosure information you can include in your short sale package to get the bank’s attention in this preforeclosure deal.

Cover Letter

The cover letter helps your short sale package stand out. It basically states who you are as an investor and that you are requesting a short sale. It also states why the bank should take the short sale. You can also summarize the major points of your package in this cover letter for the bank officer reading it.

Proposed Closing Statement (HUD1)

Eventually you’ll find that a bank requests the HUD1form. It shows all the fees and payments that will be made to the parties involved in the short sale. It helps them know their bottom line on the deal at a glance. Plus, it ensures the seller is not receiving any compensation.

Opinion Of Value

This can be a professional estimate or your own statement. You’ll back it up with a quick list of all the negative points of the property, its needed repairs and the lowest comparable sales in the area.

Estimate Of Repairs

If this property in pre-foreclosure needs repairs make sure you get estimates for all of them and include those estimates in your short sale package to back up your discounted price. Use the highest priced estimates you get.

Notice Of Trustee’s Sale

This is the notice that the homeowner receives telling them that their property is going to the foreclosure sale. By including this document in your short sale package you are letting the bank know that you are aware of the foreclosure process. It also helps put a timeframe on the deal and can light a fire under them, so to speak.

Color Photos

You’ll get extra points with the bank by sending them pictures of the damaged and neglected areas of the house. They provide photographic evidence of the low market value of the property and encourages the bank to accept your discounted offer.

The short sale package usually contains quite a lot of foreclosure information. In fact, it’s an involved process and essential part of debt negotiation with the bank. The bank will want ample evidence to back up your short sale request for their loss mitigation department as can be seen by the bulleted list. This package contains information that the bank requests from you and your own research on the property including; damage estimates and the homeowner’s hardship letter, all of which work to back up your request for a discounted sale price on the property.



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