NUTS & BOLTS
SHORT SALES
• The investors who bought the apartment acquired it at a reduced price. After holding it for a relatively short time, they sold the property and made a significant profit and were very happy. • The lender was able to “clear the books” on the prop- erty and did not have to foreclose and then try to sell a fixer-upper apartment complex. The concept of a short sale is relatively simple, but the getting the transaction processed can take some time and patience. Be prepared to work closely with your seller and your lender over a period of months to make this transaction work. The payoff comes when you walk away with the deed to a property with serious, instant equity that you can sell for a fast payoff, rehab and flip, or hold and generate lasting returns using your own income-producing real estate strategies. •
6 IMPORTANT REALITIES ABOUT SHORT SALES
A group of real estate investors were considering purchasing an apartment complex in Dallas, Texas. The owner and the lender both lived out of state. Perhaps as a result, the property was run down and in very poor condition. One of the biggest issues was the roof, which needed to be replaced due to weath- er damage. The investors’ real estate agent negotiated a roof replacement with the out-of-state lender, and once the roof was replaced, they made the purchase via a short sale. The outcomes were good for everyone: • The out-of-state owner avoided a foreclosure. #1 SHORT SALES DON’T HAPPEN OVERNIGHT. They generally take longer to close than a traditional clos- ing. You should expect three to six months on average. #2 THIS IS NOT A DIY PROJECT! You will need a team of real estate professionals, each of whom fully understands short sales. You should plan to involve the lender (of course), a real estate agent who un- derstands short sales, and a title company at a minimum. #3 ROCK BOTTOM OFFERS CAN SLOW DOWN THE PROCESS. Work with your agent to craft an offer that works for your bottom line but that the lender will take seriously. #4 TAKE EXTRA PRECAUTIONS WITH THE INSPECTION , as many sellers in a short sale position fail to notice or disclose potentially serious maintenance issues. These issues need to be disclosed to the lender and can even help your case for the short sale. #5 MAKE SURE THE AGENT 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. #6 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.
Gaylene Rogers Lonergan is the founder of Lonergan Law Firm, PLLC. This article is provided for educational purposes exclusively and is not meant to be construed as legal advice. Contact Gaylene at grogers@lonerganlaw.com.
How to Create Instant Equity in Investment Properties SHORT SALES CAN BE THE KEY TO BUYING LOW AND SELLING HIGH.
by Gaylene Lonergan
I
f you are a real estate investor looking for a deal that may provide instant equity, consider doing short sale. Everyone involved in a short sale benefits. The seller avoids foreclosure, and the mortgage lender avoids foreclosing and reselling, which reduces their losses. The buyer, often an investor like you, gets a property with instant equity. Sound like a dream come true? Well, fortunately for real estate investors, short sales are relatively common. However, they can be a bit complicated to transact. Here’s how they work: A short sale happens when the sales price of a property is lower than the mortgage amount owed by the home- owner, so 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 circumstances. The lender will verify
the financial situation of the homeowner before discussing a short sale, since they would definitely rather continue to collect payments on the mortgage than take less money for the home! Lenders are more likely to agree to a short sale when it is determined that the short sale option is a better solution than a foreclosure for the lender. They understand that taking a re- duced payoff is often more beneficial economically for them than incurring the holding costs and resale expenses associat- ed with reselling the property. Short sales can be complex transactions because the lender must agree to receive less money than originally agreed or possibly no money at all, in the case of the seller. Sellers cannot benefit in a direct, financial manner from a short sale, although after the housing crash some lenders implemented programs to offer “moving assistance” in short sales that al- lowed sellers to at least walk away from the deal with enough cash to move elsewhere. Take a look at the following example:
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