1st Step of Short Sale

The 1st step of short sale is for the real estate investor to work with the homeowner to establish a plan for short sale. Before a mortgage short sale process is started, the real estate investor must be interested in buying the homeowner's house for the short sale price of what he or she owes and the homeowner must be interested in selling the house for what he or she owes. What the real estate investor actually pays depends on how much discount he or she can get the bank to agree on.

What to determine before starting a short sale process

The 1st step of short sale is to work with the homeowner to:

• determine that the home has no equity. That means the homeowner is upside down on mortgage. If the house has equity, then the homeowner does not owe the bank more than the house is worth. In which case, the bank will not accept a short sale. When the house has equity, the homeowner can refinance or sell the house for profit. This is not the case of a short sale so the 1st step of short sale is to ensure that the homeowner has no equity in his or her home.

   

• explain the concept of a short sale to the homeowner. Nobody should do things they don't understand so the real estate investor should try his or her best to explain to the homeowner what a short sale is and what processes are involved in a short sale in this 1st step of short sale.

Will a mortgage short sale always work?

A mortgage short sale will not always be accepted. If you are the real estate investor doing the short sale, you need to explain to the homeowner the implication of a successful short sale and an unsuccessful short sale.

What is a successful short sale and its implication?

A successful short sale is when the bank accepts the short sale and forgive the rest of the debt. For example, if a house is worth $200,000 and the homeowner owes $300,000. With a successful short sale, the real estate investor may be able to buy the home for $100,000 and the bank will let the rest of the $300,000 the homeowner owes go. That means, the homeowner walks away free and clear, the real estate investor bought the house for 50% of the market value, and the bank takes a loss. To the bank, it will only make sense if the real estate investor and the homeowner can show that it is in their best interest to accept the short sale now instead of going through the foreclosure process.

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