Real estate short selling or ‘loss mitigation’ seems to be in the news these days. In a nutshell this is a play involving talking a bank into selling a distressed property at less than what is owed so that the bank suffers a smaller loss than it might in foreclosure and the buyer gets a bargain. CRE Online has an article that outlines it: ‘If you are new to real estate investing and wondering what real estate short sales are: A short sale means getting the bank to accept less than what is owed as payment in full. For example: You find a homeowner in distress who owes $100,000 on a property that is worth $100,000. What do you do? Most real estate investors walk away–unless they know how to use a short sale…’
Here is another definition from Foreclosure University: ‘A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount…’
However, ‘A difficult consumer real estate transaction to approve, short sales involve as much, if not more paperwork than an original mortgage application…’ and an article on Total Real Estate Solutions says: …Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender�s �Loss Mitigation Department.� More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins…’
Despite the difficulties, some investors are reporting success with the technique, especially if an investor is finding many prospects, but no deals. It is a way of creating a deal where there seemingly is none.