1. What happens to the seller's credit rating when they allow an investor to short sell their property?

The way it show on the credit report is that the loan is "paid" or “settled”; however there will be a notation that says "settled for less than originally owed" or something along these lines. Be careful how you state this.  Each lender and reporting agency will say it a little different and the credit will still be affected even if a short sale is accepted, approved, and closed because of all the previous late payments.

2. Where do you find buyers for short sales?

Depending on where you live, you may see investors who advertise with bandit signs or in your local newspaper. Call the investors directly and ask them if they are interested in purchasing a deal you have. Another good place is your local real estate investors club meeting (REIA).  My favorite way to find buyers is using the MLS (multiples listing service).  I like flat fee companies because it cuts down on commissions.

3. Define a short sale?

A short sale is a workout plan that the banks have in place to help homeowners and themselves prevent foreclosures.  When the mortgage company agrees to accept less than the loan amount to them to avoid foreclosure process. A negotiated short sale results in a discounted purchase price for the buyer/investor. The buyer would finance the acquisition much the same as in any other conventional acquisition or the investors can use some creative strategies.

4. Can an owner profit from a short sale?

The seller cannot profit (monetarily) from a pre-foreclosure short sale in most cases. FHA programs will give an incentive fee of $500-$1,000 to the mortgagor to participate in the pre-foreclosure sale program.  The incentive fee can also be used to payoff a second mortgage.

5. Can you do a short sale is the homeowner is in bankruptcy?

Mortgage company’s will not approve a short sale if the homeowner is in bankruptcy...why? Because approving a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.  But you can still get the process started and be ready to work the short sale as soon as the house is released from bankruptcy.  (Ask the bankruptcy trustee and the mortgage how to proceed in this situation)

6. What documents do I have need to include in the short sale package?

Documents depend on the lender. Each lender has different requirements. It is typical to require authorization to release information, hardship letter, financial statement, purchase and sales contract, settlement statement (HUD 1), pay stubs, bank statements and tax returns.  Additional documents are needed on FHA loans.  Remember the banks may ask for more so be prepared.

7. Do mortgage companies always send someone out to do an appraisal / brokers price opinion on a possible short sale?

All lenders require a BPO or full appraisal of the property before making their final decision to accept or reject the short sale offer. This is there only way of assessing the value of the property and making a good decision on the banks end.

8. How late in the pre-foreclosure process can you start a short sale?

Each state will be different.  It is really up to the lender.  Try to allow a window of at least 30 days for the mortgage company to approve the short sale offer.

9. What is a Due on Sale clause?

"Due on Sale" Clause (DOS) Provision in a mortgage or deed of trust calling for the total payoff of the loan balance in the event of a sale or transfer of title to the secured real property. A contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lender's security instrument upon a sale of all or any part of the real property securing the loan without the lender's prior written consent.  Contact your local real estate attorney for more details in your state.

 
10. Will banks allow a short sale when the owner has some equity?

Yes and No.  No, If a property has what the “lender would consider” a substantial amount of equity, chances are they would consider allowing the property to foreclose and then reselling it closer to the retail value. Yes, if you can affect the BPO/appraisal to come in lower than the market value.  Your job will be to create the equity in the home by negotiating a successful short sale and affecting the banks value on the home.