A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with the bank. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender for full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

 

This may be a good system if it was the lender who set the listing price of the property. Instead, it is the home owner/debtor who sets the price and they can set it at any price they choose. If they owe $375,000 there is nothing stopping them from listing the home for $125,000. Obviously this example does not stand much chance of making it through the bank with an approval stamp.

 

So how can you get a deal like you’ve read about?  Be prepared, and realistic. First, look at the value of the property as compared with other homes on the market. A bank will be much more likely to look at your offer seriously if you do not submit a low ball offer compared to value. They would much rather take the property back and try to sell it themselves than take an even bigger loss on the property.

 

The next thing is to be educated enough on the property to make an offer that forces the bank to look at you as a serious buyer. This means knowing the property and all variables affecting it (I may even know someone who can help you with this.) Get your inspections done on the property prior to writing an offer; make sure it is the home that you want under any circumstance. 

 

Lastly, and possibly most important, make your offer so strong the bank will have to accept, or at least counter offer, opening negotiations. To do this effectively you need to make an offer that forces the bank to consider. Banks want to see that you can afford the property, so be prepared to put 20% down and be able to waive the financing contingencies. Also be prepared to waive all inspection contingencies. The bank will not exert the energy to make a deal happen with a buyer that may have 5 other offers on properties in the area (idea being if I get one I can use a contingency to get out of the others.)

 

If you have followed all these steps then all you can do is sit back and wait for the bank to work its magic. This is likely the most difficult part of the equation as, even with a strong offer, you will likely wait months before you will hear a peep from the bank. If waiting is not one of your preferred pastimes you may want to look into another way to grab the best deals.