Home : Real Estate 101: Why Banks Short Sell Pre-Foreclosure

Real Estate 101: Why Banks Short Sell Pre-Foreclosure

Posted by Brett Carman on 11/11/2008 at 9:40 AM
Posted in Real Estate

Last month I was coaching about a hundred or so seasoned real estate agents on how to buy and sell pre-foreclosures. It occurred to me that for most, it was a mystery that the best deals are found before the bank forecloses rather than after. The reason this happens is that not only in today’s market but in any market, the bank generally doesn’t want to own the real estate secured by their loans. They will often take less than what is owed and this is called a short-sale.

Most real estate professionals are unclear as to how a short-sale works which means that even more homeowners are unclear how as well or even that it is possible. I truly believe that our record setting foreclosure numbers would be greatly reduced if consumers just knew that they could offer their homes for sale at a loss to them if it meant a foreclosure could be avoided.

One agent asked “how much of a discount will they take?” The answer can vary but I can safely convey that it costs the bank nearly 18% on average to go thru the entire process from legal fees, court costs, inspections, appraisals, repairs and maintenance, sales expenses and hold time interest. This should explain why they are willing to work with any viable offer as long as it’s within that range.

I preach constantly about investors needing to find these distressed properties and educate the homeowner about his/her options. Real estate investing is not dead! These short sale options are amazing potential deals. In many cases, the homeowner and lender are willing to sell the home short, then homeowner agrees to lease it back for a year or so. This can give investor cash flow while holding on for the housing market to bounce back.

I am happy to answer your questions. Post a response to my blog and I will answer back as promptly as possible.

Related Training:

Free Report - Real Estate Short Sales
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Brett Carman is a seasoned veteran in the real estate industry for over 17 years. He holds active licenses in real estate, mortgage finance, and property & casualty insurance. Offering a one-stop shop for his residential and commercial clients, he strives to not only educate, but streamline the real estate acquisition process. With a long and proven track record of success, he is uniquely qualified and has a passion for helping people achieve their goals in real estate.

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9 Comments

Posted by TERESA SKINNER VA BCH member1784598 on 11/13/2008 11:11 AM

DEAR MR. CARMAN,

HOW DOES ONE GO ABOUT FINDING PRE-Foreclosure homes? My interst is in single family homes.
At least for the moment.

THANK YOU,
TLS

Posted by JC (member1891851) on 11/14/2008 11:24 AM

Dear TLS,

HI! First, allow me to disclose that I am a real estate agent. That having been said, as in most cases involving the purchase and sale of real estate, a good real estate agent may be your best resource for identifying (and, of course, assisting you with the purchase of) potential short sale properties, due to recent changes in the National Association of REALTORS' Multiple Listing Service policies regarding disclosure of same. Contact your favorite agent to learn more.

Hope this helps.

Good Luck,

-JC

Posted by Brett Carman

on 11/15/2008 9:15 AM

I couldn't agree more with the Realtor. It's certainly not like people getting behind on their mortgages are placing ads in the paper. They do, however, answer ads placed to offer them assistance once they are behind. Most lenders aren't allowing any sort of loan modifications until after one is 3 months late. Try this and the Realtor methods and you should see some results.
Thanks,
Brett

Posted by member1896085 on 11/28/2008 5:57 AM

<a href="http://centralpennbusiness.com/">Harrisburg Real Estate</a>

Nice blog dear i have really learn a lot from this blog thanks. This blog is very informative for me. I became very pleasure to read it.

Posted by member1897197 on 12/02/2008 4:04 PM

Is it good to buy Short sell property now.

The property in my neighborhood went for $300K; now there short sell property for $149K. I know its seem like a, "Duh" question, but I don't understand what Short sell means to a first time buyer.

Posted by Sam B on 12/08/2008 8:31 PM

I had never heard of a Short Sell in the Real Estate Market such as selling short in the stock exchanges.

Thanks for your valuable information.

Posted by member1901777 on 12/24/2008 4:53 PM

I recently saw Mr. Trump on a re-run of a CNN interview where he was talking about this sort of thing as well. The one line which stood out to me was where he said 'There are loads of opportunities for picking up real estate on the cheap - just walk into a bank and offer to take them over - they've already financed the property, so you'll get them' (not exactly verbatim).

What I'm not really clear on is, how exactly do you identify the properties or who do you speak with in the banks. I am sure there are going to be large commercial properties coming up soon. How do you make sure you are in the know when they become available?
Thanks!

Posted by member1907155 on 03/03/2009 12:43 AM

Hi, I'm analyzing a deal right now for my personal home. It is a short sale- It has been in the market since last November. 3 offers have been approved by the bank since that time, first for $1.1M, then $950 and the last one this week $830. The current price for the house is $859K. The buyers for the house have been not ready or have something else. Now, I wonder if I should offer $830K or should I go lower and how lower. It is a great property in a 1 acre lot in the bay area. Thanks for your advice and opinion.

Posted by member1943151 on 03/24/2009 3:38 PM

Hey how you doin My name is Chad i am twenty one and am going into short sale's full steam, the problem i am having here in california is i am going to realtor's and telling them that instead of taking these distressed seller's as listing and putting them on the mls to wait around for an offer to send to the bank, which could take months while this homeowner is inching closer to forclosure,i am telling them to tell the homeowner they know an investor that will put them under contract and make and offer immediatly. we will instantly submit the short sale package to the bank and start negotiating with the bank's, but these realtor's are telling me it is un-ethical!! they are saying it is illegal here in california for them to bring me a deal from a distressed owner occupied property. i dont understand this! how is this un-ethical if everything is disclosed the seller is aware of what im doing( buying for a discount and selling at FMV) it's a win win win all around seller is out of forcloser, bank's get the toxic notes off and broker's get deals. I mean you know the deal! what should i do.

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