Many sellers of pre-foreclosure homes are reluctant to sell their homes - even though logic suggests that doing so may be their best option.
Meanwhile, a lender may also have reservations about allowing an investor - like YOU - to buy a pre-foreclosure property for less than the value of the outstanding mortgage.
So how do you convince a pre-foreclosure property owner and their lender to allow you to buy the property? Here are a few tips.
The first major tip is to emphasize what's in it for them.
For example, it is more favorable for a home owner to short sell their property than to have a foreclosure on their credit report.
While the owner's credit rating will still be affected - i.
e.
although the loan will show up as "paid" on their credit report, there will still be a notation stating that they "settled for less than originally owed" (or similar) - this is still better than what they'll see if the property is foreclosed and their credit history is tarnished for good! Also, while the home owner cannot profit from a pre-foreclosure short sale, they are still relieved of a huge financial burden, not to mention the associated stress of having their home foreclosed and the consequences of a ruined credit history.
Just note that if the owner is already bankrupt, most lenders won't approve a short sale because negotiating such an arrangement is regarded as a collection activity, which is unlawful in bankruptcy.
Meanwhile, when it comes to dealing with the lender, you want to make a short sale seem like a "no brainer".
Now, there are circumstances in which a lender will be reluctant to approve a short sale.
If, for instance, the owner has a certain level of equity in the property, the bank may believe that it's more likely to get retail value on the sale if it allows the home to foreclose.
What this means is: don't pursue properties where the owners have substantial equity.
The less equity they have, the more interested a bank is likely to be in a short sale.
A bank will also expect you to put together all the documentation needed for the short sale.
Different lenders will have different requirements, but typical documents to include are a hardship letter, sales contract, ECOR, settlement statement, net sheet, pay stubs, bank statements and personal monthly budget.
Finally, when you make an offer on a short sale, be reasonable.
The bank isn't silly - they will order a comprehensive valuation of the property before deciding whether or not to accept your offer.
So make sure your offer is good for you, but also reasonable from the bank's point of view.