Short Sale From Owner Easier Than From Bank?
I am very new to real estate investing and I have a very basic question about short sales.
From what I understand, there appears to be two types of short sales (correct me if I'm wrong).
The first type is a short sale from the mortgage holder (i.e. banks like WaMu, Countrywide, etc). Basically you offer to buy the home at a discount to the mortgage.
The second type is a short sale from the owner of the property wherein you would offer to pay off the mortgage(s) and provide some cash in exchange for the house. This would make sense financially if one could get the house for at least 40% below market value.
My question is whether the second type of short sale is easier than the first type? It would seem that the homeowner would have greater incentive than the bank to do a short sale in order to preserve his/her credit quality as well as to get some cash out of the transaction. This would work only if selling the house for market price is not quick enough for the homeowner to avoid foreclosure.
Thanks in advance for your help.
The first scenario would be a short sale. The second scenario would NOT be a short sale, but it would be a steal.
OK, so why isn't the second scenario more common? A lot of the talk on the forum is geared towards working/negotiating with the bank on short sales. Thanks.
The second one is just finding a motivated seller in distress. We call that a really good deal.
So it looks like I should focus my research and energy on finding those motivated homeowners in distress.
What are the most common gotchas in that scenario? Are distressed AND motivated homeowners a rare breed?
In general terms -
1) People in preforeclosure should be motivated and sometime they are motivated, sensible, and even sober.
2) Many people in preforeclosure have no equity - they owe what the house is worth
3) Short Sells - negotiating with the bank is a good strategy on preforeclosures that have not equity
4) Some people in preforeclosure have equity.
5) When there is equity you can negotiate to purchase the house by getting a new loan or by bringing their payments current and taking over their existing loan - known at subject to.
6) In most parts of the county there is a lot of competition among real estate investors in the preforeclosure market.
Brenda
No one has really answered your question.
A short sale is when you talk the bank into taking less than what is owed them.
Your second part question is not a short sale. A short sale is NOT when you talk down an owner of the property from their original asking price.
For example:
If you owe the bank two thousand dollars on your car but it is worth 10 thousand dollars and you sell it for five thousand dollars, the person you sold it to got a really good deal. 50% off!! But, the bank still gets their whole two thousand dollars! Hence NO short sale.
However, If you were to offer the bank ONE thousand dollars even though you owe two thousand, and they (the bank) accept it. Now you have a short sale
Thank you all for your replies. I believe that the term I was looking for was "Subject To". This is the area I will probably focus on initially since I have more than enough cojones and extremely thick skin to walk up to distressed homeowners and ask them if they want to do a deal.
Short sales will have to come later.
A subject-to is when you receive the deed to the house and the financing remains in the sellers name. Your credit is not on the line should the bank exercise the dos clause.