A short sale starts out like any other type of deal. It starts out by you just finding a property. In this case, we want to find a property that is in foreclosure. It should be a couple of months behind, maybe even 4 or 5 months behind. One of the beauties of a short sale is that it lets us deal with numbers from our seller that are unrealistic. Any time that you can get an unrealistic edge in business, it’s a good thing. And when I say unrealistic, it’s because we are getting the bank to discount that property. So, if somebody has a property that is 4 or 5 or 6 months behind on their payments, the bank is ready to take that property back. They are ready to foreclose on it, they are ready to put it up in auction. In todays’ market, that house probably isn’t going to sell at auction and that bank is going to be stuck with another house. These banks own so many houses, they could make a small city if they picked them all up and put them in one place. In any case, these banks do not want these houses, they are overloaded with them, and it affects their ability to loan. The more houses they own, the less money they can lend.
So, find a property that is in foreclosure. Note that this isn’t a technique to use for someone to save a house. This 
is for someone that wants to move out of their house, are ready to move, and they don’t want that foreclosure on their record. They just want to get it sold and get out. They are willing to do whatever it takes to get out of that house. In most cases, they are willing to just sign the house over to the bank and give that house back.
We are going to then pursue a short sale. What happens is when the Seller agrees to sell the house to you (and you have to have a Contract to buy house), for whatever the best deal you can get from that bank is. So, for a $200,000 house, the Seller is not going sell it for $200,000. I would shoot for about $115,000 or $120,000. Nowadays, you want to go as close to 50% as you can, but it may be unrealistic in some instances. You really want to shoot low, though.
The houses that work the best for short sales are houses where there are 2 mortgages. And the bigger the 2nd mortgage, the better. What happens, is if a house has 2 mortgages on it (let’s say a $200,000 house has a first mortgage for $150,000 and the second mortgage is for $50,000), when that first mortgage forecloses and takes that house back, that second mortgage for $50,000 goes away and the bank loses it altogether. So, the best prospects you can get for a short sale are when there is a high second mortgage on that house. That bank knows whey will get nothing if that house goes in foreclosure.
A house that needs some work is usually a little better too. The bank is going to take back a house, but they would rather take back a house that needs no more work. If it needs some work, you might have a better advantage.
If you are going to get a Contract to buy that house, 
the Seller has to be willing to sell it to you for what he owes, or what you can get from the bank. In a lot of cases, you don’t even put a price on that Contract. You get that Contract or the option to buy that house from the Seller, and you leave that blank. There is a clause in there that says that the Seller will sell the house for whatever the Buyer will negotiate with the bank. So, whatever the price the Buyer and bank accepts, that is what the Seller is willing to take for the house.
The seller then walks away with nothing. They don’t get anything. If the bank is going to take a loss on the house, they don’t want the Seller walking away with any cash. The Seller has to be ready to just walk away.
You have to have a Seller that is really ready to work with you. They have to provide a letter explaining why they can’t make payments. They also have to provide a short sale package of paperwork for the bank. The bank will want the last 2 years tax returns, last 2 months bank statements, and if they have a job, the last 2 paycheck stubs. The first time you go through this paperwork it might seem like a lot of work, but after you get that first $50,000 check the paperwork will seem like nothing.
Now you are going to negotiate with the bank. There is a department at the bank called the Loss Mitigation Department. They basically mitigate loss. They help to not have foreclosures. You will contact them and discuss this with them. Try to get the price down as low as you possibly can. These negotiations usually take a few months. They will try to get as much as they can and you try to get as little as you can. They might even tell you they don’t do short sales. Yes, they do. That’s why they have a department. Stick to your guns and act professional. Find a program to help you out.
While negotiating, you are going to start selling this house. Our preferred method is to do an auction or just put it up for sale with a Realtor, or
Then we will do a double close. You will find your Buyer, the bank is going to
take $120,000 for a $200,000 house, you will have the Buyer maybe pay you $160,000 or $165,000. Again, you have to learn the numbers and feel out your market. Then you do the double closing back to back, on the same day. The first closing is when you buy the property from the bank. Now, you own the property. The second closing is when you sell it to your buyer. You buy the property from the bank for $120,000, then 10 minutes later, you sell it to the other guy for $160,000 then you have a $40,000 check. There is more to it than that though, but it does get easier with time.
You might be wondering where you can get $120,000 to buy it from the bank? There are services that will do that. There are places that will lend you the money for one day, for as little as 3 or 4 percent. You borrow it for one day, (they don’t even check your credit), you buy it from the bank. The same day you sell it to the other guy, you keep the difference, and it’s a sweet deal for you. Good luck!
The basic steps to a short sale:
- Find a property a few months behind, with foreclosure looming
- Make an offer to buy the property for whatever the bank will accept
- Complete the short sale package that the bank or the short sale negotiator you outsource to sends you
- Negotiate with the banks “Loss Mitigation Department” and get the price lowered well below retail
- Find a company to loan you the $ for ONE day, so you can buy the property
- Set up a double closing at the title company
- Close and buy the property from the bank
- Immediately afterwards, close again and sell the property to your buyer
- Cash the check for the difference between what you paid, and what you sold for
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