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The Federal Deposit Insurance Corporation (FDIC) stated that as of August 2007, the percentage of noncurrent (delinquent) loans was up 36% from one year ago. They further stated that net charge-offs (the amount of money lost due to unpaid loans) rose 51% from one year ago (as of August 2007). In general, the mortgage business is in a whole lot of trouble. The number of homes in the US 'in foreclosure' has risen 58% in the first six months of 2007 and that percentage is continuing to rise at an alarming rate. Federal regulations exist regarding the ratio of bad loans a bank can have to the amount of liquid reserves the bank has on hand. That means, the more bad loans they have, the more money they have to have on hand (that they cannot loan). Of course they also usually lose money when they foreclose on properties. What all this means is that the banks have a whole lot of bad loans that the banks would very much like to get rid of and they're willing to pay dearly for it. This all stacks up to big bucks for anyone who knows how to cash in on the situation. The key to making money from this situation is knowing how to get the mortgage banks to sell you their bad mortgages at a discount - a deep discount. This is known as a Short Sale. Here are 8 easy steps to making big money with Short Sales: 1. Find properties that are currently in pre-foreclosure: You can find these properties very easily. Every County in the US has a records department. When a bank begins foreclosure proceedings they must record a document stating their intent. Different States are governed by different laws so you'll have to learn what documents are recorded in your State. In Florida, a Lis Pendens is recorded. Find the Lis Pendens recorded for this month and you find all the properties that have gone into foreclosure this month. Don't bother contacting the owners, it's too early. Keep watching the records and find out when the foreclosure auction is to take place. Contact the owner about a month before the auction. By then, they really know they're in trouble and they're ready to 'talk'. Get the owner to sign an agreement to purchasethe property (a purchase contract) with you. Be sure to include a clause stating that the contract is contingent on a.) the buyer being able to negotiate a Short Sale with the lender(s) and b.) the buyer is satisified with the results of a property inspection. 2. Get an agreement to discuss the loan with the lender: Before the bank will begin negotiations with you they require that you have authorization from the owner (borrower) to discuss the loan. You need to get the owner to sign an agreement to that effect. Also, quite often, it's a good idea to get the owner to talk to the lender with you on the line. 3. Begin Negotiations with the lender: When you call the lender you want to talk to a decision maker in the Mitigation Department. Almost invariably you'll get a lot of run around before you can actually talk to someone with the authority to approve a short sale. You need to find out what specific criteria is required to submit a proposal to purchase the loan. Sometimes they will tell you on the phone. Be sure to take notes and get the instructions exactly correct. Usually they have a written document that spells out the criteria required. Occasionally they'll want you to make an offer right on the spot. Try starting at 50% of the loan's current balance. 4. Send the lender a Short Sale Packet: Prepare a packet of information for the lender. Include a cover letter stating the purpose of the packet. Include formal estimates from contractors on the cost of any repairs that may be needed. Include pictures of the property if you can come up with pictures that make it look bad. Include a financial statement of the owner (borrower) and a statement from the borrower stating what circumstances prevent them from being able to bring the loan current. Include your offer. You might start negotiations at 50% of the current balance of the loan. Make sure you send the packet to the person in the mitigation department who has the authority to make a decision on the loan. 5. Continue negotiations until final: Keep close communication with the lender. If your offer is rejected ask what is the lowest offer they would consider. Then make another offer just belowthat number. Continue negotiating until you either have a deal or conclude that they will not accept an offer low enough to be worth your while. Do NOT purchase properties where the total final price is more than 70% of the actual market value minus repairs. 6. Secure the money: This is where most people panic and it's the easiest part of the process. Go to your favorite Internet search engine and type in 'hard money lender'. If you've got a good deal you can easily acquire a short term loan for 100% of the finances needed, repairs included. If you've got really bad credit you might have to hunt just a bit, but even still, you can pretty easily secure money if the deal is good. If you don't want to borrow hard money, you might opt to use a home equity loan, find a 'partner' like a friend or relative and cut them in for a percentage of the profit or even use a credit card. Generally, you'll work on this at the same time that you're negotiating the deal. Get your ducks lined up. 7. Close on the property: Just find a local title company that your seller is content with. Talk to them about the closing. For a very small fee, they'll handle everything. At the closing you'll use the money you borrowed to pay the discounted price you negotiated with the lender for the mortgage. 8. Sell the property: If you decide to sell the property, market it at 85% of the current market value. Be sure to get the repairs completed as quickly as possible. New paint, carpet and landscaping go a long way toward getting a property sold. Don't try for even close to 100% of the market value in this market (2007) unless you're prepared to wait a long time to get it sold (often over a year these days). Optionally you could just rent the property (you'd probably have to arrange longer term financing). You might even consider leasing with an 'option to purchase'. That is, a Lease Option. You can get a much bigger deposit (actually a down payment) and it's generally a good bit easier than selling the property outright. That's it! Real estate investors are raking in millions of dollars doing exactly what is lined out in the steps above. Once in awhile some tragic thing happens in the economy that actually provides great opportunities. Did you know that some people made fortunes as a result of the Great Depression? Opportunity knocks. Will you answer?
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