First of all you mention in your comment that the property is listed as an REO. REO stands for “Real Estate Owned” and denotes that the property is already owned by the bank. The first thing I would do is check the public records and see who is the CURRENT owner of record on the property.

If the person you are working with, the “owner” of the property, does not know what stage of foreclosure they are in, they might have already lost the property. Especially if the property is vacant, the bank representative would not even have to do an eviction notice.

So right from the start, make sure you know where you stand and WHO you should be dealing with. If the bank has already foreclosed on the property and taken back title, there is no reason whatsoever to be dealing with the previous owner or talking about a short sale.

IF the property is owned by the bank (REO), then you would deal with the agent who is listing the property for the bank and make an offer as you would in any normal real estate transaction.

IF the property is still owned by the person in foreclosure, you could proceed with a short sale transaction if it fits the criteria. Short sales will be your best bet at buying the house at a “discount” while the existing mortgages are still in place.

You mention above that you want to “get the note at a discount”. When I read this I assume that you are looking to purchase the mortgage and not necessarily take title to the porperty. If that is the case, you have a whole different situation entirely. If that is you plan, from my experience, you have a tough road ahead as most lending institutions do not like to sell their notes/mortgages in sibgle transactions. Rather, they like to package them and sell them in bulk.

If you are going to pursue a short sale, and the conditions are right for that type of transaction, you will find a number of items here are Real Estate Radio USA that will help you through the process. In addition to the number of blog posts regarding short sales, one of the best places to start looking is the Free Tools Section…

http://www.realestateradiousa.com/blog/free-tools/

There you will find our Interactive HUD that you can use to generate your estimated closing statement for your package…

http://www.realestateradiousa.com/blog/free-tools/hud-xpress/

our Documents and Forms page where you will find all of the form necessary to build you complete short sale package…

http://www.realestateradiousa.com/blog/free-tools/documents-and-forms/

and finally the Complete Mock Short Sale Package…

http://www.realestateradiousa.com/mockshortsalepackage.pdf

I think you will find this invaluable in your short sale endeavors.

I hope this helps you and good luck to you.

I ran across this site just after having finished a chat with a realtor with whom I’m working. I am attempting to make an offer on a principle residence that is listed on Realtytrac.com as an REO. It happens that I used to work with the owner of this property and want to buy it from him. Since neither of us knows anything about real estate we’ve been using my realtor to help us with the transaction. The realtor suggested a short sale but the owner believes he’s already deeply into foreclosure. I want to buy the house but want to know if there is any possibility at all to get the note at a discount. My realtor is trying to find out what is owed as I’m typing. The house was built and sold in 2004 and all of the appliances are gone, it needs paint, some fixtures, landscaping that I can see, and potentially some other things that I haven’t been able to see–yet. How do I help my inexperienced real estate agent put together the right package for me to be able to purchase this home at a discount? I’ve already got financing in place [pre-approval letter]; A check for earnest money. and the patience to wait this thing out. I don’t know what the house is worth, but it was listed on Realtytrac at a starting bid of 200k. The owner bought it for $226 in ’04. Please help me get an understanding on what to do. There seems to be so much I need to know, but I don’t know anything about purchasing this house. I do have a very strong interest in the house though. Please help.

Ray L

Thanks Mike

As you know, there is no substitute for experience in any type of real estate transaction. Short sales are certainly no different. However, some of this things that make a short sale “easier” are:
1) A seller that is truly in a hardship and one that cannot afford the property (no hidden assets)
2) Substantiation for the discount (price) on the contact. If the contracted price is close to current market value you will not have to do a big inspection and repair report.
3) Buyer with financing in place or cash
4) Having a trained negotiator talk to the bank and CONTINUALLY follow up
5) In our experience the closer to the auction date, the more the bank will deal (or even respond). So you may have some waiting to do if this is an early stage foreclosure.

That should get you started. This is not a quick process by any means, but if the deal is good enough, stick with it.

Barry J

Those expenses are a cost of doing business. How in the world can you submit a deal for approval without having your inspections done? How do you have any idea what your number needs to be. Mike..this is EXACTLY what this article was about.

We are going crazy doing short sales and I read your blogs everyday, I am hearing a lot about regression analysis . Can you tell me what exactly that is.

You guys are great!

Sherri Glynn
SEL Capital, LLC

Do you have a prescribed checklist to follow for them – I am thinking of devisiing a simple checklist of procedures –

HUGE ISSUE – they (agents and buyer’s) always want to wait til bank approves the short before commencing on the expenditure of the inspection (s)….

It’s always an arm wrestle – how do you handle the reluctant naive buyer and his agent?

I rest my case. A blind leading the blind world out there.

Imagine yourself as a trial lawyer. You have to absolutely convince the jury that your client is telling the truth. In essence it is up to you to PROVE to the bank why they need to accept so much less.

Absent said substantiation, you will pretty much be dead in the water.

But you’re still making money it seems so great!

From: Margaret Cummins [mailto:margaret@kwwaterford.com]
Sent: Monday, March 10, 2008 9:11 AM
To: officemanager@twghomes.com
Cc: Melanie Ladines; Beth@bethwoodhall.com
Subject: Short Sale Addendum

I am assisting Melanie with some of the compliance reviews. I have reviewed your listing file for 11905 Sandy Knoll Ct. Although there are no requirements at this time regarding addendums for short sales, I have attached two short sale addendums, one is a FAR Addendum, the other was developed for our office.

Although not required, it is recommended that a short sale addendum be executed. You may want to bring these to the attention of your agents for future short sales.

Thanks.

Margaret Cummins

2. How did you control the BPO…seems that you were not able to influence and control the BPO…tha is vital in substantiating your price.
this could be a clue – however if my value is substantiated at a higher number – it’s sure going to make it tough for the lender to see a lower price.

3. What were the amount of the repairs needed? $0 – 2 years old – it’s the Orlando, Fl. 2001-2005 builder craze mmarket.
Did you pick the right house to short? need more info here – I’ve never heard your criteria nor checklist – would love to see (or hear it). HELP

4. Have you researched their NPA, REO’s and present loans in default?
thanks – websites?

5. Were you able to ascertain what kind of skin the bank foreclosing had in the deal? no – HELP

Disciple Mike – thanks

You ask..”what are you missing”? That’s a loaded question..I will try to answer.

1. What kind of package did you present and how comprehensive was it?

2. How did you control the BPO…seems that you were not able to influence and control the BPO…tha is vital in substantiating your price.

3. What were the amount of the repairs needed? Did you pick the right house to short?

4. Have you researched their NPA, REO’s and present loans in default?

5. Were you able to ascertain what kind of skin the bank foreclosing had in the deal?

So much..so much goes into a short sale it is hard to determine why you did not get the discount. Like I have said..our short sale package template is over 100 pages and that’s just the template.

You must completely validate the number you are requesting they just won’t give it to you becasue you are asking for it. You have to prove that taking your number is in their best interest.

Keep in touch!

I’ve heard you price at approx. 70% of market value…maybe you work with more generous lenders…but it seems they (the lender) don’t settle for much less than 78%…I got one this week (Indy mac) who wanted 97% (eeek!!!) of value…brought them into reality with a little “regression analysis talk” thank you for that. They accepted 91%…sill high …but got it too work.

Soooo what am i missing here? How can I get them (lender) to accept 70-%???

(BTW got 2 out there at 75% of value and 70% of value….)

Thanks you guys are great.