In this interview, Ted answers the question, “What is a short sale in real estate?” and discusses the process, how long it takes, and whether buying a short sale is a good investment.
The topics to be covered in “What is a Short Sale in Real Estate and How Does It Work?” are:
What Short Sale Means
What is a short sale in real estate? A short sale is someone coming up short. In other words, someone isn’t going to get their money, and that someone is going to be the banker. Why? Because a short sale is the process of selling a home for less than the amount that’s still owed on the mortgage.
Markets go sideways, up, and down, and sometimes they crash. When a market comes down, property value comes down. However, if you have a mortgage on a property, the loan amount remains virtually the same, while the value of the collateral, which is the real estate, slowly deteriorates.
This can place a homeowner in the situation of making the same mortgage payment every month on a property that’s worth less and less. In many cases, the homeowner will just pack up and leave.
Trying to Short Sell Homes During the Crisis of 2008
From the year 2003 through about 2009 to 2012, the markets were depressed and going down, yet the bankers still had high loans on property.
Many homeowners tried to convince their bank to accept a short sale. In other words, they wanted the bank to take less money and bring it down to the market.
Some banks agreed to do so. However, many banks said, “No,” so the homeowner walked away and the bank foreclosed.
What is a Short Sale Vs Foreclosure?
What’s the difference between a short sale and a foreclosure? A short sale is a way to avoid foreclosure by negotiating with the lender to accept less than what’s owed. Meanwhile, a foreclosure is the legal process that results in the lender seizing the property and selling it to recover the debt owed.
I’ll give you an example. Orlando, Florida is three counties, Orange County, Osceola County, and Seminole County. Each of those counties had 8,000 foreclosures at the same time, 24,000 foreclosures.
Many people tried to get the bank to do a short sale. They begged the bank to take less money so that they could get out of the deal and be free of the debt.
Meanwhile, the homeowners were talking to brokers to find someone to buy the property at the lower price. If the bank doesn’t agree, then the homeowner is going to walk away anyway.
The banks, in most cases, did not agree. If they did agree, and if a bank could make a decision in one year, that would be wonderful. Can you imagine waiting a year?
What’s going on during that time? The payments aren’t being made. The homeowner is not making the payments because the value of the property has dropped.
What is the Short Sale Process?
How does buying a short sale work? If you’re a short sale investor, you’re trying to buy a property at a lower price than it was before. If the price was $400,000 before, you’re going to try to get it down to around $300,000. However, the bank must agree to drop the price to $300,000.
You need to have the funds to show the seller that you’re a serious buyer. Work with an agent to determine a fair price to offer for the property. Then the lender will review your offer and determine whether to accept or reject it, which could take quite a while.
If you’re looking for alternative investments, forget short sales. That’s just going to take you too long. It’s not really a great market.
It was a great market for a very short period of time in 2003 or 2004 because you could get a property way down below the market. It might have worked then, but as a business, it’s not the best alternative investment.
How Long Does a Short Sale Take?
It could take a bank a year to make the decision to allow a short sale, and it would never be less than six months. It takes a long time, and meanwhile, you’re dealing with a broker all the time.
If it’s not working, then you’re going to hire an attorney. Who’s going to pay the attorney? You already don’t have enough money because it’s a recession.
The Business of Short Selling Real Estate
Real estate is always working in a cycle. It doesn’t go instantly up or instantly down. It’s a slow cycle down, and it’s painful because everybody is losing.
The bank with the rigid mortgage wants payments all the time, but suddenly, the property value is way below the mortgage amount, a very difficult situation. It’s not a business that you want to look forward to doing.
Thousands of people every month think they’re going to go out and make money on a short sale, but there is a better way.
Buying a Tax Deed Property Vs a Short Sale
With tax defaulted property investing, I’ve got certainty in everything. There is no certainty in a short sale because the attorney doesn’t know what’s going to happen. The homeowner and the investor don’t know what’s going to happen. The bank is making all the decisions.
If the bank has its hands tied and says, “No,” the people are just going to walk away. Then it’s going to go through foreclosure.
Whereas, if I go to a tax defaulted real estate auction, when I buy, they’re going to hand me a deed. That’s certainty. I know what I’ve got, and I know what I can sell it for.
Plus, I’m buying at 10, 20, or 30 cents on the dollar. If I buy it from a short sale, all the bank did is take a minor drop, and there’s still a huge mortgage.
When you buy via a short sale, you’re still going to get a huge mortgage at 70% or 80%. Why would you want that when you can buy it for 10% or 20% at a tax deed sale?
Ted’s Tax Lien and Tax Deed Investing Course
People are looking for a great deal, but most don’t know about tax lien and tax deed auctions. They’ve heard about short sales, because reporters are talking about them, banks are talking about them.
For more information on tax delinquent property investing, we have everything you need to learn here. Take an all day class if you want, or come to a seminar. We even have auction tours and could have someone take you to an auction where you could buy for 10 to 20 cents on the dollar. We can do all of that. A great way to start is with this Free Gift.
Conclusion
We hope you enjoyed Ted’s lesson, “What is a Short Sale in Real Estate and How Does It Work?”
What is a short sale in real estate? It’s a transaction that occurs when a homeowner sells their property for less than the outstanding balance on their mortgage, and it requires the lender’s approval. The lender agrees to accept less than the full amount owed on the mortgage, and the homeowner avoids foreclosure. However, the short sale process can be complicated and time-consuming.
What is a short sale in real estate to an investor? It could be a way to get a discount on a property, but the process takes such a long time and the mortgage remains intact.
Instead, Ted recommends tax delinquent property investing. At a tax defaulted auction, you can buy real estate for pennies on the dollar, and you get it mortgage-free.
If you’d like to know more about tax defaulted real estate investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, personal coaching with certified coaches, and an interactive map auction calendar research tool that allows you to visit states online and see where all the auctions are taking place.
If you’d like to start out with a free auction list of tax defaulted properties that are currently for sale, go to TedThomas.com/freegift. See the great deals for yourself.
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