subject: Short Sale Benefits Of Junior Liens In Creating Equity [print this page] Short sales can be complicated and sometimes frustrating. From endless phone calls, tiresome paperwork and convincing a home owner that short sale may be the best way to go, it can become quite tedious.
When there are junior liens like a second mortgage, it becomes even more complicated. So how do you handle these junior liens in a short sale?
This article shows you how to tap into junior liens to make lots of money in short sales.
As a real estate investor, you must be seeing lots of properties with higher mortgage balances than their value. In the current real estate market, they seem to be the majority of homes for sale.
If there are more than one lien, you can negotiate each lien separately. Negotiating these junior liens can create huge income opportunities.
The owner of a junior lien mostly stands to walk away with nothing in foreclosure. They are therefore more than willing to accept a small fraction of their mortgage balance in a short sale negotiation.
Paying $5000 for a $50,000 lien is not uncommon.
The senior lien holder can settle for 15% to 20% of the mortgage balance.
You end up creating huge equity by negotiating both liens where none existed.
What challenges do you face in these negotiations?
1)Motivated sellers
The first challenge is convincing the seller that a short sale may be the best way to go. Even though they may be aware of it, they might not know how to go about a short sale.
Secondly, motivated sellers must be ready to wait for the long short sale process to run its course.
They must be patient and work with you through the tedious paper work.
Of course, they also need to know that the short sale may not get approved, and their home could go to foreclosure if negotiations fail.
2)Banks
You must be ready to submit two complete short sale packets. Make sure all lenders have received the application packets.
You must be ready to make all the phone calls to each lien holder and stay close to the process at all times. Follow up with the lender to make sure they will stop foreclosure as you negotiate the short sale. It is not uncommon for a property to be foreclosed in the middle of a short sale negotiation.
Remember if only one short sale is approved, the deal might not work.
3)Closing
Lenders usually give some time to allow for closing. They must see proof of funds before approving a short sale. A pre-qualification letter from a lender may be enough.
You must be able to close within the time given or it goes into foreclosure.
As a real estate investor, negotiating junior liens in short sales can be a profitable venture for you.
