The first word that comes into the mind of homeowners when they are falling behind on their mortgage payments is “foreclosure”. What these homeowners don’t know is that there is another aspect that they can consider with their mortgage company when they are no longer able to pay their account current for whatever reason. This alternative is called a “short sale”. Many individuals are not aware of this alternative because there are many lenders who do not accept this option. Some lenders feel that they are loosing financially and would gain a better result going through the foreclosure process.

A short sale is an action where the lender who holds the mortgage accepts funds that are less than the payoff amount. Before a person can determine if this is an option, they should perform some research by experts who are familiar with the process of short sales. Both parties involved should speak with a lawyer to make sure all revenues and bases are covered throughout this process.

The short sale process involves both the customers who currently have the loan and the customers who are interested in obtaining a short sale. The current lenders usually require the borrowers to write a letter that will give the lenders permission to discuss the account with the appropriate parties such as: real estate agents, lawyers, closing attorney and any interested buyers. Be sure that in the letter you are specific in who can obtain this information. You want to include the name of the individuals, any parties who are interested in the short sale, the real estate agent and any lawyers that are involved as well. Along with the authorization letter an estimated closing statement should be submitted as well. This sheet will include the sale cost; the balance of the loan, any outstanding payments/late fees and if there is any commission that the real estate agent would get from the sale if they are involved. This information can be worked up by the closing attorney.

A hardship letter and proof of income is also required for the current borrowers to submit to their lender. This information is needed for the department at the bank who would be working on the short sale process. The hardship letter has no certain length but you don’t want it to be too long to where the department doesn’t feel that they should read it in it full. It should explain the situation in detail as to why you want to consider this option and the purpose of the delinquency in the payments. Some lenders may come up with other options as far as repayment plans, a modification of the loan or some deferred payments.

In determining the price that you want to submit to the lender, the interested party and real estate agent should consider the balance that is left on the loan by the current borrowers, the current market (active properties on the market, any pending properties and the properties that have sold recently), and the amount of funds that will be left for the current borrowers to pay back to the lender. The process of the short sale can take days, weeks, or even months. The offer has to be presented to the lender’s manager as well as the borrowers/agents and reach a decision as to what they will accept and if the interested parties will take.

Once the agreement has been finalized, the lender will notify the seller and interested party either via phone or letter or both. In the letter it will specify the amount of the short sale, how the funds should be received and the date it should be received back. After all paperwork is completed, the new borrowers may want to follow up with their lender and the lender it was purchased from just to make sure there were no steps left out.

Christopher is a college student at Tuskegee University in Alabama. While there he is studying mechanical engineer. Chris has successfully become a real estate investor, since then he has invested in several properties. Even though his love in the field of mechanics and science, he feels that the corporate world is not where he wants to be for the rest of his life. Although Chris is just 21 years old, his main goal is to educate young people to become financially free. He feels that if he can make a small change in the world it will start with the younger generation. Because it is up to present younger people on how the future adults run our world.

For more information, visit http://www.reigningwholesaledeals.com for his free Powerful Investing Tips.

I always tell my contractor to give me a liberal estimate. I don’t want it to be unrealistically high, but I want them to give me a number that is on the higher side of the estimate. The reason I do this is so that I can present it to the broker conducting the BPO in hopes that they pass it along to the lender (which they usually do). This helps me with my negotiations as the bank can see line by line which items need repair.

Typically, I let my contractor know that I am not wanting them to provide me an estimate for a potential job. I explain that I use it as a negotiating tool. As such, I give them some money for their time since usually the bids are free. In some cases, I actually do end up buying the house (as opposed to flipping it) and I go back to that contractor to do the repair work. Of course, when it comes to actually paying for the repair, I negotiate that down as much as possible ;0)

About the author: Pete Perrelli is a leading real estate investor who has bought and sold millions of dollars worth of real estate. Beginning in 2000, Pete was able to amass a net worth of over one million dollars in just a few short years and all before he turned 29!

In his ebook, Making Money in a Real Estate Bubble Burst without the use of a Hammer, Pete describes the step-by-step approach to making money using a real estate short sale technique.

When working with the seller’s bank, you’ll find that if any step or component of the real estate short sale is missing, your deal can die in no time. Loss mitigation reps that work for the bank often have 300+ real estate short sale files on their desks, so if you are missing anything your file goes right to the bottom of the stack. This is a list of the minimum you must do. Certain banks and certain situations will likely require other steps.

1) Get a signed ‘authorization to release information’ from the seller and their spouse (even if the spouse supposedly isn’t on the deed or mortgage). Submit the authorization to the bank ASAP since it might take them 48 hours before they log it in their system (no exaggeration).

2) Get a signed sales contract and take unflattering pictures of the house. Get copies of all proof of hardship (late bills, hardship letter, etc).

3) Put together your real estate short sale package to submit to the bank. I will go into detail in a future article about what I include in my package.

4) Find out from the bank’s loss mitigation/foreclosure department what fax number or email address or physical address to send the package to. Sometimes when you talk to different people at the bank they will give you different fax numbers that you’re supposed to fax your package to. Fax every number you have, because someone will lose your package, guaranteed. Better to have too many of your packages floating around than too few.

5) The bank will likely order an appraisal or BPO (broker’s price opinion) to estimate the value of the property. Meet the appraiser/realtor and help them see why the house is worthless.

6) Bank accepts or rejects your offer. If they counter, you counter, they counter, and so on until you agree on a price.

7) Set a closing date and collect your heavily discounted property.

This is an oversimplification but each of those are the major steps. Things get a little more complicated if there is a second mortgage, if you’re wholesaling to a cash buyer, and any other assortment of issues that plague any real estate short sale. Check back for future postings that will go into detail on all of the steps, info on finding these deals, and every other aspect of a real estate short sale.

Robert Fiorentino is a real estate investor specialized in purchasing real estate short sale foreclosure properties. Robert’s blog can be found at http://www.RealEstateShortSale.tumblr.com