In a nutshell, a short-sale is negotiating with a mortgage holder to accept less than what is owed as payment in full.

A short-sale is the favorite investing strategy when we find a distressed homeowner who owes the bank close to or more than what the property is worth.

Here’s how it works: The homeowners owe $200,000 to their first mortgage holder and the payments are in arrears. Their property is worth $200,000 in retail condition. With the proper negotiating strategies, you get the bank to accept $100,000 as payment in full. Therefore, you are purchasing a $200,000 retail property for 50 percent of its value.

With proper negotiations you can take on deals that most investors pass up and turn them into amazing deals. Some of the largest checks have been from deals that had no equity.

There is a lot of controversy surrounding short-sales. Many investors state that banks don’t do them or that you can’t get good deals anymore.

The key to successful short-sales is to build a great case and a replicable business. When you get a short-sale accepted, do something nice for the bank representative. Take the time to build relationships within the banking industry. Building these relationships will help ensure your success. At some point, you’ll be able to call the reps and simply make your offers verbally. Once the offers are accepted, the rep will tell you what to send.

Why Do I Need to Do a Short-Sale?
One of the easiest way to make money in¬vesting in real estate is wholesaling properties. There is one potential issue with wholesaling properties with no equity. Today, many homeowners owe almost as much as their house is worth. When you find dis¬tressed Horne owners willing to work with you and they have no equity, you can’t wholesale the property. You must have equity to wholesale.

We are going to teach you how to build in the equity. Once you learn this technique, you will be unstoppable. Every phone call you get will now be a potential deal.

Why Do Banks Accept Short-Sales?
There are many reasons why a bank will accept a short-sale. The main reason is because the payments are late and the homeowners can prove that they can no longer afford the property.

The property does not have to be in foreclosure for the bank to accept a short-sale. Some banks require the foreclosure notice to be served, while others will accept a short-sale when just a few payments are late.

There is no specific number of payments that must be delinquent. Even one payment is enough at times. Often homeowners will call you when they are not yet in default, but cannot make any more payments. In this case, contact the bank, let them know that the homeowners will not be making any more payments, and open negotiations for a short-sale before the payments are even late.

Let’s look at a few reasons why a bank might accept a short-sale:

• The mortgage payments are in arrears or foreclosure.
• The property is in poor condition. 
• The homeowners have hardships and can no longer make the payments.
• New homes in the area are being chosen over existing homes.
• The area or neighborhood has depreciated in value.

The bank’s shareholders are concerned when there are too many defaulted loans on the books. Banks have reports due at the end of each quarter. They are more inclined to accept short-sales at the end of a quarter to clean up their books. The absolute best time to get short-sales accepted quickly is the last quarter of the year. We have called banks on December 10 and been told the short-sale would be accepted if we’d close by the end of the month! Though, don’t let that piece of information discourage you. Banks accept short-sales all year, but they do so faster in the last month.

Some banks are required to prove a loss each month by writing off some bad loans; let’s help them out.

Some banks are required to keep a cash reserve of up to six times the retail value for each property they own, called real estate owned (REO).

Real estate owned (REO) - Once a property is taken by the bank at a foreclosure sale, it is considered an REO. An REO is a liability for the bank, not an asset. Too many liabilities will cause any business to go under if not deal with quickly.

It breaks down like this: The bank has a $200,000 property and is required to keep six times that amount as a cash reserve. This means the bank is sitting on $200,000 in unlendable money. (Imagine if the bank has 2,000 foreclosures across the nation!) The homeowner could drag the foreclosure on for two years utilizing the bankruptcy system. Would it be better for the bank to sit on $1,200,000 for two years or accept a short-sale today? The answer is obvious. The short-sale is a welcome relief.

• The area is crime-ridden.
• The area is riddled with foreclosures, proving a decline in the area.
• Many people don’t realize that banks wholesale money. Banks borrow money from larger banks and lend it to you. These banks must show credit reports in order to borrow this money.

Every defaulted loan is like a black mark on the credit report. The more foreclosures a bank is carrying, the riskier it appears. If you were a larger bank lending to a smaller bank, would you lend your money to the bank with more or with less defaulted loans? Exactly … less! The smaller bank needs to borrow this money as inexpensively as possible so that it can make money lending it to you.

As you can see, a short-sale is often a welcome answer to a big problem. If the bank takes the short-sale, it can write off the loss and clean up the books before any reports are due.