If you are doing a lot of pre-foreclosures, what you are going to be seeing is a lot of short sales coming in. What you are going to find is the people owe too much money than you can pay for the house. And the only way for you to be able to work through that is to do a short sale. A short sale is when you have gone back to the lender and offered them a lower amount for the property to see if they will accept it. Most banks will take 20% and under. There are a few now that will go between 20 and 30%. Very few times will you ever get something over a 30% discount taken off. I personally am not wowed about short sales only because it takes so much time. I know there are a lot of people out there making a lot of money on short sales. I’m not saying that the process is bad. I’m just saying that for me it is a lot of extra work. I am not one that is out there doing a lot of short sales, but here is a quick short sale that I will always do because it is so easy.

When you look at your deal you see at first glance that the motivated seller owes too much money. Let’s use the earlier example where they owed the 150 I mean I was able to pay 150,000 for the house but they owe 180,000. Well there is nothing you can do with this property at first glance. If all of that is a first mortgage then what you would be doing is going back to that lender and asking him if he would be willing to take a discount from 180 to $150,000. Some banks will do that but here is your issue; you’re going to have to submit the package to them and follow up and get the loss mitigator on the phone. With the current crisis that we are in loss mitigators are just overwhelmed with overflow. It is a lot of follow up and a lot of persistence on your part to get your short sale accepted.

Let’s change the scenario a little bit. Let’s say the seller still owes $180,000 but in fact they owe $140,000 to the first mortgage holder and they owe $40,000 to a 2nd mortgage holder. That’s a totally different situation. If you look at it from a first mortgage holder you could afford to buy the property, right? This is only $140,000; but they went out and got this second mortgage for $40,000 and that’s what’s killing you. They’re about to go into foreclosure with the first because they haven’t been paying either the first or the 2nd. This is a perfect scenario for you. What you will do is call the second mortgage holder and say look this person is in preforeclosure. The foreclosure is coming up in X amount of time, a month, two months and when that occurs your entire security on this property is going to be wiped out. Right now they have a $40,000 loan that is going to be wiped out all together when that foreclosure occurs. Then you explain that you want to buy this property, but you can not afford to pay the $180,000 total that is owed. What you are going to be doing is coming back to the lenders and asking them to do the short sale and as long as you are talking to an institution and not a private person they will understand that. Obviously, if you are talking to a private person you have to explain it. Now one of the problems is after I talked to your first mortgage lender about a short sale, the most they would allow me to pay a second is $1000. and that’s true. This is true. If you try to do a short sale with the first lender, the most they will allow you to pay to the 2nd is a $1000. And here’s their thought process "If I foreclose then I will wipe them out all together. Why should they get any of the money that is available in this deal? It should go to me." The seller has to get zero and any of the subsequent lien holders gets $1000. What you are going to say to them is rather than see you get wiped out, or receive $1000 I am prepared to offer you $5000. Significantly more than they are going to get in either one. That is still pennies on the dollar. They were owed $40,000 and what you are offering is $4,000. Will they take that? In many cases they will. They’ll accept the $5,000 and the 2nd mortgage holders aren’t inundated with all these files like the first mortgage holder is. You can literally get the loss mitigator on the phone and tell him you want to offer 5000 and they’ll accept that.

Now what do you have? You have a first mortgage of $140,000. You’ve paid $5000 to the 2nd so you are in it for 145. What did you say you could pay? 150. You are still below what it is you can pay. Now go to your first and you don’t have to get a shortsale on that because it was within your guidelines. What you can do is talk to your seller about subject-to, taking over the mortgage instead of having to get brand new cash to pay it off. What you are going to do is buy it subject to the existing mortgage. Now you have a discount because you have gotten rid of the second and you are still able to take over the loan subject two. Basically you are going to buy this house with $5000 cash and a little bit of money to catch up the first. They are always behind so you have to catch up the first. With under $10,000 cash you will have been able to purchase this property. Is that a great technique or what? It is a whole lot easier for me than the regular shortsale process.

It is a matter of prospecting, talking to all of those leads that come in and then seeing which ones fit into that kind of scenario. A lot of times when speaking to sellers they will tell you they owe $180,000, but they don’t tell you it’s a first and second mortgage. One of the questions you should ask is: do you owe two different lenders like a 1st and a 2nd mortgage? If you find that scenario you should jump on it because it almost always works. What you are looking for is when the first mortgage balance is less than the maximum offer that you can make on the property then this technique will work for you.