Five Mistakes To Avoid When Making A Short Sale—Part II By Deb McMillan At Isnare.com Ezine Articles

If you read Part I of this article series, you already know that the first mistake investors make when approaching a short sale is believing that short sales are quick and easy. You also know that to avoid that mistake, you educate yourself on the actual steps involved in the long process.

But a second bogus belief also deserves its own separate article to explain.

Bogus Belief #2: Banks Lose Money on Short Sales.

In reality, banks lose MORE money by NOT letting investors buy the property before the foreclosure sale.

For example, the typical property that I buy needs an average of $15,000 of work to be worth its after-repaired value of about $100,000. Often, this property will be subject to a mortgage of $95,000, and the seller is usually two to three months behind in payments by the time he calls me. I will offer somewhere in the vicinity of $50,000 for this property, which means that the bank will "lose" $45,000 by taking my offer.

But if the bank decides to reject my offer and take the property to foreclosure, the bank then pays an attorney to file the paperwork, make the court appearances, search the title, notify the other lien holders of the foreclosure, go BACK to court when the borrower declares bankruptcy at the last minute, etc. Total legal fees: $5,000+.

In the meantime, the bank has $95,000 loaned out that's NOT earning any interest, and according to federal regulations, has to keep 1-8 times the amount of the defaulted loan on deposit instead of loaning it out. Since the average foreclosure in my area takes about 9 months to complete, this means that for 9 months, the bank is losing 6% interest on over HALF A MILLION DOLLARS in depositor's money. Total lost interest at 6%: $22,275.

When the bank buys back the property at the auction-which they will, since they'll bid $95,000 on a house with an as-is value of $60,000-$70,000-they' ll list it with a real estate agent for sale. When it DOES sell three months later for $70,000, they'll pay the agent's commission of 6%, all back taxes, plus the usual seller costs.

Three more months of lost interest: $7,000.

Agent's commission on $70,000 sale: $4,200.

Transfer taxes, deed preparation, prorated property taxes etc: $1,500.
Total sale price: $70,000.

Total expenses: $39,975.

Net to bank: $30,025.

Selling to me for $50,000 and saving a year of hassle: priceless.

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