First, what is a short sale? It is nothing more than a lender discounting a mortgage. Usually, it's in lieu of foreclosing but not always. Banks, however, call it a short sale versus just saying discount. I say not always because in this down market, there are many sellers that are current on their mortgage, have to sell and what they will get on the open market will not be enough to satisfy their loan (s).

I'm working with a seller right now, for example, as an agent - not as an investor - and we're going to get about $20,000 less for their home than they owe. What I instructed them to do was to contact the mortgage company (if late on payments, the Loss Mitigation Department), get ahold of the contact that handles short sales and then forward a hardship letter explaining the situation. So, current or not and foreclosure or not, many banks will work with short sales.

As an investor it's an opportunity to pay up to 15% less than market since that's what the home owner would realize anyway if sold on the open market and then paying a commission. As a realtor, you have to realize that there's loads of business out there for you unlike in the past. Even with that said, my opinion is that the best prospects for a short sale are those in distress - meaning payments behind. Now, in this situation sometimes the lender has already filed foreclosure and sometimes they have not. If you want a rough time frame for a property getting moved to the Loss Mitigation Department, it's approximately three months late. I've seen extreme examples where the mortgage payments were more than 6,7 and even 9 months late and still no foreclosure notices or movement to Loss Mitigation - there are always exceptions.

If you want a mini checklist for dealing with a short sale in an ideal situation as an investor (since we roughly explained doing it as a realtor above), they are:

1. Get the Deed

2. Call the bank, usually the Loss Mitigation Department

3. Complete their short sale package (all banks have a protocol that you'll follow to get this done).

4. Submit your completed package to the lender as they direct you.

5. Follow up until you get an answer. Please understand that this will take enormous amounts of persistence and patience. There are services that handle short sales for you for a fee and in almost all cases, I strongly urge you to use them. There are built in advantages when you use services to do this for you. They include, but are not limited to: (a) Much more credibility when a service (usually a law firm) is calling instead of you - Mrs or Mr. Investor, Realtor or Home Owner and you'll know on your end that you have pros on the job, (b) You'll actually have a built in check system at the start to see if you should pursue because they do these for lots of other clients and know the good from the bad typically, (c) Leverage - you're able to do more deals while that is going on in the background

6. Pay-off the lender and continue with your deal! "pay off the lender" can be from the sale proceeds when yo find a buyer prior to having to close on the deal or if repairs are needed that will mean you got a loan yourself, your own cash or private money to buy it, fix it and resell it. The first option is sometimes referred to as "wholesaling".

If there are other mortgages behind the first chances are very high that the discount on those will be enormous. I coach students to offer as low as 5%-10% of the face value on those. They realize that if the first mortgage forecloses they will get absolutely nothing.

I know you're wondering, what should you offer on the first. Well, my experience (not 100% of the time, just my experience) has been that the banks will take approximately 85% of the BPO (broker price opinion that they order always to check the value). They will also factor in any repairs that are necessary.

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