Investing in pre-foreclosure can be profitable as it can also help others experience mortgage problems associated with foreclosure.

When one experience foreclosure, there are three big things that will affect the homeowner. These are:

·         Damaged credit profile,

·         Reduction in equity and

·         Depression, stress and pressure associated with the foreclosure

By coming in before a foreclosure, the investor helps the homeowner protect their credit profile as they also stop foreclosure, homeowners are able to protect their equity from further depreciation and low valuation by the lender and help them rebuild their lives without being foreclosed.

An investor can help them by offering a short sale. A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property.  In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the borrower mortgagor.

 This negotiation is all done through communication with a bank's Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt.

In such instances, the lender would have the right to approve or disapprove of a proposed sale. Most Short Sales leave a deficiency balance for which the Mortgagor / Borrower is still liable. In 99% of all cases it is not a settlement-in-full. A deficiency balance will remain while the mortgage broker, real estate agent / broker, loan officers, title and closing agents still remain getting their profit. And no regulatory agency governs this hybrid transaction.

When preparing a short sale, lenders require a short sale package before they will consider giving discount to the buyer.

• Cover Letter: A letter requesting a short sale and why the lender should consider the offer.

• Authorization to Release Information

• Standard Real Estate Purchase and Sale Agreement

• Hardship Letter from Borrower

• Financial Statement of the Borrower

• Proposed Closing Statement (HUD1): Lenders must show proof that they are not receiving compensation. Lenders want to see a HUD1 so they know the household income of the seller.

• Opinion Of value: The lowest real estate comparable in the area can be cited.

•  Estimated cost of repairs: List down repairs needed and the cost. Having a licensed contractor to do the estimate and detail the repair would be better.

• Notice of Trustee’s Sale: The actual foreclosure notice should be included and subtly lets the lender know you understand the foreclosure process.

• Colored Photos: Supply the lender with photos of all problems on the property. This helps the lender justify accepting a lower price for the property.

For further information and knowledge on real estate investing, visit www.ibuyhouses.com/leearnold