How does shorting on a foreclosure work?

[Christopher B]

Can you explain the process of shorting on a foreclosure? How do the negotiations work with the lien holders? What would be a normal offer for a foreclosure property (as a percent of retail value)? Thanks, first best answer gets my ten points. ------

[sunshine_today]

Are you talking about a short sale? and are you the buyer? If you are the buyer, it has nothing to do with you. A short sale means the lender is selling the house for what is owed on the mortgage, not what the house might appraise for. Usually it'd be under market value. ------

[oldfatcowboy]

First I do not know whether you are looking to sell or buy.I have assisted with many short sales. From the buyers perspective you must asses the value and make an offer to the lending institution prior to the process of foreclosure.You need to know that the home-owner is struggling before they go into foreclosure.You then negotiate the price with the lender and the seller. getting the lender to take less than the seller owes.Most generally this is only accomplished if the seller owes more than the property is worth.You will need cash or a verified line of credit as the lender will not likely loan on the same property again.I have linked to an article below that is pretty complete.Single family is harder as it is a smaller portion of the total assets of the lender. Large multi-family and commercial is easier because the lender is out so much money and they are restricted in how much they can loan based on the amount of bad loans they have. Federal law restricts lending institutions from lending more than a certain percentage of good assets.Often in larger acquisitions you can expect to purchase for as much as 20% less than owed.Occasionally more depending on the properties condition and other facts. ------

[Janet]

Short sales are not negotiated, as far as price, although other fees are open. The bank doesn't want to pass offers back and forth, and they really do not care how long they sit on a property.As far as the"normal offer", again it is asking price, but that is either at mortgaged value (not retail value) or even below. ------

[Lengyel]

The term shorting or short sale refers to the fact that the lender is in a position of having to take as a sales price LESS than the current loan amount. The current loan being what the Seller owes on their loan balance. The Seller is motivated to do this because it is either this or a foreclosure. They are out of options.The bank is motivated to do this because they have loaned more than the property is currently worth. A foreclosure is coming soon, unless an agreement can be reached with a new buyer.It is not really possible to give you a percent as each property is different.

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