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Short sale refers to a lender’s acceptance of a discount on a mortgage to avoid bankruptcy or foreclosure auction. Through short sale, you purchase property not from the seller, but from the lender. Moreover, the property comes at discount price. For instance, a homeowner facing foreclosure might be having a first mortgage of US$600,000. You can forward to the lender an offer of US$420,000 as the full payment for the loan. You will acquire the house if the lender accepts the offer. This is how people do short sale.

You may wonder why people would be willing to part with property at discount rates. There could be several reasons for that. Excess inventory and bad loans are always harmful. Therefore, they would want to settle the financial troubles by selling their properties even if they do not get the right money. Moreover, if a property goes to auction, the lender would face even bigger lose. Therefore, lenders prefer parting with properties at discount price rather than getting into the trouble of auction.

Remember that the best time to do a short sale is when the property is in pre-foreclosure state. Try to find out properties where the owners are behind on payments and facing a notice of default. Such homeowners are the most vulnerable to foreclosure and you can take advantage of that.

Short sale could include houses of all types and conditions. You can have discount of any type of property. However, it is always better to have short sale on houses requiring repairs. You can expect to have hefty discounts on such houses.

Besides, you can also try properties, which are overleveraged. While most rookie investors would shy away from over-leveraged properties, savvy investors make good deal with such properties. Properties with huge second mortgages can also be good choice, as foreclosure auction wipes out the second mortgage.

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