If you are not yet familiar with the basics of short sales, first read my posts:

How to Invest in Short Sales

Short Sale Fundamentals

Short sales are not for novices, unless you have experienced support backing you up. There is a world of details to master, paperwork to file and mistakes to make, as well as tricky negotiations with the homeowner and the lender. And, all of it while meeting a timeline to complete this deal before the property goes to auction. What makes short sales so difficult?

Here are 4 common pitfalls that can doom a short sale opportunity:

• The homeowner forgets or doesn’t reveal additional liens on the property.
  Ask the homeowner about a second mortgage or HELOC, and any other hidden time bombs against the property. They may forget or fail to disclose, so do your own research regardless of their answer. Discovering other loans or liens against the property is probably a deal-breaker for you.

• The lender’s property price evaluator (a real estate agent) isn’t realistic about the rehab costs necessary to bring the property up to the lender’s desired value.
  Or the price evaluator is not realistic about comparables, or other factors that should keep the price down on this property. Make sure you offer a prepared package of concrete reasons why the property will sell below-market regardless of the buyer … even if the package is doomed to be ignored.

• The lender’s representative isn’t moving ahead in a timely manner, or isn’t making decisions in your favor.
  This may be an employee who will be paid the same regardless of the outcome of this property, and may care more about the paperwork process than the company’s best financial interests. Some lenders have an arrangement with realtors to move more ambitiously on their foreclosures, but not all.

• The homeowner just isn’t easy to deal with.
  Be understanding and sympathetic – that alone can help communications. It’s easy for any homeowner to become emotional and even confused when they’ve received a notice of default from their lender, knowing they can’t sell for enough to settle the mortgage. Very likely they have other financial troubles as well, possibly including a job loss and/or unexpected large bills that tipped them over into this financial crisis. Good people do find themselves in unfortunate situations!

Your signs and mailings “I pay cash for houses” are likely to bring you a short sale candidate sooner or later. Learn all you can now, and when the time comes line up some experienced help – and you may be rewarded with a profitable real estate investment property!

If you haven’t yet handled a short sale, what is your plan if the opportunity comes your way?

Request a FREE one-on-one Investor Aptitude Assessment with an experienced, real-world real estate investor.   Visit http://www.streetwisepropertyinvesting.com/coaching/