[Editor’s note: The real estate short sale can be a useful and very powerful technique for turning no equity deals into big profits. In a short sale, you negotiate with the bank holding the mortgage and get it to accept *less* than what the seller owes.]

Why do banks short sale?

Here are the most common reasons banks will agree to a short sale:

The area or neighborhood has depreciated in value.

The bank’s shareholders are concerned when there are too many defaulting loans on the books.

Some banks are required to prove a loss each month. Let’s help them out!

Some banks are required to have an amount equal to or up to six times the retail value of each REO on hand. ouch, that hurts!

An REO is a liability, not asset. Too many liabilities will cause any business to go under if not dealt with quickly.

Can I short sale a nice property?

Absolutely! As you can see, banks short sale for many reasons other than the poor condition of the property.

What are the steps to a successful short sale?

Justifying comps of the area.

Pictures, if you have them.

A net sheet or closing statement (a sheet that shows the bank exactly how much they will net after closing costs, taxes, etc. are paid).

A hardship letter from the homeowner that mentions the dreaded word. bankruptcy.

Estimated list and cost of repairs, using retail repair prices that the normal homeowner would pay for these items.

What happens to the homeowners credit?

When you negotiate a successful short sale. keep in mind that the agreed upon price is payment in full. However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a deficiency judgment .

If granted, this judgment will affect the homeowners and their credit report just as any other judgment. You must get the bank to agree to accept payment in full without pursuit of any deficiency judgment.

In addition, you need to explain to the homeowners that the discounted amount (the difference between the mortgage balance and the short sale) may be declared as income on their income tax return by means of a 1099.

The homeowners should speak with their accountant for advice. Since the homeowners have been in such duress and probably haven’t made much income, a 1099 may not adversely affect them.

I hope this sheds some light on short sales. As you know, nine out of ten deals have no equity. To be successful in this business, trends call for you to be a real estate short sale expert.

About the Author:

Dwan Bent-Twyford is a distinguished author, motivating national speaker, and incredible teacher. Her niche is finding foreclosures with no equity, negotiating with the banks to accept less than what is owed, thus creating a short sale. As a result, Dwan has developed several hugely successful systems that have earned her students hundreds of thousands of dollars. Her goal is simple, to teach you how to become a super investor using her own proven techniques, strategies, and concepts.