When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due because the balance due on the loan is more than what the property will sell for. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose.
When you intend to raise cash and raise capital once the bank accepts your offer. Or maybe you intend to involve a private lender. Then you will need to follow the MAO (maximum allowable offer) rules.
But if your intention is to sell it to an owner occupant, because it's a pretty house in good condition, and you can get that done, prior to the bank demanding full payment, then you can go above MAO. In fact, if you go above MAO, that is your only exit strategy. Because if you're above MAO, you can't raise the cash. The only way out is to get a buyer to cash you out.
In other words, if I'm above MAO then your only strategy is to get a buyer to cash you out because if you're above MAO, you cannot raise the cash to buy the property yourself. A private lender won't do this, because the ratios won't be right.
In this exit strategy, as opposed to a short sale, if you're above MAO you can do a paid contract for deed if you've got enough money to bring the home current. This is often is the best strategy even when they are in default. Because the problem with doing a short sale is that the bank wants their money and that forces you to either fund it, or flip it to a cash buyer.
It is important to understand that MAO, does not apply to properties that have debts on them for more than you'd pay for cash. It is the equivalent of trying to shove a square peg in a round hole. MAO is applicable when you're paying cash for a house and that means you're going to buy it. The ideal amount that you want to pay is around sixty to sixty-five percent of its market value. Above that, you want to pass it up and move on to other deals. Unfortunately you are going to find that the majority of the calls you will receive are from people who owe way more than that.
About the author:
For additional information on real estate investing and the hot foreclosure market, I recommend joining Ron LeGrand's Millionaire Maker Newsletter at http://www.MillionaireMakerNewsletter.com. The newsletter itself is loaded with great tips and resources, and he's usually giving away something free like a CD or something that generally has a lot of great information on it. |
