For Investors: Four Tips for Short Sale Purchase

With the nation in a mortgage crisis and many homes headed for foreclosure, the so-called "short sale" has gained popularity. You can benefit from a short sale by getting a discounted price on a home. Here are four tips to minimize risk.

The "short sale" is making a comeback after years of obscurity, thanks to a revival of foreclosures that has reached historic proportions. Short sales are transactions that occur to prevent outright foreclosure of property. Before the home goes on the auction block, the owner may be able to negotiate with the lender to sell the house, and the lender will forgive any remaining debt. Just as foreclosures offer rare buying opportunities, short sales can be a short path to a valuable property at a bargain basement price.

If you'd like to invest in a short sale property, here are four tips to help you succeed:

1. Be patient

Most likely, it will take time to get answers from sellers, since every decision requires lender approval, and questions must go through a hierarchy of various departments and supervisors. But patience may be rewarded in the end, so exercise it, and don't try to put pressure on bureaucrats who have the power to shove your paperwork to the bottom of the pile.

2. Buyer beware

Buying a short sale property means that you may not have the luxury of scheduling comprehensive buyer inspections. If you get a chance to tour the home, bring along an expert to help you gauge the value of the property and recognize hidden problems that could cost you buckets of money to remedy.

3. Buy title insurance

When you buy title insurance, the insurance company should do a comprehensive background check on the property. This will uncover any "clouds" on the title, such as liens, debts, or back taxes. Be sure that you have a clear title or you may wind up owning somebody else's problems.

4. Not all short sales are bargains

A home is only a good deal if you get it for a price below current market value. In today's real estate market, the previous owner may have paid way too much for the house. Even if you get it at a discount from the original price, it still may be inflated above current market values.

Short sales are sometimes hard to find. If you're a novice investor, or are simply shopping for a home for yourself and your family, let your realtor know that you're interested in short sales. When you search the MLS for listings, pay attention to those that say "Lender Approval Required," because those are probably short sale properties.