Does a Redemption Period Affect the Short Sale?

A short sale can be done anytime during the default prior to the lender taking the property via the sheriff’s sale, courthouse steps, trustee sale, or foreclosure sale - it is called different names in different areas. we’ll use the term “sheriff’s sale” to keep it simple.

• Several states have what is called a “redemption period” after the foreclosure sale.


• Most banks will still negotiate a short sale during the redemption period.

When a property has a redemption period and has “gone back” to the bank at the sheriff’s sale, contact the homeowners and speak with them about working out a short sale with their bank. Remember, technically the property still belongs to the homeowners until the last day of redemption.

It is important for you to understand that in a redemption period homeowners cannot make up back payments. Their only option is to pay off the loan completely or the bank will take the property. Selling it to you is considered paying it off.

Some areas have very long redemption periods (up to two years), which make it almost impossible for investors to bid on property at the sheriff’s sale itself.

To determine if you are in a redemption state, simply call your county courthouse and ask for the foreclosure department. The clerks who answer the phone are usually very cooperative in answering questions and can tell you how long your redemption period is, if you even have one.

Is there a benefit to living in a redemption state? Absolutely not. Where ever you live, is great!

What are the Requirements for a Short Sale?

Banks do short sales for many reasons – too many properties in default, quarterly reports due, year-end reports due, you built a good case, they are worried that you might file bankruptcy and stall the process, you have several properties and the bank wants to cut its losses, and many more reasons.

What the bank requires is lots of real information to prove your case. We then gather as much information as we possibly can. These items are not required by the bank, but they will help you get a yes. The bank doesn’t usually have a specific requirement other than you prove there is an actual hardship. It is very easy to prove hardship because it is real.

• A cover letter stating why we are asking for the short sale – we would use different cover letters here – one from a homeowners point of view and a different one from an investors point of view.


• A hardship letter describing your situation with as much detail as possible and lots of proof – investors and homeowners alike need to do this step.


• Low comparable sales or other foreclosures or distressed properties in your area.


• Pictures of any disrepair your property might have.


• A net sheet showing the bank what it will make, after expenses, if it accepts the short sale. The title company doing the closing will do this for you.


• A sales contract showing that you have a buyer – if you don’t have a buyer yet, now is a good time to start looking for one.


• Some statics showing how many properties are on the market right now compared to last year.


• Have a real estate agent prepare a list of price drops in the last three months.


• A list of the registered sex offenders – this is not necessary, but has a great shock value when trying to negotiate with an out of state bank rep.


• Pictures of boarded up houses in the area.


• Pictures of new construction in the area.


• Crime reports in the county and neighborhood.


• Tax returns showing your loss of income.


• Copies of medical bills.


• Copies of any and all late bills and payments – phone, electric, credit cards, water, car payments, insurance, or anything that you can get your hands on.


• Paycheck stubs or lack thereof.


• Bank statements showing that you have no money.


• If you have any accounts that got closed, send that as well.


• If you have pawned anything to pay for bills or groceries, show the stub for that.


• If you have filed bankruptcy – show the papers.


• If you are going through a divorce, show the lawyer papers and fees.


• If you are involved in a probate situation, show whatever paperwork you have.


• Anything else you can think of that will show the bank all the reasons it should accept a discount and let the property go for less so that you can get a fresh start in life.

The more information you can provide, the more hardship you can prove, and nicer you are to the bank rep, the better your chances will be to get a deeper discount. The deeper the discount, the easier it will be for you to sell the property and get a fresh start.

Why Do Banks Short Sale?

There is no specific number of payments that must be delinquent. Even one
payment is enough at times. Often homeowners will call you when they are not yet
in default, but cannot make any more payments. In this case, contact the bank,
let them know that the homeowners will not be making anymore payments, and open
negotiations for a short sale before the payments are even late.

Reason’s why banks short sale:

• The mortgage is in arrears or foreclosure.


• The property is in poor condition.


• The homeowners have hardships and cannot make the payments anymore.


• New homes in the area are being chosen over existing homes.


• The area or neighborhood has depreciated in value.


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

Banks have reports due at the end of each quarter. They are more inclined to accept short sales at the end of a quarter to “clean up their books.” The absolute best time to get short sales accepted quickly is the last quarter of the year. I have called banks on December 10th and been told the short sale would be accepted if I’d close by the end of the month! If you are reading this program in January, don’t let that piece of information discourage you. Banks short sale all year, they short sale faster in the last quarter.

• Some banks are required to prove a loss each month… let’s help them out.


• Some banks are required to keep a cash reserve of up to six times the
  retail value for each REO.

It breaks down like this: The bank has a $200,000 property and is required to keep six times that amount as a cash reserve. This means the bank is sitting on $1,200,000 in unlendable money. Imagine if the bank has 2,000 foreclosures across the nation! The homeowners could drag the foreclosure on for two years utilizing the bankruptcy system. Would it be better for the bank to sit on $1,200,000 for two years or accept a short sale today? The answer is obvious. The short sale is a relief.

• The area is crime ridden.


• The area is riddled with foreclosures proving a decline in the area.


• Many people don’t realize that banks wholesale money. Banks borrow money
  from larger banks and lend it to you. These banks must show reports in order
  to borrow this money.

Think of it like a credit report: Every defaulted loan is like a black mark on the credit report. The more foreclosures a bank is carrying, the riskier it appears. If you were a larger bank lending to a smaller bank, would you lend your money to the bank with more or less defaulted loans? Exactly … less! The bank needs to borrow this money as inexpensively as possible so that it can make money lending it to you.

As you can see, a short sale is often a welcome answer to a big problem. If the bank takes the short sale it can write the loss off and clean up the books before any reports are due.