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5 Tips for Purchasing a Short Sale Property

Identify Short Sale Candidates

The first step in the short sale investment process is identifying a property that's headed for auction. It should be property that the homeowner prefers not to lose but can't retain, and that the bank would prefer not to own.

So, the ideal homeowner can't find a way out of foreclosure, and the bank most open to a short sale doesn't want additions to its growing pile of real estate-owned (REO) money pits. Add to this mix a house in which the amount owed to the bank and the property's value present sufficient wiggle room for you to propose a price lower than is actually owed, and you may have found a perfect short sale candidate.

But how do you locate such homes?

Real-estate listings don't always state when a property is subject to foreclosure (although sometimes you can spot terms such as "pre-foreclosure," "subject to bank approval," "notice of default," "headed to auction" and "give bank time to respond") [source: All About Real Estate Short Sales].

A more direct route to identifying foreclosure-bound properties is official notices, such as those published in the legal sections of newspapers. You can read notices as they're published or go straight to the county courthouse for the freshest filings. Identifying properties in the first days they become short sale candidates saves the investor valuable time that could make the difference in whether a deal sails or fails.