Short sales have the tendency to be complicated and frustrating. The process can be tedious, from convincing home owners to do a short sale, endless paperwork and phone calls.

When there are junior liens like a second mortgage, it becomes even more complicated. So how do you handle these junior liens in a short sale?

This article shows you how to tap into junior liens to make lots of money in short sales.

As a real estate investor, you probably come across houses where the owner owes more than the value of the property. Actually these properties seem to have become more so common in the current real estate market they seem to be the majority of homes for sale.

You can negotiate each lien separately if there are more than one lien. You can create huge income opportunities by negotiating these junior liens.

In foreclosure, the holder of a junior lien can walk away with nothing. They are therefore more than willing to accept a small fraction of their mortgage balance in a short sale negotiation.

Paying $5000 for a $50,000 lien is not uncommon.

The senior lien holder can settle for 15% to 20% of the mortgage balance.

You end up creating huge equity by negotiating both liens where none existed.

What challenges do you face in these negotiations?

1. Motivated sellers

The first challenge is convincing the seller that a short sale may be the best way to go. Even though every lender lets defaulting home owners know about foreclosure options, home owners may not have any idea how to do a short sale.

Short sales can take a lot of time, and home owners must be willing to wait this long.

They must be patient and work with you through the tedious paper work.

They also need to know that their home may go into foreclosure if short sale negotiations are unsuccessful.

2. Banks

You must be ready to submit two complete short sale packets. Be ready to make sure each application has been received.

Be prepared for lots of phone calls and be on top of the negotiations at all times. Make sure the lender will stop foreclosure of the process had already started. No not be surprised if a property gets foreclosed on in the middle of a short sale.

Remember the deal might not work if only one short sale is approved.

3. Closing

Lenders will allow sufficient time for closing. Before a short sale can be approved, they need to see proof of funds. This can be a pre-qualification letter from a lender.

You must have the money to close within the time allowed by the lenders or the property goes back into foreclosure.

As a real estate investor, negotiating junior liens in short sales can be a profitable venture for you.