Negotiating with a mortgage lender to buy a house for less than is owed is called a short sale.  In other words, the lender accepts less that is owed on the mortgage and lets you buy a property at a discount. 

 A loan qualifies for a short sale is the home owner is at least two payments behind. 

 You as the real estate investor identifies motivated sellers who qualify for a short sale and you negotiate with lenders. 

 Here are importand factors to consider before doing short sales. 

1)   Pre-screen your properties properly 

Not all properties qualify for a short sale.   Selecting the wrong properties for short sale will be a waste of your time. 

A home owner must be behind on their mortgage at least two months.  The mortgage balance is an important factor to consider.   If a property with only one mortgage becomes profitable with only 10-20% discount, it is a good short sale candidate.

If there are two or more mortgages, then discounting all the mortgages can produce a lot of equity and profits.   You can get as much as 80-90% discount on a second mortgage.

 The best short sale properties are the ones with more than one mortgage.

 Of course you must consider all the costs such as repairs.

2)    Short sales take time 

 A short sale takes 3-6 months or more.  If you are new to real estate investing, you must consider this waiting period before adopting short sales.

 You must have enough money to cushion you during the long waiting periods. .  Otherwise adopt short sales as a part-time model in your reale state investing business.

3)    Be prepared for rejection 

 A short sale can be rejected for no good reason. Even when the deal looks obvious, they can still say no.  Be prepared for rejection.

 Having many short sales at once is therefore helpful.   Expect a 60-70% success rate if your candidates are selected well.

4)    Time is of the essence

 You might not have enough time to stop foreclosure if a property is about to be foreclosed.. Select properties that allow you time to negotiate with a lender.

5)    Have an acceptable exit strategy 

 Some transations are not acceptable to lenders for short sales.  For instance, lenders will not accept wholesale dels with "and or assigns".

 You must close as soon as your short sale is approved.  You will get about 30 days from most banks.

6)     Enjoy some big profits

 Some deals will make you good money.  As long as you can qualify them properly it can be a source of big profits for you.