There is an recent article I found in the New York times, “Program Will Pay Homeowners to Sell at a Loss.” In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
As an investor, how can you take advantage of this opportunity? Obviously, if you are experienced at short sales, it may make the process easier. That is not to say that the paperwork will be any less, but only that the banks will be more agreeable to a short sale under this program.
Many investors call me to ask if doing short sales is something they should be doing. My response is that unless they are already experienced at short sales and clearly understand the process, it will be a real challenge. Most short sale investors know the process, the paperwork involved, are highly skilled at negotiating with the banks. established banking relationships, and have been doing short sales for a long time.
Most shore sales exist strategies are to quickly resell the properties to either cash investors or retail buyers with financing. So the short sale investor buys it from the bank (A to B transaction), then resells it (B to C transaction) to the investor or retail buyer.
When selling to a cash investor, they simply mark up the property and the difference between the A to B price and the B to C price is their profit. Of course, the short sale investor has to then pay double closing costs but the spread should be sufficient enough to cover these expenses.
Now that the 90-day FHA seasoning rule has gone away, it makes it easier for a short sale investor to resell the property quickly to a retail buyer with a B to C transaction. However, some banks may balk at financning a retail buyer with a simultaneous close. The key is to make sure the retail buyer’s lender is agreeable to this. If not, the short sale investor may end up holding the property for a few weeks before the bank.
The experienced short sale investors are always prepared to buy with their own cash and hold the property until it is resold. If this investor does not have the cash, then it becomes a timing issue. Let me explain. The short sale investor spends several weeks working with the retail seller, submitting all necessary documents, and negotiating with the bank. During this time, the investor has already begun to market the property to potential buyers. Now, if the investor has a buyer lined up and the bank takes too long to agree to the short sale price, the buyer walks. If the bank is quick to agree to the short sale price and the investor has no buyer lined up, then all that work is jeopardized unless the investor is either a) prepared to buy it with their own money or b) has negotiated a purchase of 30 days upon acceptance of the short sale price. Most usually opt for the latter.
There are many variables that come into play with short sales and
Finally, if you haven’t done short sales before but have access to these opportunities, my best advice would be to partner with an experience short sale investor. You find the deals. They do the work and both share in the profits.
There is an recent article I found in the New York times, “Program Will Pay Homeowners to Sell at a Loss.” In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
As an investor, how can you take advantage of this opportunity? Obviously, if you are experienced at short sales, it may make the process easier. That is not to say that the paperwork will be any less, but only that the banks will be more agreeable to a short sale under this program.
Many investors call me to ask if doing short sales is something they should be doing. My response is that unless they are already experienced at short sales and clearly understand the process, it will be a real challenge. Most short sale investors know the process, the paperwork involved, are highly skilled at negotiating with the banks. established banking relationships, and have been doing short sales for a long time.
Most shore sales exist strategies are to quickly resell the properties to either cash investors or retail buyers with financing. So the short sale investor buys it from the bank (A to B transaction), then resells it (B to C transaction) to the investor or retail buyer.
When selling to a cash investor, they simply mark up the property and the difference between the A to B price and the B to C price is their profit. Of course, the short sale investor has to then pay double closing costs but the spread should be sufficient enough to cover these expenses.
Now that the 90-day FHA seasoning rule has gone away, it makes it easier for a short sale investor to resell the property quickly to a retail buyer with a B to C transaction. However, some banks may balk at financning a retail buyer with a simultaneous close. The key is to make sure the retail buyer’s lender is agreeable to this. If not, the short sale investor may end up holding the property for a few weeks before the bank agrees to close on the transaction.
The experienced short sale investors are always prepared to buy with their own cash and hold the property until it is resold. If this investor does not have the cash, then it becomes a timing issue. Let me explain. The short sale investor spends several weeks working with the retail seller, submitting all necessary documents, and negotiating with the bank. During this time, the investor has already begun to market the property to potential buyers. Now, if the investor has a buyer lined up and the bank takes too long to agree to the short sale price, the buyer walks. If the bank is quick to agree to the short sale price and the investor has no buyer lined up, then all that work is jeopardized unless the investor is either a) prepared to buy it with their own money or b) has negotiated a purchase of 30 days upon acceptance of the short sale price. Most usually opt for the latter.
Finally, if you haven’t done short sales before but have access to these opportunities, my best advice would be to partner with an experience short sale investor. You find the deals. They do the work and you both share in the profits.
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Tagged as:
Banks,
Buy and Flip,
Foreclosures,
REO,
Short sales,
Wholesaling
{ 5 comments… read them below or add one }
Great advice to partner with others that have already scoured the laws and already paid for their attorneys to create a safe model . Too often I read advice to investors that over simplify the process and leave them completely exposed to lawsuits. Short Sales are a great opportunity in this market and frankly the best and only way to consistently acquire property at a moderate discount – especially in California.
Agreed Jonathan! To be able to process and close a short sale is a hard enduring task that should only be handled by professionals in this industry. We have been working in this sector for almost a decade in South Florida and we continue to learn about it on a daily basis.
Try and hire the best firm in your hometown to undertake this task for you. Do not go to a Realtor that has never worked on one before as they are most likely to fail and your property will go to foreclosure.
The biggest problem here is that every bank has a different way of doing their short sales there is no industry standard.
Please call me to discuss short sales when you get a chance, 561-966-0125. Thanks.
Great article.Im a Realtor in the NY area.I have been negotiating my own short sales for over a year.I can get approvals in 15-30 days.Again I negotiate the short sales myself I do not hand them over.Any questions feel free to contact me. My website is
http://www.jmghomeandloan.com
Thanks
Hi Joseph,
That’s great to hear! Most realtors struggle with short sales, but it sounds like you have a good system down. My partners and I also purchase and negotiate short sales very successfully (and we guarantee realtors their full commission plus bonuses upon closing). I specialize in the Long Island area, and it looks like you are in Long Island as well.
Let’s try to put our head’s together to see if we can be mutually beneficial for each other’s business! All of my contact info is on our website, and there’s more info as to how we work with realtors all the time under the ‘Realtor’ tab.
http://www.HopefulHomeSolutions.com
I look forward to talking to you.
Dawn