Short sales

14 Replies

Hey guys, just wanted to introduce myself, I'm Tarrin Lilly from Baltimore MD, looking forward to tackling a lot of real estate transactions this year, Anyone experienced on wholesaling short sales, proper exit strategy to minimize risk?

Most listing agents, if they're awake, won't be letting you tie up a short sale trying to wholesale it. They need a real buyer. Why would we think you could find a better price, plus your fee, than the MLS exposure could? And when you can't wholesale it, 3 months later, then the owner is 3 months closers to an auction, and may not not have time to sell it again to a real buyer.

What you will need:

1. Marketing List

2. Real Estate Agent

3. Proof of Funds or Cash in Bank

4. Short Sale Negotiators (May be the title company)

5. Title company

6. Buyer's List

First thing you do is market to your target market i.e. pre-foreclosure properties.

Next find a real estate agent willing to work with you on your short sales.

Once you find a homeowner willing to sell you the property through short sale, get an agreement together with them. Have them sign the exclusive right of sale agreement for your agent and the as-is sales agreement.

Next make sure you have all the paperwork required from the bank. The negotiator/title company should be able to guide you with this.

After the bank receives the short sale package the bank will send a BPO agent to assess the value of the property.

After this, the negotiations begin. Make sure your negotiators are good.

You should receive an Approval from the bank with the amount they want. This is the important part because your contract with the homeowner becomes an equitable interest in the property and you should be able to wholesale it. Now is the time to market to your buyer's list! Some details that you want in that approval are the waiver of deficiency and hopefully some relocation funds for you seller.

If you can't find a buyer, market the property as an approved short sale for the seller's sake and because its the right thing to do.

If the price is still too high and you can't sell it, you want to have an inspection done by a trusted contractor. Use that report to negotiate and send it in to the bank. Your negotiators can help with the submission of the contractor's report.

I believe every state is different. Id check with the local REIA. I hope that helps.

The short sale contract/approval won't be assignable.  You'll need to do it a different way.

Originally posted by @Wayne Brooks :

The short sale contract/approval won't be assignable.  You'll need to do it a different way.

 Wayne, is there any other way that you are aware of or is this almost completely infeasable? Feels like the only way to do this is to use the double close method by purchasing the short sale, then selling it to the buyer who actually wants it.

Is this correct?

I'm in Pennsylvania (PA) and I am working with a cash buyer from my local REIA who instructed me to market via direct mail to these pre-foreclosure leads that I acquired from the courthouse. I'm in the process of verifying addresses in the civil search database, so that I'm not wasting (what little start up money that I have).

He also put me in touch with the local Short Sales expert so I can speak with him. as well.

@Dominic Jones I know you were not addressing me, but I wanted to give you my 2cents.

I market to these pre-forclosures and if I can't get them and they need to go into a short sale I hand them over to realtors.  They agree to pay my marketing. The agreement is when they close the deal they pay my marketing fees out of the closing on the property in gave them.  It takes a whiles for property too close in a sale so be patient to.

FYI not all short sale realtors are good... Some are horrible and don't close a thing - stay away from them it is only because they don't know what they are doing.  My realtors close about 4 houses out of every 13.

Originally posted by @Kriss Pavik :

@Dominic Jones I know you were not addressing me, but I wanted to give you my 2cents.

I market to these pre-forclosures and if I can't get them and they need to go into a short sale I hand them over to realtors.  They agree to pay my marketing. The agreement is when they close the deal they pay my marketing fees out of the closing on the property in gave them.  It takes a whiles for property too close in a sale so be patient to.

FYI not all short sale realtors are good... Some are horrible and don't close a thing - stay away from them it is only because they don't know what they are doing.  My realtors close about 4 houses out of every 13.

 Thanks a lot for the tip. I actually have the "local short sale expert" on my team who I spoke with tonight. He gave me advice on my letter draft, so I'm going to edit it and change it up a little, then send it back to him to see what he thinks.

What do you do if the homeowners do agree to work with you to do a short sale? I'm interested in knowing the details rather than the very broad, general answers I've been finding online about the topic if you can give me any insight, that would be great.

I appreciate your help nonetheless! May be able to use that tactic when working in a different market. How do you bill the agent for your marketing costs? 

@Dominic Jones let me start by apologizing for all my errors above.  I'm using my iPad and the auto correction is going a little crazy.

When I get a home owner on the phone and realize they are underwater I discuss the options of doing a short sale.  I try to be compassionate and listen.  I advised them I work with one of the top short sales agents and I ask them if I can have one of them call. I also advise them that there are governement grants to assist them financially with their move, but the realtor will explain that to them.

An easy way to bill the realtor is to create an invoice for the marketing of the property to be paid upon the sale and closing of property. Hopefully that all makes sense.

@Dominic Jones

@Tarrin Lilly

Hey Tarrin, Im going to answer a few things for you and for Dominic since he had some good questions too.

First: You CAN wholesale a shortsale, just not in the traditional sense of "assigning" it.

Here is how: Create an LLC that you do not plan to keep (I have a whole mess of LLC's that start with C&Y Holdings I, II, III, IV, etc make sense?) Write up the sales contract on the shortsale with the LLC. DO NOT do anything else with that LLC, it is only for that shortsale. Once the shortsale is approved, market the property just like any "wholesale" deal and find a buyer/rehabber who wants it. Then sell them the LLC while the property is still in escrow and transfer the LLC ownership to them. And your done! You just sold the LLC for what ever "assignment" fee you wanted, instead of selling the contract you sell the LLC. I have done this A LOT OF TIMES. Your state specific requirements for selling an LLC are important to find out first though.

Second: I market to pre-foreclosures all the time and end up dealing with a lot of people with no equity. These are shortsale clients. I have a shortsale negotiator I am teamed up with. I send the lead to them after I sell the client on the shortsale. I then write my offer under the LLC I want to use, and then give to the negotiator and let them do their work. There is sometimes more to it if the bank requires the property to be on MLS for a period of time, but that depends on the bank.

I hope any of this helps, if you want more specifics, please let me know and ill be happy to help.

@Tarl Yarber that is amazing I knew there had to be a way do be involved in the short sales.  Thank you for jumping in and sharing !!

@Tarl Yarber ,

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Raymond

@Tarl Yarber - Interesting!

There will be costs associated with the setting up of an LLC for each deal, of course, but can you provide us with an example of how a deal works for you financially from end to end?

I presume you're already working Short Sales by doing this? Does this method of wholesaling "legally" pose any problems in relation to any "no-assignment" conditions in the lenders contracts?

Thanks

@Steve G.

Great questions. First off you are right, there is a financial start up for each LLC. However this is dependent on the state you decide to open the LLC in. In my state of WA it is $200 to get one made up and you will have the docs within 3 days give or take. I also want to state that I am not an attorney and nothing I state on this post is to be interpreted as legal advice, please talk to your own attorney for more information. This is all my opinion only.

The financials of the deal will depend on how everything works. Essentially in your LLC you are the 100% vested member (in our LLC's, we have our main LLC be the vested member). And when you put your offer on the property to buy it, you are the owner of the LLC. While the property is in escrow to buy, you decide to sell your vested interests in the LLC during this time, there is nothing outside the law about doing this. You are allowed based on the articles of your LLC to sell your interest at any time. It just so happens that you decided to "transfer" your interest while a property was under contract. Once transfer is complete, and a transfer fee of interest in the LLC is paid to you, the new vested owner is responsible for any obligations the LLC had in closing the subject property. They will then own the LLC and close the property, thus owning the property, and you were paid a transfer fee for this. The transfer fee is up to you on amount, and up to the buyer on how much they are willing to pay.

Pretty straight forward, but research your own laws and also tax obligations.  Get good contracts in place for this. Best of luck!

@Tarl Yarber - great information. I'm presuming you use an attorney to create the "Transfer of Interest" contract, as it's a legal contract?

So transferring your interest in the LLC to the end buyer replaces the requirement for an "Assignment" contract?

How do you approach the situation of transferring the interest in the LLC with (a new) investor / end buyer when they agree to buy the property from you?

I'm interested to understand how they respond when they're faced with taking over the LLC - AND the costs incurred to do so? Presumably there's a fee for closing the LLC when they resell the property after the rehab (in most cases)?

Thanks

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