Modified Short Sale Strategy

[Andrew Ortego]

As of now, my strategy consists of searching Lafayette, and its adjacent parish's, sheriff sales, sorting for properties by zip code, and heading to the clerk of courts office to check for liens and any useful mortgage information on the sorted foreclosures. Any properties that have favorable mortgage/civil documents attached to them we run numbers and drive out to the property for a better look.

I attended a sheriff's auction last week just to check it out - I met a seasoned buy and hold investor that gave me a few tips.

Our plan is to contact the lenders associated with the particular properties and offer them based on our rehab calculation, while ensuring we can still get good cash flow and ROI. We are counting on the lenders not wanting to wait for the properties to go to auction if someone is ready to offer then and there.  I plan on working with another lender for conventional financing.

A walk-thru/inspection contingency would be attached to all offers. Hopefully, the lenders would counter, giving my partner and me a couple days to check for deal-breaking issues. We know a contractor that can accompany us on a walk through. 

Once the borrower is served a notice of seizure does he/she have any input on this process?  Can anyone offer any general advice on how to deal with the original lender in the scenario?  Is there an official term for this strategy?

[Dave Van Horn]

Hi @Andrew Ortego,

I think the strategy here is buying the note from the bank at a discount. This is different than doing a short sale - which is where you're buying the property from the owner who is trying to get the bank to accept less than what is owed. If my company owned the note, we would definitely entertain this strategy. So a tip could be to look for a company, hedge fund or LLC who owns the note rather than dealing with the large bank.

Prior to the sale, another strategy would be for you or your attorney to contact the attorney working on behalf of the bank for the foreclosure sale. I actually talked about this strategy in a recent article I wrote for BiggerPockets.

And to answer your first question, the borrower certainly has input until the foreclosure is completed because they have rights as the property owner. You'd have to get clear on foreclosure timelines in your state to get clarity on that. And many times even after foreclosure they still may have input on the process since there are redemption rights and ejectment timelines that vary from state to state.

Best,

Dave