High value short sale fell in my lap, now what

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High value short sale fell in my lap, now what

Bill Wilson
Real Estate Investor · Littleton, CO · Member since 2013 · 25 posts · 1 vote

So I have been studying short sales as much as possible and I have an area where I want to focus in but I didn't think my first possible deal would be at this level. I guess I am a bit intimidated and I am looking for advise so I don't screw it up. Here's the deal:

I got a referral for a 40 ranch in ski country the owner owes $1mm and is in default. $1mm is ballpark of the value. There is a similar property listed for $1.15mm but has been on the market for over 6 months so its likely too high and they are fishing. (Comps are tough to find in the mountains.) Anyway, it leads me to believe that the referred home would be a short sale by the time all the transaction fees got paid. It is not listed and I would need to resell it in an A-B B-C transaction. I have a funder, a title co, and a negotiator lined up since I've been looking at getting into SS anyway. I need to line up a realtor or an RE attorney still.
I know short sales are complicated but I would like to be able to help these people out. I feel like there is room on this property to pay every one on the team, with a little left over because the market in the mountains isn't as hot as the Denver metro. So my feeling is the bank may be more flexible to avoid having a high dollar property sitting on the market for months. If I can negotiate the right price, I think it would move though.

What do you think, should I go for it, or run like hell? Any advice would be appreciated!

Thanks,
Bill

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y

I would highly recommend NOT trying to wholesale short sales these days. You will be required to sign an affidavit at closing indicating that you know of no transactions or agreements currently relating to the property that haven't been disclosed to the lender. If you have an end-buyer lined up already, there IS an agreement and your signing that affidavit would constitute fraud.

Not to mention, the lender will likely require the property to be listed by an agent, and the agent is already required to sign the affidavit. If the agent knows about the end-buyer, the agent is committing fraud as well, and putting his/her career on the line.

I'm not an attorney, but that's my advice...

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Run like hell. Yep that is my advice. There is little to no money to be made here.

    You are looking at 0 equity. I doubt the lender is going to be willing to take a huge hit. Since short sales take a long time to close, you are going to have a large escrow deposit tied up here. Additionally, I believe that you will have trouble finding buyers as well.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y

    I would highly recommend NOT trying to wholesale short sales these days. You will be required to sign an affidavit at closing indicating that you know of no transactions or agreements currently relating to the property that haven't been disclosed to the lender. If you have an end-buyer lined up already, there IS an agreement and your signing that affidavit would constitute fraud.

    Not to mention, the lender will likely require the property to be listed by an agent, and the agent is already required to sign the affidavit. If the agent knows about the end-buyer, the agent is committing fraud as well, and putting his/her career on the line.

    I'm not an attorney, but that's my advice...

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    2Reply
  • Bill Wilson
    OP
    Real Estate Investor · Littleton, CO · Member since 2013 · 25 posts · 1 vote
    13y

    Thanks Guys. Sounds like short sales are buy hold or fix flip only then. That what I originally had been looking at them for anyway.

    Bummer these are nice people, with a nice place that's just going to end up back with the bank. Any other option short of winning the lotto and buying it?

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Bill Wilson:

    Bummer these are nice people, with a nice place that's just going to end up back with the bank. Any other option short of winning the lotto and buying it?

    Find a lender or a partner to help you buy it.

    Or refer it to another investor for a finder's fee.

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  • Bill Wilson
    OP
    Real Estate Investor · Littleton, CO · Member since 2013 · 25 posts · 1 vote
    13y

    @J, I may have someone that can partner and buy it short but we couldn't list it and start marketing it until after we completed the purchase and waited the 15 day holding period required by Colorado (and that's if the lender doesn't have some longer anti-flip holding period addendum). The upside is we don't have to disclose to the bank that we plan to resell but the downside is we would be sitting on the property for a minimum of 30-90 days and that's if we got a good deal on it. (say 70-80% FMV)
    Does that sound about right?

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Bill Wilson:
    ... the downside is we would be sitting on the property for a minimum of 30-90 days and that's if we got a good deal on it. (say 70-80% FMV)
    Does that sound about right?

    Presumably you'll be doing some rehab before you resell it. If not, you'll need to find a cash buyer, as a financed offer will need to go through appraisal, and it's unlikely an appraiser will appraise the property much above what you purchased it for immediately after you purchase it (if you don't do any rehab).

    I would imagine cash buyers in the $1M range are probably pretty scarce (could be wrong on that, depending on the market), so the problem isn't just the holding period.

    If you do think you can find a cash buyer for a nice profit, holding for 30-90 days doesn't seem like a horrible roadblock (assuming your partner has the cash).

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    An upside down property isn't necessarily a lead. To me the buying strategy and value questions are all moot until you know if the sellers are motivated to sell and, if so, what their motivation is. Some borrowers have other assets that they want to preserve and have high incomes so aren't eligible for a SS. Foreclosures make financial sense for borrowers in certain situations. A deed-in-lieu might be the right option.

    So what's the motivation here? Does the property have any other distresses? Have the borrowers filed BK? Do they have hardship? Do they need to sell?

    1Reply
  • Bill Wilson
    OP
    Real Estate Investor · Littleton, CO · Member since 2013 · 25 posts · 1 vote
    13y

    @J I'm thinking there will be some rehab since it was built in 97 and it doesn't sound like much has been done to it since. It's in a fairly exclusive area near the ski resorts so I would likely need a buyer looking for a second home/vacation/retirement home. We would have to market it in those circles. Also it could be subdivided and built into 4 10 acre plots
    I sent the home to my partner so we'll see what he says.

    Thanks for the great advice!!!

    @K The guy is a builder and built the place in 1997 for a customer who backed out of the purchase. He and his wife moved in and have lived there since. They were in foreclosure a year ago and came into some money so they paid current ut now they have missed several payments again and just got the NOD. They would like to avoid having a FC on their record so they are motivated. No BK yet

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Without a distress that's truly pressing and with sellers who just want to "avoid foreclosure", there's probably no deal for anyone other than a real estate agent that works short sales. In order to get a short sale completed before a foreclosure, they would need to list at a price that would actually bring in offers. IMO, they need a really good agent that really knows and understands ski resort/vacation properties.

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  • Bill Wilson
    OP
    Real Estate Investor · Littleton, CO · Member since 2013 · 25 posts · 1 vote
    13y

    @K Thanks. There may be more to the story as far as distress goes but this is what I got from a brief conversation. I will press them a bit more when I call back this week. I have the impression there is more there than the seller was comfortable revealing on the first call.
    Otherwise I think you're right. They should try a regular SS, cash for keys, or DIL

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    If you are looking to make money on this deal, patience may be a virtue. If the property fails the short sale and goes into foreclosure, your investors could buy the property at auction. This does not help the owner, however. But you could offer to purchase their right of redemption.

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