$20K on the line! Need to short sale a sub2 deal, can't find the previous owner!

I talked a newbie friend into buying the deed on a SFR which at the time had about $40K in equity. I helped her install a work-for-equity tenant/buyer on a rent to own. Tenant defaulted and left. The house looks a wreck because he knocked down an entire wall to open up the kitchen and then left it just like that. To make matters worse the values went down. The houses in the area are now selling for about what she owes on it.

She has about $20K in the deal total (assignment fee, minor repairs, closing costs & holding costs). She’s now behind about 3 months so I’d like to short sale the thing and sell it for cash to get her $20K back, but we can’t locate the previous seller! The bank says they need authorization from the borrower before opening a short sale case, even though my friend is the actual owner of record.

Any ideas? Is there any way to get this short sale process started without the borrower, even if the borrower is no longer the owner?


What a deal how in the did you come in to the property with out the owner being part of the deal ?

And to be as upfront as i can i do not see how you can do anything with out the owner /person on the mortgage in the mix

As the one holding the mortgage will not release any information to you or start anything with out there say so

So unless you can get this person in the mix some one is going to be out some money and may be some more


Yeah, I kinda figured that. I’m not even in the deal actually, other than helping my friend through it.

Good news though - the former tenant says he’s gonna finish the drywall work this week. I sure hope he does.


That would be a nice thing but if the bank /mortgage company is taking it back it will be to there good

The lender will of course ask for financial info from the original barrower, as well as evaluate the property to see if a short sale makes sense.
Thing is, with the barrower not in the picture, the lender reps are confused, a their short sale system does not allow for the missing info.
In this case, get ahold of a decision maker at the lender, or at the least, a supervisor/someone in charge of others.
Explain in no uncertain term, the barrower is out of the picture, walked away, cannot be found etc, and DOES NOT OWN THE HOUSE.
Then, send the lender this info in writing, along with a copy of the auth. to release loan info, a copy of the deed signed by the barrower/seller, and hopefully you have this too…a power of attorney from the barrower.

MAYBE, when you/your friend, explains to the lender the exact situation, and submit a cash close fast short sale offer (transactional funding will allow for this, and provide proof of funds), then MAYBE the lender will entertain the short sale offer.
You may have to send in the offer several times, to several different people. I’d fax it, email it, and send certified mail.

A long shot with some lenders, but, you never know til you ask, and frankly, your friend has nothing to lose.

Jim FL

Jim FL,

THANKS - solid advice. Makes a lot of sense. I will definitely jump on that right away.

Update - I skip-traced the borrower and found her current address. I took a chance & mailed her an authorization with a SASE along with a handwritten letter explaining the situation. She signed it and sent it back!

I found the name & direct number of a rep at the lender & explained the situation. He understands sub-to so he told me to fax the info to him directly, which I just did. I’m awaiting further instruction.

Can’t believe I actually have things moving on this deal. :cool

Now I gotta figure out an exit strategy. How I get her out of this thing depends on how low they’ll go.

Should I:

  • try to get them to drop to a wholesale price? I’m not seeing rehabbers pay much more than 50c on the dollar these days. Not sure if the bank will entertain that, even though it’s definitely in need of some work.

  • shoot for a moderate discount (70% of ARV) find a private lender and buy it at closing myself, do some minimal fix-up with the excess cash borrowed from the private lender, then sell it to a homeowner at a slightly below-retail price?

  • shoot for a modest discount (75-80% of ARV) then sell it for cash to a homeowner as-is, as a handyman special?

  • do something else?

In other words, if you were me what would you offer and how would you exit? Lender is Citimortgage. The house is worth $270k if it were in good condition, and the current balance is about $266k.

“She’s now behind about 3 months so I’d like to short sale the thing …”

Now, that’s a problem, yet I can understand how people do this. I just don’t undertstand WHY they do this. Wishing and hoping you’re going to make money on deals, when you have no cash reserves?

That situation requires a rock solid way to make SURE you’re not going to fall behind on payments. In Iowa, we had a fellow who bought a number of properties “Subject To”, then leased and sold on an option that would jack up the price 20-30K sometimes. When the tenant moved out, or even while the tenant was there and paying, he would default on the mortgage.

And where he REALLY got himself in a pickle was when he started selling private investors on investing in his pool of properties, attempting to market unregistered securities under the safe harbor of a 504(D) exemption. I’m not 100% sure of all of the details, but the point is, it’s one thing to do this type of deal with your own money, but it’s a whole different deal to do this with someone else’s money.

You can take all the risk you have a stomach for but as soon as you involved someone else, you want to make sure your plan to increase THEIR wealth is rock solid.

In this case, does she have equity in another property that she could pull out to allow her to refinance this one as an investment property? She’s already got about 8% equity, so another 17% might enable her to finance this through a conventional, investor loan. But she’d need at least 3 months cash reserves to get that done.

Good luck. Oh, and yes, you should buy it at the cheapest price you can get. You make your money on the buy, as I’m sure you know.

I hear you on the cash reserves thing. I’ll definitely keep the refi angle in mind in case the bank won’t play.