Difference: Short Sale - Discounting

I am new to real estate investing and in Fort Worth. I have been doing a lot of reading. I read a book on the Short Sale…and I’m still a little confused on the process with each b/c it seems to different than on some of the other posts. From the book, I am under the impression that:

Discounting: The investor tries to negotiate with the lender to discount the mortgage to be bought by the investor. In the book, it said it was not a good idea to let the lender know you are an investor.

Short Sale: The homeowner has to negotiate. The book suggested to have the homeowner put you on the contacts for the mortgage so you could negotiate as a “friend”.

First, I would like to know if this information is accurate or not. From previous posts on this site, I was thinking discounting is when you buy a discounted note of a lender and a short sale is when you get the lender to discount the note because the property value is less than the outstanding mortgage (would this be a process done by the owner/borrower or the investor/buyer??).

Second, What is the process with discounting and short sale. I know that you should first get them to sign the contract. Should you also get them to deed the property at the same time and hold the deed until the short sale/discount goes through?

Third, How do the guys out there experienced in doing short sales and discounting handle talking to lenders? Do you tell them you’re an investor or just somebody helping out the homeowners?

Fourth, Is there a way to short sale the mortgage then take the existing sub2?

Thanks for your help,

TJ Carter


Good to have you on board the club here. I will help you some here with what little I have read and know. You can not do a short sale and sub2 at same time. Short sale is paying cash for the property at a discount to the lender like you said because the value has gone down below the note balance for some reason or another. The borrower is in default all the time as far as I know and can not afford to pay money to the lender to reduce the loan balance.

On the short sale most lenders require an earnest money contract with the buyers name on it. If you can be a friend and a buyer that would be good. My opinion is I do not think it matters who talks to the lender as long as they are good at getting across the points that the property is in bad condition and the lender is about to get it in foreclosure and will have to sell at a loss anyway and hopefully this plan will cut their losses and get them their money faster too. I would go ahead and get the deed too from the seller and a letter authorising you to communicate with them too. If all parties are working together an communicating with the lender it can be a win/win deal.

Discounting like you said is just buying the note only at a discount below the loan balance. Thes type deals are done all the time where the note holder wants cash and will sell the paper at a discount. A lot of these are seller financed deals where the seller took a second mortgage as part of the purchase price. You could also consider a short sale deal the same way. You could buy the mortgage from the mortgage company on the same house you would consider doing a short sale on and them foreclosure on the borrower. This would not be a short sale because the borrower would not be deeding you the property at the same time you buy the note. This may be handy where the property has liens that would be wiped out in a foreclosure but not a sale.

I almost deal a deal once wher the seller was actually doing the short sale. If we assumed the $80,000 loan balance on one duplex he owned worth $40,000 he would deed us another duplex free and clear where he owed $80,000 and the value too was $40,000. Buy one free and get another free. We came close. This too in a way would have been a short sale but without the lender taking the loss.

I hope I have helped a little. I have only done one short sale and wish I had done this on another house I bought before I too learned of short sales only a year ago or so. Can be a great way to get property at a discount but it is a lot of trouble. Do not volunteer any info that you do not need to such as the fact that you are an investor flipping the property or whatever. Just give themthe facts abouth the value and condition. Most lenders want a Realtor trying to sell the property on MLS and they too may become involved. I have seen some even listed lower that the loan balance where the Realtor has already worked out the deal with the lender. These may not be super bargains and may only be at market value???

Lots of deals out there and a lot of ways to do them. If you neeed more help please ask. I tend to ramble as the thoughts come to me but hope it all helps some.

Good luck and thank you,
Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas 78737
512-301-9171 home
512-587-6177 mobile


Thanks for the clarification. I think I understand the process a little better. Thanks again.

TJ Carter
Ft. Worth