HELP: 100k Spread but don't know how to structure!

So my father has a client who’s is filing BK in Los Angeles, however they have a 4 bed 2 bath home and owe 192k to first lender and 110k to the second= 302k total owed. Comps show that the market value of the property is around 400k. Now, the property was going to go up for auction as short sale in a week or so but my father has postponed it to early November.

How do I go about profiting from this favorable spread? I was thinking of using a flex option to be allowed to market and then assign for 322k but now know that’s not possible when working with lenders. Remember I’m a wholesaler, and don’t have liquid cash, nor would I like to use hard money, but would it be smart to use a hard money loan to offer the 2 lenders of the property a lump sum payoff 25k less each? That would allow me to attain the property for 252k and I think lenders don’t usually allow double closes so I’d have to wait 30 days after taking title and then flip to an end cash buyer for 300k-320k. Would this make sense? There is no rehab needed, the property is just in need of small cosmetic updates that would potentially boost the end buyer’s sale price further.

Or would it be more of a pragmatic approach to simply use a bird dog contract with a cash buyer, granting that I receive a fee when- and if- the investor gets their offer accepted by the lenders and closes. How much would I charge as a bird dog fee with this big of a spread? (400k-252k= 148k spread!). AND how would I market/approach this bird dog agreement?

Are there any other ways I can structure this? Joint venture possibly? ALSO, the 2nd is a secure priority loan and if the homeowners chapter 13 filed last week doesn’t get approved - which my father strongly believes won’t- and switched to a ch.7, the 2nd lender will ask the court permission to sell the house, which most likely will be granted.

Can I do anything at all? Am I leaving out crucial details? Any advice welcome. Thanks.


The bankrupt party can not sell this property in bankruptcy anyway! And if the value is $400k and $302k is owed that will have to be disclosed to the court, normally in this situation the judge would assign a court appointed trustee to sell the property retail, maybe negotiate a pay off with both note holders and recover $75k plus for creditors!

It is very, very rare for a judge to allow an asset to be sold without recovery for creditors.

This owner can’t even legally sign a contract in bankruptcy without court approval and if he tried to go around the court the judge could order a “Claw Back” and unwind a unapproved sale.

And yes the 2nd TD holder will be allowed to take the property over and do as they please if the judge does not order a trustee to sell it for the court on behalf of creditors.

Any way you cut it you will not get this property and if for some reason the court approves a sale it will require an escrow closing and new loan in place to pay off the two underlying trust deed notes. It could never be sold with the ability to wrap or take the underlying trust deed notes over, as the bankrupt parties credit must be absolved of all debt in bankruptcy!


Ok, just a few more details to solidify if anything is possible. The second is a secure priority loan so it obviously can’t get discharged in BK court. The owner believes he can still save the house but it’s clear he cannot;very naive. So what I’m proposing is an investor comes in with 85k cash available and we get the owners to sign a hard money loan for that money with the investor giving the investor the right to foreclose and payoff the first if the owner defaults on 1st- which I’m almost positive he will.

I’m also wondering if I can get a proof of funds letter and negotiate a short sale with the lenders of 25k less each, and use transactional funding at close to double close with an end cash buyer. possible these days?


The problem is your an unknown quantity to the bankruptcy court and everything you say still has to be ok'd by the judge, and once the judge understands their is equity in the property, you will only then be approved to buy it for FMV ($400k)

This again is one of those situations you walk away from, in fact ethically I would much rather see creditors get that equity since they extended credit and were not paid.