Can someone give me the Cliff’s notes version of short sale?
A friend (?) recently gave me a short book on short sales that has spawned many more questions than answers. I admit that my interest has been piqued, but the author seemed more interested in telling of his successes rather than provide the information needed to succeed in short sales. For instance, the author mentions that these sales can be made with minimal money out-of-pocket and without risking your own credit, but I fail to understand how a house can be purchased for resale without buying it outright (i.e. cash out of pocket) or by securing a loan (i.e. risking credit). Will someone please explain?
Also, the author mentioned $25,000 profits or better on each sale. Is that really realistic?
Thanks in advance for putting up with my ignorance in this area.
JB
The very short explanation of a short sale:
John and Mary own a home that would be valued at $200,000 if it was in nice fixed up condition. They paid $200,000 for it last year and thus have a $180,000 mortgage and they found a lender togive them an equity loan of $15,000. They also let the house go to heck and didn’t fix anything and now the home is a little rough. Mary and John have missed 2 mortgage and equity payments and Mary has actually moved out of the home. John tried to list the home with Remax but the agent said the home is only worth $175,000 tops in it’s present condition and wanted to know where John would come up with the $11,000 for his commission since the sales price can’t even pay off the loans.
This is where you come in. You write an offer to keep John out of defaulting on his loan, letting him walk away with his credit intact. You get him to sign the house over to you for say $150,000. You then go to his mortgage company and tell them this is the best offer John has gotten on his home and he is ready to move out (leaving the property vacant) and they will need to foreclose over th enext 5 months. You offer them $135,000 to buy out the bad debt. After some negotiations you agree on $144,000. You then go to the equity loan company and offer them $2,000 for the loan, reminding them that after John moves out the mortgage is first claim and after they get their $180,000 there is NOTHING left for them. They will settle with you for $3,000. You just bought the house on a short sale for $147,000. Spend $20,000 fixing it up. Sell it at $200,000, pay off your agent his 6% and you made $21,000.
There is more to it but basically thats it.
Thanks for the reply fireman, but I am still a little confused.
When John signs the house over for $150,000, where does that money come from? Or is this a paper transaction only?
Is it possible to make the sale before actually closing on the buy?
The book I read explicitly stated that minimal up front cash was needed to get started and I would not need to put my personal credit at risk. So I am confused how I can buy a house for $147,000 and these tenants hold true. I am beginning to suspect that the author of the book was a little full of it.
Thanks again.