Is This a LEGAL Short Sale Exit Strategy??!!

Foreclosures, Short Sales, Tax Foreclosures
1

I’ll keep this simple and use round numbers for easy understanding.

I find a property in foreclosure legitimately worth 100K.

I buy it through Short Sale for 60K.

I market to the Subprime Market of buyers (bruised credit) that I am willing to do up to 20% Owner Financing.

I sell it for 100K, with a regular 80K 1st Mortgage, and then one of my companies creates a note to finance the other 20K (or 90/10, whatever they need). It is serviced through an outsourced Escrow/Servicing Company such as CircleLending, etc.

I FULLY INTEND on collecting on this note for passive income, etc.

Is this a legal exit strategy?

Pros/Cons/Issues?

Thanks

LD

2

This seems like a normal transaction and one that is talked about on here. I haven’t done this yet, but am considering it. It’s like you get the benefit of a rental, the benefit of a flip, and the benefit of a HML all in one.

3

I’ve searched my butt off on here and can’t find much info on it. Looks like all these views and no one knows for sure. If anyone comes across the info I’m looking for, I’d be much obliged if you post it. Thanks’

LD

4

I planned on doing it. It’s hard to find lenders that allow the owner to carry a 2nd. If anyone knows of one, it’d be good if they could share that info :slight_smile:

5

marcus335-

Are you saying that it is hard to find lenders who will accept the current seller holding a 2nd on the mortgage? I was hoping to use this as a strategy in the future.

I have read on this forum about people who when selling create a 2nd note with the express intent on selling it on the secondary market. As in your example sales price 100k. 80k 1st note and 20k your note(2nd). The 2nd then immeadiately sells the 2nd(you) and is done with the deal. Again, I have only read of this so I do not know if it works or what % of the loan value you get when selling. Buying and selling notes can be very risky so team up with others who know the ropes.

6

Yes, it’s hard to find lenders that allow the seller to carry a 2nd. Apparently there was a lot of abuse with them. People would us them to inflate selling prices in an area, get the person a 80% mortgage, then forgive the loan. That sounds more like fraud than legitimate use of the tool.

I think FHA and discounting the price 3% for their downpayment is the best option now. I’m going to try using that soon.

7

Gift them the downpayment of 10k or whatever as a gift (for repairs - whatever) and close the deal…new owner gets instant equity and you get 20-30kk in profit and the HML is happy…simple deal,why do u want 40k…give the buyer an awesome deal…make sure u sell below the asking price (90k) and give them the gift downpayment (whatever u want)…depends on your greed factor… lol…if HML needs for buyer to have cash,cough of the cash as a gift…look at the whole pic and not just the compartments…you’ll get it back in profits,walk away with 20k and be happy,

Generally, you do not need to file a gift tax return unless you give someone, other than your spouse, money or property worth more than the annual exclusion ($11,000 in 2002, 2003, 2004 and 2005; $12,000 beginning in 2006) for that year. Although a return may be required, no actual gift tax will become payable until the cumulative lifetime taxable gifts exceed the applicable exclusion amount. The donor is primarily responsible for the payment of the Gift Tax. However, seller’s gift tax exemption available in the estate has now been reduced by the exemption used for the gift transfers. 1,000,000 is the cumulative lifetime taxable gift you are allowed …its SHAMEFUL that most of the population DIES before using this…thats how the rich do it folks,I’ll give up some of my gifts to someone who needs help to make me more $$$…COMPLIMENTS OF THE IRS…

You have this great gift the IRS gives u every year…use it!!!

most everyday folks dont know about the cumulative lifetime taxable gifts…works great for QPRT.SAVE $$$$$$$$$$…that works great for you to pass on to “whomever”

btw you get bout 50 cents on the dollar if u sell the note assuming deal will pass the HML…check with the factoring companies

My 2 cents, (no lawyer or financial advisor - for entertainment and scholary use only)

p.s. folks, the market is going to tank a lot more,the next 2 years when all those ARMs reset…do your homework :slight_smile: hehe … give the buyer a DEAL…eliminate other sellers in your neighborhood…give the buyer an AWESOME deal that will make their head spin…its marketing amigos …there will be plenty of profits…DONT BE GREEDY…new deals come along every day!!! even when the market tanks the buyer will still have a bit of equity and they would be still happy…

Robert A. Doncaster, Jr. - “RAD”

8

A seller carryback or seller 2nd is completely legal and there are still lenders that allow it. As long as you buyer is at least decent you can get it done. I agree, why actually keep the note though. Just take your $20k and be done with it.

9

another addition…by giving the down payment gift method the buyer will also have cash reserves that look better from the lenders point of view,especially buyers with so-so credit and no $$$$…you’ll get your $$$ back in the end anyways