Newbie--- short sale questions

I’m new to investing, but not new to learning about it. I’ve been dancing around the water’s edge for many years, and I finally decided to jump in the water. I was planning to start off with options and contract assignments… but a short sale fell into my lap. A friend would like me to do a short sale for them. From reading these forums, I believe that this will require a double-closing… and I don’t have money/credit of my own to use, nor a buyer on the other end yet.

Sorry for so many questions. I’m a little nervous because I don’t want to screw it up and hurt my friends in the process. As of right now, they are 3 months behind in payments… so I hope I have enough time to make this all work.

All advice is appreciated.

  1. Would I be able to get a hard money lender to help me with the first closing?

  2. What happens if I begin the process with the bank and can’t find a buyer in time?

  3. Do I need a realtor to list the property for me to get the bank to negotiate… or is the listing agreement good enough for most banks?

  4. I heard somewhere that I can’t list the property to find an end-buyer while I’m in escrow with the bank… if so, how else would I find a buyer?

  5. I heard that to avoid a double-closing, some people use an LLC to buy a property, then just sell the LLC to the end-buyer… but I also read that banks don’t like to sell short-sales to LLC’s. Any truth to this?

In my opinion the best way to do a short sale is with cash or hard money. If you don’t have cash or a hard money lender, get an investor to partner with you on this one. Find someone that has done short sales before. You can try finding a title company that will do a double close, but you’re running out of time with the sellers being 3 months behind. If you haven’t dealt with a loss mitigation department before this is not the time to “give it a shot”. Get to your next REI club meeting and find a short sale expert. Trust me, you do not want to screw this one up. In the future lenders will not take you seriously. Again, just my opinion :slight_smile:

By the way, did you come up with Falkor from the luck dragon in Neverending Story? I love that movie!



Thanks for the advice. I will definitely consider bringing in an investor to partner with me that has experience in this field. If hard money lenders fund short-sales, would it be completely necessary to bring in a partner if I have people online and in person who can help guide me along the way? I know that it’s an in-depth process, but I don’t mind some hard work while I’m learning… as long as it doesn’t hurt my seller.

If 3-months behind is “running out of time,” then when is a good time to start a SS process? I thought the banks wouldn’t even look at your offer if the sellers wasn’t already experiencing financial distress. In CA, the way I understand it, the bank files a NOD after about 3 months (they didn’t get one yet), and then sets the auction date about 3 months later for about 20-30 days out. Since I haven’t done this before… and I’ve heard that they banks usually take a VERY long time to respond to SS offers… I understand why it might be a good idea to work with a partner on my first deal.

What would be considered an acceptable split on something like this? I don’t want to be taken advantage of by a seasoned investor, but I don’t want to offer too little and insult people either.

Yes… Falkor the Luck Dragon. :bobble I love dragons… and the movie too.

I would get an investor lined up to flip it to or get the hard money. Since you are in CA and no NOD has been filed you still have time. I wasnt sure what state you were in when I mentioned running out of time. You need to get an offer to the bank right away along with a complete short sale package. Ask your seller to sign an authorization to discuss the situation with your lender, and then fax that to the lender. request the lender send you a list of documents your seller will need to provide in order to complete a short sale. send nothing back until you have an offer to complete the package. Hope this helps!

Thanks… I’m on it. They are still deciding if a short sale would be in their best interest. I told them that time is of the essence right now and they are in discussions about it. Hopefully I’ll have the authorization signed within the next day or so. I’m going to check with them again tonight. Tuesday was the first time they learned about the new law that protects them. In the meantime, I’m looking for the rest of the chess pieces to complete this game. I’ll keep you posted… since I’m sure I’ll have more questions along the way. THANKS again :biggrin

I totally agree, if short sales are something that you’re going to get into, you don’t want the banks to think that you don’t know what you’re doing and not take you seriously. Partnering with an investor for both hard money and their experience is a good idea. Short sales are a lot of work, expecially the first few when you’re still trying to figure it all out. Also, make sure that your short sale package is complete when you send it in. If it isn’t complete, don’t send it in until it is. An incomplete package will just delay the process. If you can’t find a buyer in time, a lot of times you can get the approval extended, but you don’t want to make that how you do business as usual. In my opinion, the fewer extensions, the better. But most times the bank will work with you on that.