Okay, short sale is a very exciting investment oppurtunity and easy enough (so i’m told) to do for just about everyone who is interested and serious in making money in real estate. My question is, since it’s no longer legal for end buyers to fund property, which is in pre-foreclosing, how exactly is it the steps to find alternative sources of fundings for properties that are in foreclosing? I understand that earlier posting by Foreclosure Negotiator who mentioned that his partner is the one responsible in funding his short sale property. How exactly does this strategy work? does the partner come up with his owned money to fund the said project? If yes, how about partners with no money on hand available? How does the partner come up with fundings if there is none at all? Seek hard money lenders to fund the short sale project as the last resort? Can somebody assist in providing us list of her/his exit strategies for short sale?..Sorry with all these questions but just to clear up my confusion as it’s no longer legal to used end buyers funds in funding short sale projects your assistance in sharing your tips will be greatly appreciated… :help
Yes, the guys (Denis is they guy who handles it) I use for my short sale funding use their own cash. It works like this:
I have a short sale that I have negotiated…
$241k to the primary lien holder
$1k to the secondary lien holder
The property appraises at $415k and I have an end buyer lined up to purchase the property at $390k. The property is purchased at the short sale price paying off all debts and obtaining the deed to the property for $250k. The $250k is placed in escrow with Denis’s title company. We close on the property Monday Morning and the title is transfered to Denis’s company. Monday evening my end buyer comes in and closes on the property for $390k purchasing it from Denis’s company.
At this second closing all $390k goes to Denis. There is a $140k difference. Denis’s company will write a check or do a money transfer $70k to me, the negotiator.
So my responsibilities as the negotiator is to obtain the payoff letter(s) from the lien holders low enough for a profit to be made. Even more importantly, it is my responsibility to ensure there is an end buyer in place. As long as I can do those two things then Denis will ensure the transaction is closed properly.
Currently Denis is willing to fund projects with people other than just myself. If you need funding for a scenario that is like the example I gave above then you may want to contact him. PM me for his number or you can find it in my short sale forums.
Ok - Just to make sure I’ve got this straight. Who is funding the original $250K, denis? Does denis put the funding in escrow with his closing company?
Is what you are doing akin to a double closing? So, what closing fees need to be paid - any since denis is getting 1/2 the deal?
How are you finding your end buyers? Are you doing specific advertising to attract them? I am assuming that you do not list the property in the MLS to attract the end-buyer since this would tip off the bank that they aren’t getting the best deal.
Around here, in the DC metro area, we often buy properties into an LLC, and then transfer the interest in the LLC to an end-buyer who will fund and close on the deal. Do you think that would work w. a short sale? In this way a double closing would not be needed. Are banks wary of selling to LLCs?
Who is at the closing table for a short sale - homeowner/seller, end-buyer and me, right. The bank isn’t represented, correct. So, if I bought the property into an LLC, and the loan was paid off, and a portion of the $ was paid to me - would the bank know? I guess they would from the HUD-1. I’m guessing that a double closing is necessary, right?
Yes, Denis would provide the funding to purchase the property at the negotiated short sale price. These funds are placed with his title company to be paid at closing to the lenders. The end buyer would then be purchasing the property from Denis with their own funding. Their funding would be placed in escrow with the same title company prior to Denis closing on the short sale property. This is in fact a double close, but because both closings are done with unrelated funds there are no problems. There is nothing wrong with a double close as long as it is done correctly. The closing costs are paid from the profit spread.
Yes, I always list the property on the MLS, even if I already have a buyer for it. This is so I can show the lenders that we are putting forth every effort we can to sell the property. I generally try to show them more effort in my attempts to market and sell the property than they will ever dream of having as a REO. Even if I have an end buyer already lined up, there is no reason I can’t continue building my end buyers contact list. Every call I get from the MLS is another potential lead.
Placing a property into an LLC is really only worth it if the property is commercial, in my opinion. Having a single family home owned by an LLC is possible, but not really practical. The only times I can think that I have seen residential single family’s in LLC’s is when they are owned by investment companies. It would be easy to sell the LLC because then there is no transfer of title, just the same of a business. But starting an LLC is a pain in the butt and costs a few hundred dollars (costs depend on your state). You could serve the same purpose using a trust and save a bunch of money in the process. Or you could just do a double close. I suppose it would really depend on the specifics of each deal. As we all know, circumstances are always different with each property.
They bank will see who is paid what based on the HUD1. They also required a certified, stamped copy of the final closing statement to be sent to them after closing to ensure everything was done the way it was agreed upon. So yes, they will see who got paid what and there is no legal way to hide it. This is why we use two sources of funding for a short sale project. One form source ‘A’ to purchase the short sale, then a second from the end buyer, source ‘B’. The lender taking the loss will only see the transaction with funds from source ‘A’, they will never even know about the end buyer because it is a separate transaction in which they have no part.
The closing would obviously require the attendance of the homeowner to sign as the seller. There will be no reps from the lender, just from the title company. If there is a Realtor and / or loan officer involved, they may be there as well. The end buyer won’t be around until the second closing, and that will be with the Realtor and / or loan officer and the title company rep also. You would not have to be there unless you wanted to be. That is to say, you are not required to be there but you can be if you really want to.
Denis is the old family friend who funded my first short sale project. I’ve mentioned it in previous writings and in my short sale e-book. Since this thread was started I have spoke with Denis in detail about funding short sale projects on a larger scale. He was interested and we have started already with a few different projects. Because I brought the funding scenario for people other than me to Denis, he has asked me to perform his due dilligance on each deal prior to his approval of funding. Currently we are funding under one of his companies by the name of New Horizon Home Funding L.L.C., but I believe he will be moving this to one of this other companies some time in the near future. Changing companies doesn’t change anything for anyone other than Denis and his book keeper, FYI.
If you can’t find an end buyer then there is no closing. There are only two requirements for Denis to consider funding…
Requirement Number One:
All projects must have a 20% minimum profit spread of the borrowed amount. This means if the borrowed amount is $100,000 then the end buyer must be purchasing the property for no less than $120,000 leaving 10% of the borrowed amount to New Horizon Home Funding L.L.C. This also means that you as the negotiator will make no less than 10% as well.
Requirement Number Two:
There must be an end buyer lined up and ready to close on the property. It is YOUR responsibility to have this in place. New Horizon Home Funding requires a LCL (Loan Commitment Letter) for the end buyer. This letter must contain contact information for the lender including the underwriters information and all loan stips. This end buyer is required to close no more than 48 hours after New Horizon Home Funding Purchased the property at the short sale price.
If repairs are required to be made to the property prior to the resale to the end buyer it is your responsibility to make them happen. It is also your responsibility to finance the repairs. Unless special arrangements are made, New Horizon Home Funding will not include the rehab expenses in their funding, rather their funding will be limited to the short sale purchase only. Any arrangements contrary to this must be agreed upon in writing and signed by New Horizon Home Funding PRIOR to funding.[/i]
I start off at FMV then work my way down from there, just like a normal listing. Listing at the FMV with no responses shows the lenders that the property isn’t worth FMV. So when there are no offers at FMV it justifies my asking for less from the lenders. It shows them that they will not be able to get FMV out of the property in ‘AS IS’ condition and everyone knows that the longer a property stays an REO the less they will get for it in the end.
GooD Luck! :beer
P.S. Thank you for the e-mail. That was very nice of you!
I show the Realtors Commission in the HUD1 and as a part of the original offer. I start at 6% but usually end up around 3% to 4%. The Realtor gets paid at closing just as they would with any real estate transaction.
Matt, a quick question for you, at what time do you place a property in a trust. I am in the process of sending a short sale to the bank with all the supporting docs, I am not sure whose name to put on the contract. Do I use the Trust information or someones name. Our exit strategy is to find a buyer to purchase the property. Your response will be appreciated.
Foreclosure Specialist can you a nswer this question pls.
A quick question for you, at what time do you place a property in a trust. I am in the process of sending a short sale to the bank with all the supporting docs, I am not sure whose name to put on the contract. Do I use the Trust information or someones name. Our exit strategy is to find a buyer to purchase the property. Your response will be appreciated.
I don’ t use trusts. I outline in my forums, the link in my sig, my method of conducting short sales. I also spell it out step by step in an e-book I wrote on short sales.
I tried using the trust method when I first got started, and there were just too many problems to make it worth my while. To me, the method I use of purchasing the property myself at the short sale price, then reselling to an end buyer makes for a much cleaner and less complicated transaction.
The realtor is contracted to list the property at the short sale (the frist closing). The comission is on the HUD-1 that is submitted to the original lender amd the comission is paid as part of teh short sale settlement. No out of pocket for seller or short sale investor - just the bank.
Since Matt is the one that finds the end buyer, he does not need to pay a realtor and splits profits with his investor. No realtor is involved in the second closing. Right?
The way I read Matt’s earlier post is: the house is listed on MLS, he negotiates with the bank a short sale which his partner Denis will fund the purchase. While this negotiation is taking place they use the same MLS listing to find their ultimate end buyer. Hey Matt is this correct ? This is why I was guessing that the realtor gets paid from the second settlement. I don’t know, maybe the realtor double dips both settlements ? Matt where are you ? Please explain.