Short Sale Case Studies

I am interested in compiling some case studies on short sales in order to create a more scientific analysis of how frequently deals close, the amount of the discount buyers obtained, variations across regions, variations across banks, and other factors relevant to short sale investors to help them evaluate particular deals. Please contact me if you would be willing to share information on deals that you have been involved in. I may request some back up documentation (such as the HUD-1) to verify facts for the sake of accuracy. I think this information will be helpful to all short sale investors. Thanks.

Have you received any response yet? I’m curious to see if this forum is full of rookies blowing smoke or if there really are successful short sale deals being done. I have yet to find a real deal, but as an agent had quite a few approved at around 10% discounts. That’s it. As an investor I have yet to close a short sale because there just aren’t any deals with them.

There are many short sales being closed with large profit margins right now. Here is a deal we funded for Brian Kurtz and he was so nice to put this detailed outline of his first SS deal to share for everyone. It was much longer and more detailed but I had to shorten it to post. (to many characters)

This post will be rather long. I’m going to try to answer most of the questions everyone is bound to ask in advance. That being the case, I’ve created 3 deal reviews with the third being a play-by-play review of each stage of the deal. If you want to replicate the process you’ll want to pay attention to the in-depth review as it has the details that will help keep you out of trouble.

Doing this wrong can cause serious problems. I did make one HUGE mistake that I will outline in detail so you won’t repeat my mistake. (on a side note, we did the whole “turn lemons into lemonade” thing because of this roadblock and ended up making more than DOUBLE the original profit projection)

Links to download scans of all the actual documents AND the checks are available at the very bottom of this post.

If you are looking to learn how to do this, I’ll provide links at the bottom of this post to my mentors as well. You gotta give credit where it’s due ya know.

Basic Review

So here’s the general overview.

Sellers owed $470k (a first and a second both owed to Homecomings). We’ll call them Mr. & Mrs. Smith. The loan was in in the wife’s name.

Mr. Smith got a job transfer to Colorado. Home now has to be sold so they can move on to the next stage of their life, but obviously they owe significantly more than what it’s worth.

I made an offer to the bank through my LLC to buy the house at a significant discount. I then began looking for an end buyer by listing the home on the MLS. Found the buyer, worked through to closing.

On closing day we arranged for a back-to-back double close where my LLC bought the home at 2pm and the end buyers purchased the home from my LLC at 3pm.

You can see the idea is pretty simple. Buy at the absolute lowest price you can negotiate with the bank taking the short sale and get them to agree to. Then resell to an end buyer for a profit. All without making a single repair to the property or spending your own money. Tall order, right? But my partner and I pulled it off.

We did this transaction without using a dime of our own money. But my lender never did a credit check, never did an appraisal, or a verification of income. The entire deal was done with full disclosure to both the lender taking the short sale and the end buyer’s lender. No fraud in any way/shape/form.

Process Review

Here is how the deal is structured to get you to the closing table, with full disclosure to all parties involved.

Upon the initial meeting with the original seller I explained the short sale process and they were on board with the program. As long as they avoided foreclosure and didn’t have to bring large sums of cash to the closing table to buy their way out of their home they didn’t care how much I made.

We signed an Exclusive Option to purchase at a price of $287k. (remember that they owed $470k) They also signed an extensive disclosure statement and a Record of Option.

I then recorded my LLC’s interest at the County Register of Deeds. This places my LLC in chain of title with all documents specifically empowering it to list the home for sale and clouded title so that no closing could take place unless the option was addressed.

I then had my LLC list the home for sale and placed it on the MLS. We started the home at $359k but lowered it to $339k over a few weeks. I didn’t lower it below that price because the EXACT twin of the house directly next door closed and sold for $370k and I began do doubt how much of a discount I could get on the purchase.

We secured an end-buyer through another agent in my office and moved forward to closing.

After much drama, stress, and strain we showed up and purchased the home using private money and then instantly resold to the end buyer. The total profit on this deal ended up being $53,830.16

My funding source, is informed that we are in the home stretch on this one and to begin planning on setting up the wire for funds. You may or may not know that this company does interm financing for these back-to-back double close deals. No credit check, no appraisal, no job verification. Nothing. You could have had a finalized foreclosure and a BK yesterday and still be able to buy houses at 100% financing, rolling all costs in just as long as you are double-closing on the same day to an end buyer. How cool is that?

Sept 5th (Friday – Closing Day)

2:00 PM – Money is taken care of on funding end so my partner and I show up to take care of the first leg of the transaction where the LLC Buys from the original seller. That takes all of 15 mintues.

3:00 PM – End buyer shows up with their attorney in tow. This did NOT go smoothly. We had to be put in separate rooms for the closing. It was out of control in their room. The buyer’s attorney and the buyer’s agent both started picking apart every piece of paper, fluffing their feathers in front of the buyer trying to show how “knowledgeable” they were on real estate matters and generally trying to justify their pay.

They did dig me for an extra $5,000 at the closing table. THAT suggestion came from the attorney of course. My broker prepared a hold-harmless release for all agents involved and told me I better come back with it signed. Attorney though that one up…saying that this “new” chain of events entitled the buyers to a contribution.

I settled at $2,500.

In the end we closed. Bought for $251,780 at 2pm and sold for $325,000 at 3pm. Total profit (Commission and “The Spread) was $53,830.16. When was the last time YOU made $53,830.16 in one hour helping someone avoid foreclosure?

Below are the docs, so you can examine them yourself:

1)Option Contract for Sale and Purchase – This is the instrument that gave me the right (but not the obligation) to buy the home for a period of aprox 1 year at the price of $287,000. As you’ll see in section 6e, the option discloses that the buyer (My LLC) intends to sell the home for an immediate profit. The bank taking the short sale gets a copy of this, so they KNOW upfront what my LLC intends to do in this scenario. Section 6f – also specifically grants powers to the buyer to list the home for sale. Sweet!
Here’s the link to download:

2)Affidavit of Understanding Addendum – this is a giant CYA disclosure so that a seller can never say “I never KNEW what I was doing. If I knew that this guy was going to make $50,000 an hour “helping” me then I would a never done it. I was wronged and want the $50,000.” Notarized baby.
Here’s the link to download:

3)Record of Option Contract for Sale and Purchase – this is the document that was designed to put the world on notice that your interest exists, that you have the power to list the home for sale, and sell for a profit. This was NOT acceptable at my Country Register of Deeds and was rejected. I understand it works in most areas with mine being the exception to the rule.

Here’s the link to download:

4)Notice of Claim of Interest – same as above except it fits the format my county wants it in. It also doesn’t have to be signed by both parties…only by the party claiming interest.

Here’s the link to download:

5)Renegotiation Explanation – this is the letter, and the contractor estimate I used to get the price knocked from $287k to $252k. I didn’t scan in the home inspection. I assume you’ve already seen one before. $300 buys me $35,000. Pretty good deal.

Here’s the link to download:

6)Title Commitment A to B – this is the title commitment issued to my LLC when they bought the property.

Here’s the link to download:

7)Title Commitment B to C – this is the important one because it is what the end lender was reviewing. You’ll see in the structure of it that Fee Simple Owner was the ORIGINAL owner and for the end buyer’s to be granted clean title a Warranty Deed had to be issued first to my LLC, and then a warranty deed issued to the End Buyer. This is an IMPORTANT POINT because the end buyer’s lender is put on notice here that their buyer is NOT buying from the original seller, but from my LLC who may or may not be making a profit. Thus full disclosure is provided to the end lender! Seasoning is not an issue as long as the end buyer’s lender is Conventional and is not applying seasoning “risk overlays” in addition to Fannie/Freddie Standards. Excellent Smithers.

Here’s the link to the download:

8 ) A to B HUD Closing Statement – Here you see all the figures on the purchase of the home by my LLC from the Original Sellers.
Here’s the link to download:

9)B to C HUD Closing Statement – Here you see all the figures on the sale of the home from my LLC to the End Buyers.
Here’s the link to the download:

  1. Coastal Funding Payoff – Here is the simple document that shows the fees I paid to borrow the money to facilitate this deal. Simple and clean:

Here’s the link to the download:

  1. Proof Checks – Here you’ll see proof positive in the from of the two checks issued at closing. One for Commission, one for Profit Spread. Nice.
    Here’s the link to the download:

This ranks among the best, most informative posts on this site. Thanks for posting.

Thank you very much for the information. Though I’ve been working on closing deals for more than 9 months, I still haven’t managed a deal and this gives me a lot of good info and hope.
thanks again.

Flash…that post just saved a lot of people thousands of dollars in “gurus”, legal fees, as well as potential headache if they screwed up taking title Sub-2 or via a trust (my current method). Do you mind if I ask a few questions regarding your process?

  1. I notice you contracted on May 8 but did not notarize your “Notice of Option Contract” until June 20th. Any particular reason you didn’t notarize this on the same day you contracted or was this around the date you received your first counter from the bank?
  2. I notice that you didn’t record your “Notice of Claim of Interest” until August. Again, any particular reason you waited until this date rather than recording your interest from Day 1?
  3. I’m curious if you had to do any explanation to the underwriter regarding what they were viewing in regards to the title commitment? It is my understanding that now, ALL lenders (conventional and FHA) have gone to 90 days seasoning on title since about March of this year

Flash, did I understand you correctly that the buyer’s attorney & agent saw what you were walking with and essentially “shook you down” for $5k? What I do to avoid this from happening, as well as to avoid an underwriter wigging out that they may be overlending on the property, is I have the title co/attorney simply put “Payoff” for the amount of (payoff to Coastal + your margin). This way, you’re zero’d out and noone is flipping out. Only the attorney knows who those payoffs are going to and for what amounts. After all, the title commitment reflects “pre-shorted” leins.

Thanks for all your help!

Awesome !!! great job. Thanks for all the info. Could of used it for my lastest transaction. Might be too late.

Transaction just got delayed b/c my end buyer was using quicken loans . He didnt know that they have a 12 month seasoning issue. Now I’m trying to delay auction to give it another try. Now i willmake sure I call underwriting before I accept offer to see if they have seasoning requirements.
It would be a great idea if everybody would post what banks have no seasoning issues or chain of title issues.

I dont understand your info on the title commitment from the a TO B. when was this performed. Did coastal funding do this.

Thanks Again.

Its as simple as that. I closed a deal in the same manner earlier this year in NJ. Cleared $40K, same process. THe only thing I did not do was record the option. I wont make that mistake again. Great Post.

Great post by the way very informative

Question: When you submitted your offer to the bank for the discounted amount, how did you explain to your end buyer that the property wasnt bought yet?

What im afraid of is after i submit my offer to the bank and then list it on the MLS that the bank wont accept my offer price, which will then make my sales price null-invoid.

So how can i ensure my end buyer that i can deliver the home at the asking price i set?

another short sale story

although Not as great of a profile as Flash’s above
still a true testimate they exist.

Flash Thanks for the great write up!

I currantly have 2 short sales working from the same seller
Investment properties.

Being investment units for my personal porfolio there is not as much detail involved

But the basic deal is the owner owed
28K on unit one
26K on unit Two

After my offer price of
7350 for unit 1
3650 for unit 2

11000 total for both

Bank owed balance of 54000
the sellers goal was to get out from under both units without having to pay the full bank loan off out of his pocket

I put in place the purchase agreemnt with the seller’s agent with 1000 earnest per property

Under aggrement that the sellers bank approve the short sale
with contingancies to protect me as well as the seller.

all said and done the bank sent in Two appraiers to do the apraisals
this did take a bit of time as banks don’t seem to move very fast when they are loosing money.

the sale was aproved by the bank
and the transaction is in process

I actually dispersed closing monies on unit 1 today

Closing on unit 2 will take a bit longer> as there is a lien holder on the deed that is no longer in business> so I’m not sure if that deal will come to light before the end date of the contract.

But in the end I have aquired at least one good property at well below value>
it doesn’t need much to be rent ready with a brand new two car detacted garrage
currant market value after rehab work will be about 29K
with aprox 3-4 K worth of rehab
My total end cost on the unit was 7230.59 with title ins and a warrentee deed including all fees and filing.

Although its No 50K return
I intend to cash flow this unit and it will turn a nice flow in short time.

I am finding the banks are very willing to work with properties that the owner is about to walk away from.

My two cents!

I would love to know what lender or funding source you used that required no credit check, no verification of employment etc. Any contact info you can offer would be great.
Also, would you recommend any of the Hard Money Lenders on this site?

WOW!!! That’s the most informative, in depth factual discussion I’ve ever expected. Little by little confusions seem fading away. Things are clearing up. Hope this topic will help all members. Thanks to Flush Funder.

WOW!!! That’s the most informative, in depth factual discussion I’ve ever expected. Little by little confusions seem fading away. Things are clearing up. Hope this topic will help all members. Thanks to Flush Funder.

Ditto. Very helpful. And, it was helpful the BPO came in where you needed it to.


Well done sir.

How is everyone doing FHA buyers though !!! How do I get around the 90 stupid flip rule ?

OK - Here is a major newbie question. Where do you find banks that do short sales directly to investors? The short sales I’ve seen are already listed in the MLS by the banks. Why wouldn’t a bank use the MLS?

Thanks from a newbie.

The reason why a bank would not use the MLS to list a Short Sale is simply because the Home Owner is the one listing the property. The bank will not list the property until it becomes a REO then it is on the MLS. The Realtor involved is working with the Home Owner until that time.

Now to the Post

BOA we closed 94% of the 57 files we did with them with 42 day turn around. (They are a little slow right now after the Countrywide merge)

ALS 100% of 11 files with a 26 day turn around

WAMU 92% of 42 files with a 25 day turn around

Chase 97% of 38 files with a 32 day turn around

If you want a more detailed report and want to see all the lenders please let me know.