Short Sale Funding

I’m curious. Does anyone know of any company(s) out there who fund short sale projects only?

I have always worked with only one company who has provided me the funds needed to purchase the property from the lenders as a short sale, enabling me to flip the property to my end buyer without the need of a ‘short sale friendly’ title company and without giving up more than 50% of my profit.

I have discussed this in other topics, but it still seems to create a lot of confusion among the majority. Thank you to everyone who has contact me by email and PM’s asking my opinion on this. I hope my advice has been helpful. This has been the most popular question I have been getting so I thought I would summarize publicly for everyone.

A vast majority of Short Sale books, programs, boot camps, ETC. teach you to use the end buyers funding to purchase the property and to do a double close (also known as a simultaneous close). This means the title company is required to ‘dick’ with the paperwork to make it look as though the end buyers funds are actually yours in order to purchase the property at your discounted rate.

This of course is no longer LEGALLY possible in todays industry. This is considered to be an act of fraud because it is rarely disclosed to the end buyer or to the lender. The solution to this dilemma, purchase the property with funds that are not associated with your end buyer. This obviously creates a problem for most people because they do not have the capital available for the purchase. This was my problem as well.

When we are faced with this situation the first thing we think of is to contact a hard money lender to obtain the funding we need. As we all know, hard money lenders can be quite expensive to use. They often require a payment up front in the amount of a percentage of what you borrow and then they generally charge a really freaking high interest rate. More often than not you end up paying well over 50% of your short sale profits to the hard money lender. Unfortunately this is a necessary evil that is required to close the deal properly (legally).

The company I have been using funds my short sale projects from the position of a partner rather than that of a hard money lender. This has done several things for me. First, it takes the liability off of my shoulders. If everything goes to hell in a hand basket at the end of the day I loose nothing but my time put into the deal. If the end buyer fails my funding partners own the property, not me. So it’s their funds tied up and not mine. This means they will be working just as hard as me to find another buyer and to unload the investment property. So far I have never had to worry about this because our end buyer has always been successful.

Another benefit this gives me is that I don’t have to worry about the title company and funding aspect of the short sale, they do. They control the title company in order to lower their risk, so all I have to do is get the proper documentation I need to submit to the lender, which I get from them. This of course is ideal for most of us because the title company aspect of a short sale has always been ‘murky waters’. This means my time is spent focused on obtaining the payoff letter(s) and securing the end buyer(s).

These guys do not charge 18% of the borrowed amount as an up front fee PLUS a percentage there after. In fact, they don’t charge any up front fees. They provide the funding to the title company shortly before closing. Then they get paid back their investment, plus the short sale profit. Once all the funds have cleared, they cut me a check for my share or they will wire it straight to my account. Whichever i want.

So far this has been the best method I have found for successfully closing short sale deals without putting up any of my own money. Yes it’s true I don’t make as much as if I used my own funds, but the trade off is that my risk is practically nothing.

That’s very useful information, thanks for that, securing private lenders to get by the “so-called” fraud. I have a question for you. I guess the “fraud” may have to do with the fact that you are profiting from the transaction as an Investor. Have you tried the consulting fee approach? I have stopped using the word Investor, instead I basically take the position as a buisness consultant. I have not had any problems so far, because whether we are trying to get a short sale or loan mod., forbearance we are basically consulting with the homeowner to find the best solution for all parties involved. Let me know what you think.

My question is, If the lenders know that a foreclosed property they have is considered a non-performing asset, then why is it so hard to convince them that they would probably be better off taking the short sale instead of holding on to it?