Using Options With Short Sales

Does anybody out there use Options? What are the advantages and disadvantages to using them with Short Sales?

Thanks!

Lenders normally want to see a purchase and sales agreement. I tried to submit an option contract last year sometime and the lender requested that i use a standard purchase and sale agreement because they wanted to make sure i would close. Plus they didn’t want to put a lot of time into a short sale when the buyer could just walk out.

I haven’t yet found a lender willing to get creative via options of any kind. If they are stuck with a property they want to unload it from their inventory. And that means a cash buyer usually.

Yes, but in the opposite order. You could purchase with short sale and rent it out with an option, and that would probably work well.

The bank isn’t going to give you an option to buy at short sale price. There is only one reason for them to short sale a property and that is to get it off their books. They don’t want to wait around for a couple of years to see if you will actually buy it or not

I do use options and use them very successfully in conjunction with a normal contract. Our initial offer is on a very comprehensive option form and at the same time I file a Memorandum of Option to give me an equitable interest in the property. This has helped in our filps and simultaneous closing.

I have begun my negotiations with the option, get the BPO and get a good feel for the final price the bank will accept. We then acquire the end buyer and once we have them enter into a full contract at the banks price. We close with a fully funded fron end and then the back end.

This is a very simplified version of what we are doing but it has been working.

I have a SS approval with the bank netting $144K and the house with $10K is worth $175K. So correct me if I am wrong (this would be my first option) I could submit a purchase agreement on the house (collect my real estate commission) so I am in for $160K then find a end buyer to Lease Option to say at 7.5 percent for 24 months at $185K. Their rent would cover my mortgage with me pocketing the cashflow, and at the end of the 24 month period sell to them and I would pocket $25K? Am I looking at this correctly?

Also, Should I do a credit/background check on the end buyer to make sure they can qualify? Offering No Qualifying when looking for a end buyer would probably provoke many inquires by people that I probably dont want to l/o to. On the other hand if someone has 10K to put down…it might be worth the risk if the lease is structure right to get them out as soon as possible if the stop paying. Using at least half the down payment to cover the mortgage if they
were to stop paying should get me through eviction and using a Loan Servicing Company should help me get payments on time.

Sorry for thinking out loud…anyone have any ideas/thoughts/suggestions for me or this situation?

Thanks,
JD

marketing master, you have been so helpful in the past so your recent post brought a few questions to mind.

have you had any buyer closing companies balk about the double closing?

are these types of flips good with fha financing?

The answer is yes and no. I have not done any FHA and I suspect that they would be a problem.

The first thing we do when we start the Short Sale is record a memorandum of option which gives us an equitable interest in the property allowing us to sell it to the end buyer. I find most of my short sales take over 3 months and I have been able to overcome some of the seasoning issues as a result. I always make the end buyer aware that his funder may throw up on the deal and prepare them to seek other funding.

I never fianlize the deal with the bank until the end buyer has a firm comitment with his lender.

charlotteplayer, i’ve never had a problem with a buyers closing agent per-say, but the buyer’s lender may have a problem with the deal. some require a “seasoning period” on the chain of title to help prevent loan fraud…

we should do lunch sometime…

Marketing master,
So when you have the seller sign the PA you have them sign a memorandem of option also?

kenvest where are you investing?

Love2invest I am sorry that I did not get back to you sooner but I have been away and not posting for about a week.

When I get the Option to purchase signed I get a fully executed Notice of Option to record. I also have the seller sign an Option Release so if the deal does not work out I do not have to chase them down to sign a release form, I can just file it.