| If you know anything about the real estate market right | | | | home. |
| now you have probably heard the term "short sale" | | | | In these types of short sale flips, transparency is very |
| and about a zillion other terms associated with these | | | | important in order for it to be a legal and ethical |
| short sales. Terms like back-to-back closings, short | | | | transaction. This is typically achieved when the investor |
| sale flips, and transactional funding to name a few. | | | | discloses that he or she intends to immediately resell |
| Most of these have risen around discussions of how | | | | the property to a third party for a profit. Verbiage |
| to legally and ethically flip short sales, but in case you | | | | representing this is typically put in the contract that is |
| don't have the scoop, it goes a little something like this. | | | | submitted to the lender that is agreeing to take less |
| A short sale is when a homeowner is upside down, | | | | than what is owed on the home. Most investors |
| meaning that they owe more than their home is worth, | | | | across the country that do this are often using an |
| and in addition they are late on their mortgage. If the | | | | option contract. The lender reviews the contract when |
| seller wants to sell their home and the bank wants to | | | | they are deciding whether or not to accept the offer |
| get a bad loan off the books, then the bank must | | | | so this verbiage gives them disclosure as to what is |
| agree to accept a purchase price that is less than | | | | being done. It is important as the investor to disclose |
| what it actually owned on the home. If the bank feels | | | | the fact that you intend to sell the property |
| they will net more money from the short sale than | | | | immediately and for a profit over and above what you |
| they would if they foreclosed, and then auctioned the | | | | are buying it for. |
| property or sold it as a bank-owned property, they will | | | | During this negotiation process which again, can take |
| likely accept the 'less than what is owed" offer. | | | | 4-8 months on average, the investor is looking for a |
| This is typically a win-win for the homeowner and the | | | | buyer of the home at a higher price than what they |
| bank because the homeowner is preventing the | | | | are willing to pay. This can be a tricky process, but it |
| foreclosure and the bank or lender has removed the | | | | very feasible given the bank will may be willing to sell |
| bad debt from their books. This type of transaction | | | | the home to them at a discount. An example might be |
| has probably become one of the most popular | | | | where the shorting lender agrees to sell a property to |
| predominant scenarios in the real estate market today. | | | | an investor at $200,000 because it makes more sense |
| As its popularity has grown, it has become a way for | | | | for them financially to do that than to foreclose. The |
| investors to help homeowners while at the same time | | | | investor then resells the property to the buyer they |
| making a potential profit. Although short sales can | | | | have found for $230,000 as long as the buyer's lender |
| typically take 4-8 months on average, most investors | | | | has gotten and independent appraisal to validate the |
| like them because they are low risk in regards to | | | | $230,000 price. After commissions and closing the |
| liability. If there is no equity in a home such as in a short | | | | investor walks away with a potential profit of $15,000 |
| sale, it is quite challenging to be accused of stealing the | | | | or so. |
| equity which investors are often accused of when | | | | Right about now you may be thinking that all sounds |
| purchasing a property at a discount. The equity in a | | | | fine and dandy but who the heck has $200,000 to buy |
| short sale is only created when the purchaser/investor | | | | property in order to make this happen? Well, most |
| negotiates an equity position. | | | | investors don't have the money and credit is so tight |
| So now the drum roll please, how can real estate | | | | most can't get a loan for it, so what do they do? |
| investors help homeowners to potentially prevent | | | | Ahhhhhhh, here is the rub. There is no money needed |
| foreclosure while still make an ethical investment. Most | | | | in a back-to-back closing like this because there are a |
| do this by creating what is called a double closing or a | | | | few niche companies out that that will provide the |
| back-to back closing. This is where the investor makes | | | | transactional funding, or short sale funding for the one |
| an offer to purchase a home in pre-foreclosure and | | | | business day that the investor needs them and the |
| while they are negotiating that offer with the bank, | | | | best part is, this funding does not involve the personal |
| they are searching for what is called an "end buyer". | | | | credit history of the investor. It is based entirely on the |
| Translation, someone that is actually going to live in the | | | | structure of the transaction. |