Short Sale Financing

Hi Paul,

I’ve been actively browsing your seller help buyer website. My business partner and I know that if we have the resources to do short- sale financing, we’d have a ton of work to do. It’d be great if you could let us know what lenders are good for this, or just any advice or suggestions.

Thanks!

JP

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Hello JP,

For the most part, financing a short sale is no different than financing a full sale.  Your current lender list will suffice.  Three caveats come to mind: (1) the condition of the property, (2) the owner of record, and (3) processing the short sale.

With regards to the property condition, it will have to pass inspection.  An FHA 203k may be a suitable solution for properties that need repairs.  The biggest discounts on short sales are for properties that need repairs and real estate investors love such properties.  This brings me to the second point: the owner of record.

Real estate investors whose goal is to flip properties are being squeezed out of the short sale market.  The ‘no money down’ put the property in a trust and simultaneously close with an end buyer in another room of the title company is going the way of the dinosaur.  In addition, shorting lenders are not willing to discount the properties to the degree that real estate investors require to make a profit.  This ultimately leaves more and more sellers dealing with real estate investors headed straight to foreclosure.  Obviously, that’s a problem for anyone that cares about the seller’s well being, which brings me to the third point: processing the short sale.

The market for short sales, and what is so desperately needed at this time, is for a mediator to intervene and process the short sale to a successful close.  At present, the market is dysfunctional.  It’s dysfunctional because real estate listing agents have been assigned the task of processing the short sale.  I see this as a serious problem and inefficiency in the real estate market.  This task should not be assigned to the real estate agent.  Real estate agents determine competitive prices, procure buyers, write contracts, etc.  Processors do administrative work.  Processing a short sale is administrative work.  Who is best suited to process a short sale?

Last month I went through the drive thru of a major bank where I hold a commercial account.  The teller asked me if I wanted a personal account. 

“There’s no fee,” assured the teller.

“OK” I said.

I received my first statement a couple weeks ago and the teller had opened a free checking account and a money market account that now had a negative $12.00 balance.

I sent a CMRRR letter stating that I did not and would not have authorized the opening of an account that involved a monthly fee.  They sent a letter back that the charges were reversed, but didn’t close the account.  I imagine I’ll be sending another CMRRR letter again when I receive the February statement.  Sorry for getting sidetracked, but there’s a point to all of this.

The point is that banks are hurting real bad.  Realtors, mortgage brokers, homeowners, everyone is hurting.  Meanwhile, there are buyers who desire to buy a home at a short-sale-discounted price.  The short sale permits the bank, homeowner, and homebuyer, to come together for a mutually satisfactory resolution. 

Mortgage brokers can dominate this space and regain the professional reputation that has been temporarily lost in the last several years by all the riffraff that has since left the industry.  I’m willing to take the lead here.  I’ve been writing about this stuff for the past two years on the Broken Credit Blog.  On Seller Helps Buyer we’ll share a how-to on issues of loss mitigation with our sponsoring lenders in their respective Counties.  I’ll publish my business plan and attorney opinion letters for Florida on the site.  It’ll be the framework for sponsoring loan officers to duplicate our success in their local County. 

So, in sum, that’s what we’re doing on Seller Helps Buyer; bringing healing back to the housing market.  Buyers can buy a home at a discounted price.  Sellers can get a full release of liability.  The bank takes the hit.  Somehow, though, I’m not as optimistic about any changes being made to the bank’s nickel and dime with $12 fees policy, but, hey, at least some of us know right from wrong.  I’ll work with those who want to do right.

Thanks for the questions and hope this helps.

Paul