Reverse short sale

[Ben Jones]

So I recently came across a new way to make money in real estate it's called a reverse short sale. Basically in a nutshell we would wait for a short sale to fall apart and then after that happens we would go to the auction purchase the house and sell it back to the original owner who originally was about to purchase the house.

[Richard Balsam]

Although your idea seems well thought out, and a "system" of sorts, here is what happens at a foreclosure sale. Here in Georgia, we have the unfortunate circumstance of having Auction.com cry the houses in 70+ counties, including here in Atlanta. 

First, I agree that if you can do a short sale with the bank ( a big if, since many will fall apart before the auction ( I will explain the incentive shortly that the banks have to do this), you do have to worry about liens, 2nd mortgages, etc. Yes- the junior  liens very often will allow a "short sale" to satisfy the lien ( depends on whether Auction.com is doing the crying), you must buy Title insurance to make certain the title is clear.

That said, here is what happens at the auction. I attended yesterdays auction- so this information was proved to me again, just 24 hours ago from writing this. Actual examples I noticed by pulling out my phone at the auction and researching quickly: Listed on MLS: $55,000. Sold at Auction: $97K. Another: Listed MLS: $48,000. Sold at auction $87,000. There were five such houses that were listed on MLS before the sale out of 40 that I watched being sold. I was with two other real estate agent/investors - and we we couldn't believe the stupidity of the bidding wars going on. There were 150 people watching the 50 or so homes being cried ( I left in disgust after #40 or so). Another house was bid all the way within $3k of ARV. Without being able to step foot on the property!

Now- the incentive of banks to not allow a short sale when the foreclosure sale is imminent: First, they hired the foreclosing attorney to begin the paperwork and calculate the costs needed for the bank at auction ( costs money). Second: If the foreclosure process has begun, see above. Why would they sell it to you at a loss, when they just have to wait for the auction ( if the process has already begun) to recover everything? 

The problem here is way too many investors watching the flipping shows on TV. The real investors that have been doing this for a long time just watch in disbelief. I see a lot of the same faces - and they started bidding, but stopped at their "number". Amateurs don't because they KNOW they can get more for the house ( since it's theirs I assume!). Yes- home values can be improved to a point- based on the upgrades, but this costs money. If anyone buys within $15-20K of the market value - and the house needs $5-10K in upgrades ( assuming the roof or air cond. is good - rare!), then assuming their goal is to sell the home, unless they have a buyer waiting they will have to pay either marketing and holding costs, and/or real estate fees, selling costs, title insurance, etc. Good luck with this. 

Now- if you are able to find this house before any action is taken by the bank to foreclose - there may be a deal waiting, depending on liens on the home. A bank may deal with you on a short sale if they still have months before auction ( in Florida it can take 6 months waiting for the process, have a judge sign off, etc). In Georgia - we are not a judicial state- it is 4 weeks of advertising, and off to the steps. I have done a few of these myself - its inexpensive fast, and efficient.

So- in theory - you may have a plan. If the bank is willing to deal - jump on it now - don't wait. The auction (thanks to Auction.com and their bank clients) will jump the bid process and get the crowd into the buying mode they know can occur. I see it every month.