Wholesale a Short Sale?

Question

Bigger Pockets, how are wholesalers like myself able to wholesale a short sale. I have a deal that I am working where I reached out to a owner through direct mail they loved my offer which is a really smoking deal for the area. My question is how can I flip this to make money. Can I double-close, assign, or just add a consulting fee in my end buyers contract with the owner& lender

Mike Hill · Answer

Old topic I know, but I just received this question and article from a colleague. Here in Florida you can take title to a short sale in a land trust. I believe this is at the lender's discretion as I have had banks reject my land trust (I think the latest was a BoA property). But, I have also had my offers accepted with my land trust as the buyer and completed the sale. At closing, I resign as trustee and assign the beneficial interests to my end buyer. Similar to banks, some title companies will not touch a land trust deal. Here, I have a friendly title company that does this for me. Also, per J's comment on the affidavit, I typically don't have a written agreement with an end buyer prior to getting my short sale approved and contract executed. Therefore, signing the affidavit would not be any type of breach of contract. And no, the resignation as trustee and assignment of beneficial interest does not violate the deed restriction (I'm also saying this from experience - I have done this  personally many times). It's the same thing as if XYZ company buys and owns a piece of property and then someone purchases XYZ company. The owner of the company has changed, but the owner of the property has not. There is no new deed recorded. Also if anyone needs a copy of the land trust I use (the bank will ask for a notarized copy) and the docs I use to resign as trustee and assign beneficial interest, just shoot me a message and I'd be happy to send to you.

Sean Dezoysa · Answer

Take title in a land trust, and then sell your beneficial interest in the trust to the end buyer.

Wayne Brooks · Answer

I think you're probably reading some misinformation.  A lender can refuse to lend to an LLC, a land trusts, whatever, and that's on the lending side.  I personally have had short sale lenders refuse multiple times to accept a short sale if it was in the name of land trust, and in another case not even in the name of a C corp (but through whatever logic, an LLC would have been okay).  A lender is not required to approve any short sale, period.  It sounds like you've taken some course extolling the virtues of land trusts.  There is no magic to a land trust.

More relevant to the thread, the shorted bank is looking for a price close to FMV.  So, it's going to be hard to sell to an investor who wants a discount from FMV, and have a spread for your fee, let alone all the other hurdles with no assignments, resale restrictions, valid POF's, etc.  For wholesaling to work, you generally need a seller to sell at a significant discount from current FMV, which usually means you need either an element of ignorance, or desperation, on the part of the seller...neither of which you have with a short sale lender establishing the price.

J Scott · Answer

In general, there is no way to legally wholesale a short sale.  It may be possible with a small, local bank that doesn't impose the typical restrictions, but there are two reasons it's generally very difficult/impossible:

1. You will generally be required to sign an affidavit at closing (as  will the seller and both agents) that indicates you have no other  financial agreements related to the property that haven't been disclosed  to the lender. If you have an agreement to wholesale the property  before you purchase it, you couldn't truthfully sign this affidavit.

2. Many lenders now impose a resale restriction period of 30, 60, 90 or  120 days after purchase. So, you'd have to hold the property for up to 4  months before you could resell.

Arktavious Sally · Answer

@Cameron Ellis

Unless the bank approve, to sell less then what the seller owes and at a price you need to be at to turn a profit you will not be able wholesale anything. There is a process. The owner must prove distress..

Most wholesalers outsource their potential short sales to individuals that specialize in that area.  There is nothing short about a short sale..

Sean Dezoysa · Answer

Wayne, where did you hear this information? In So Cal land trusts (aka title holding trusts locally) are commonly used to take title. I wish I could provide you a source, but I have read that the courts have protected land trusts as valid asset protection entities that lenders may not discriminate against.

J Scott · Answer

Unless you're a licensed agent, your brokering this deal (or helping another buyer find the deal) for a fee would most likely be illegal.  Again, not an attorney, but that's my take...

If you want to wholesale, I'd stay away from short sales...

Cameron Ellis · Answer

so would it be ok to have my investor put the property under contact and I write in a consulting fee since he won't be using a realtor.. Or should I have my investor write a finders fee for 5k..

Wayne Brooks · Answer

Sean......maybe, maybe not.  I think maybe your attorney might need to take a drug test, perhaps.  There is certainly no law or regulation, unless only on in wacky Cali World, that forces a lender to approve a short sale to a land trust.  Perhaps the attorney has an agenda, pushing land trusts.  Also, transferring your interest as you described would violate the deed transfer/deed restrictions in most short sales.

Renard Whitaker · Answer

@Sean D

very insightful! Thanks for taking the time to clarify.

Wholesale a Short Sale?

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