Short Sales From a Different Angle

About five years ago my partners and I had opened a short sale company. At the time it seemed like a novel idea because we also had just opened a note company that was purchasing non-performing institutional notes at the same time. The idea behind it was we could share much of the same staff and space, and the companies could potentially feed off each other.

Needless to say, this didn’t work. I’ve seen very few manage both companies and do incredibly well due most likely to focus. But surprisingly our problem wasn’t related to that, our short sale company failed due to fraud from an outside vendor (lesson learned there!). So we only did probably a few hundred short sales but we learned the market and learned what works in both the short sales business and the notes business.

Back when we first started the company banks were totally caught off guard in terms of properly handling short sales. They had a flood of defaulted loans and no effective means to process it all. And it was extremely difficult to get loss mitigation to entertain too much of anything. I had been a Realtor at that point for about 20 years and I had rarely heard much in the way of short sales up until then.

Now we fast forward a few years and everything’s changed. Today 28% of all home sales are short sales according to ! Now banks are less likely to do REO’s and actually prefer to do short sales. They’re more willing to listen and are more capable of handling them. Today I no longer own a short sale company and the irony is I’m now an asset manager who approves short sales for my own note company.

In fact when you go to a sheriff sale the attorney who works for the bank is my guy because today we are the bank. We love short sales! Some of my workout specialists are handling 300+ loans and when they get a short sale call it’s one less file they have to work on and they put it off to the side. I hate to say it but they let the Realtor do all the work. Since we specialize in 2nds they request a HUD-1 and a pre-approval on the 1st before we even look at the deal. One of the first things we do is verify the HUD-1 info with the title company and we must see both sides of the sheet (Lenders prefer to deal with folks who are licensed by the state). Once the Realtor’s done putting it all together it comes to me for final approval. Today, owning the second mortgage and "being the bank" allows for my approval to holdup the whole short sale. Another fyi is that we have a pretty good handle on value and condition too.

Obviously, if we don’t approve the short sale, everybody loses and no one gets paid. It’s a unique position to be able to squeeze into a deal for a small investment and to gain so much power and control. But, at the end of the day if the short makes sense we obviously want it to go through.

So, my best advice today if I were investing in hard RE is to take advantage of the opportunity while the short sales are abundant and heed my advice from both ends of the spectrum. Make hay while the sun shines!