There are many short sales being closed with large profit margins right now. Here is a deal we funded for Brian Kurtz and he was so nice to put this detailed outline of his first SS deal to share for everyone. It was much longer and more detailed but I had to shorten it to post. (to many characters)
This post will be rather long. I’m going to try to answer most of the questions everyone is bound to ask in advance. That being the case, I’ve created 3 deal reviews with the third being a play-by-play review of each stage of the deal. If you want to replicate the process you’ll want to pay attention to the in-depth review as it has the details that will help keep you out of trouble.
Links to download scans of all the actual documents AND the checks are available at the very bottom of this post.
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Basic Review
So here’s the general overview.
Sellers owed $470k (a first and a second both owed to Homecomings). We’ll call them Mr. & Mrs. Smith. The loan was in in the wife’s name.
Mr. Smith got a job transfer to Colorado. Home now has to be sold so they can move on to the next stage of their life, but obviously they owe significantly more than what it’s worth.
I made an offer to the bank through my LLC to buy the house at a significant discount. I then began looking for an end buyer by listing the home on the MLS. Found the buyer, worked through to closing.
On closing day we arranged for a back-to-back double close where my LLC bought the home at 2pm and the end buyers purchased the home from my LLC at 3pm.
You can see the idea is pretty simple. Buy at the absolute lowest price you can negotiate with the bank taking the short sale and get them to agree to. Then resell to an end buyer for a profit. All without making a single repair to the property or spending your own money. Tall order, right? But my partner and I pulled it off.
We did this transaction without using a dime of our own money. But my lender never did a credit check, never did an appraisal, or a verification of income. The entire deal was done with full disclosure to both the lender taking the short sale and the end buyer’s lender. No fraud in any way/shape/form.
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Process Review
Here is how the deal is structured to get you to the closing table, with full disclosure to all parties involved.
Upon the initial meeting with the original seller I explained the short sale process and they were on board with the program. As long as they avoided foreclosure and didn’t have to bring large sums of cash to the closing table to buy their way out of their home they didn’t care how much I made.
We signed an Exclusive Option to purchase at a price of $287k. (remember that they owed $470k) They also signed an extensive disclosure statement and a Record of Option.
I then recorded my LLC’s interest at the County Register of Deeds. This places my LLC in chain of title with all documents specifically empowering it to list the home for sale and clouded title so that no closing could take place unless the option was addressed.
I then had my LLC list the home for sale and placed it on the MLS. We started the home at $359k but lowered it to $339k over a few weeks. I didn’t lower it below that price because the EXACT twin of the house directly next door closed and sold for $370k and I began do doubt how much of a discount I could get on the purchase.
We secured an end-buyer through another agent in my office and moved forward to closing.
After much drama, stress, and strain we showed up and purchased the home using private money and then instantly resold to the end buyer. The total profit on this deal ended up being $53,830.16
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My funding source, Coastal-Funding.com, is informed that we are in the home stretch on this one and to begin planning on setting up the wire for funds. You may or may not know that this company does interm financing for these back-to-back double close deals. No credit check, no appraisal, no job verification. Nothing. You could have had a finalized foreclosure and a BK yesterday and still be able to buy houses at 100% financing, rolling all costs in just as long as you are double-closing on the same day to an end buyer. How cool is that?
Sept 5th (Friday – Closing Day)
2:00 PM – Money is taken care of on Coastal-Funding’s end so my partner and I show up to take care of the first leg of the transaction where the LLC Buys from the original seller. That takes all of 15 mintues.
3:00 PM – End buyer shows up with their attorney in tow. This did NOT go smoothly. We had to be put in separate rooms for the closing. It was out of control in their room. The buyer’s attorney and the buyer’s agent both started picking apart every piece of paper, fluffing their feathers in front of the buyer trying to show how “knowledgeable” they were on real estate matters and generally trying to justify their pay.
They did dig me for an extra $5,000 at the closing table. THAT suggestion came from the attorney of course. My broker prepared a hold-harmless release for all agents involved and told me I better come back with it signed. Attorney though that one up...saying that this “new” chain of events entitled the buyers to a contribution.
I settled at $2,500.
In the end we closed. Bought for $251,780 at 2pm and sold for $325,000 at 3pm. Total profit (Commission and “The Spread) was $53,830.16. When was the last time YOU made $53,830.16 in one hour helping someone avoid foreclosure?
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Below are the docs, so you can examine them yourself:
1)Option Contract for Sale and Purchase – This is the instrument that gave me the right (but not the obligation) to buy the home for a period of aprox 1 year at the price of $287,000. As you’ll see in section 6e, the option discloses that the buyer (My LLC) intends to sell the home for an immediate profit. The bank taking the short sale gets a copy of this, so they KNOW upfront what my LLC intends to do in this scenario. Section 6f – also specifically grants powers to the buyer to list the home for sale. Sweet!
Here’s the link to download: http://www.shortsaleshow.com/proof/OptionContractV1.pdf
2)Affidavit of Understanding Addendum – this is a giant CYA disclosure so that a seller can never say “I never KNEW what I was doing. If I knew that this guy was going to make $50,000 an hour “helping” me then I would a never done it. I was wronged and want the $50,000.” Notarized baby.
Here’s the link to download: http://www.shortsaleshow.com/proof/U...Disclosure.pdf
3)Record of Option Contract for Sale and Purchase – this is the document that was designed to put the world on notice that your interest exists, that you have the power to list the home for sale, and sell for a profit. This was NOT acceptable at my Country Register of Deeds and was rejected. I understand it works in most areas with mine being the exception to the rule.
Here’s the link to download: http://www.shortsaleshow.com/proof/RecordOfOption.pdf
4)Notice of Claim of Interest – same as above except it fits the format my county wants it in. It also doesn’t have to be signed by both parties…only by the party claiming interest.
Here’s the link to download: http://www.shortsaleshow.com/proof/N...OfInterest.pdf
5)Renegotiation Explanation – this is the letter, and the contractor estimate I used to get the price knocked from $287k to $252k. I didn’t scan in the home inspection. I assume you’ve already seen one before. $300 buys me $35,000. Pretty good deal.
Here’s the link to download: http://www.shortsaleshow.com/proof/R...xplanation.pdf
6)Title Commitment A to B – this is the title commitment issued to my LLC when they bought the property.
Here’s the link to download: http://www.shortsaleshow.com/proof/A...Commitment.pdf
7)Title Commitment B to C – this is the important one because it is what the end lender was reviewing. You’ll see in the structure of it that Fee Simple Owner was the ORIGINAL owner and for the end buyer’s to be granted clean title a Warranty Deed had to be issued first to my LLC, and then a warranty deed issued to the End Buyer. This is an IMPORTANT POINT because the end buyer’s lender is put on notice here that their buyer is NOT buying from the original seller, but from my LLC who may or may not be making a profit. Thus full disclosure is provided to the end lender! Seasoning is not an issue as long as the end buyer’s lender is Conventional and is not applying seasoning “risk overlays” in addition to Fannie/Freddie Standards. Excellent Smithers.
Here’s the link to the download: http://www.shortsaleshow.com/proof/B...Commitment.pdf
8 ) A to B HUD Closing Statement – Here you see all the figures on the purchase of the home by my LLC from the Original Sellers.
Here’s the link to download: http://www.shortsaleshow.com/proof/AtoBHUDStatement.pdf
9)B to C HUD Closing Statement – Here you see all the figures on the sale of the home from my LLC to the End Buyers.
Here’s the link to the download: http://www.shortsaleshow.com/proof/BtoCHUDStatement.pdf
10) Coastal Funding Payoff – Here is the simple document that shows the fees I paid to borrow the money to facilitate this deal. Simple and clean:
Here’s the link to the download: http://www.shortsaleshow.com/proof/CoastalPayoff.pdf
11) Proof Checks – Here you’ll see proof positive in the from of the two checks issued at closing. One for Commission, one for Profit Spread. Nice.
Here’s the link to the download: http://www.shortsaleshow.com/proof/ProofChecks.pdf Special
Thanks to www.Coastal-Funding.com for making this possible and way to easy!!!! (1)
(1) Source from WannaNetwork Forum.
Education then action is key to success. If you want to learn how to do a short sale like this, please contact me in the Contact Us section of my blog.
Happy Investing!
Tony
