New Developments In Short Sale Transactions (Transactional Funding, Part 1)
Whether you have done short sales in the past, or you have educated yourself about these transactions, you are probably fairly familiar with the basic function of the real estate deal. Essentially, the owner of the home gives a third party the right to the deed of the home and to negotiate with the bank for a discounted price on the home in exchange for avoiding a foreclosure. The owner of the home does not make any money on the deal, but is able to walk away with salvageable credit and no debt over their head in most cases.
In the past, real estate investors would do short sale transactions, and then sell the homes on the open market to make staggering profits. Some of my colleagues routinely made 20 to 50 thousand dollars on short sales in fairly short order once they obtained the deed to the property because people were so eager to buy homes. However, since the real estate market took a dive, short sales have become much more common. At the same time, selling short sale properties has gotten more difficult because there are so many homes on the market. As a result, real estate investors have had to find new and innovative ways to flip short sales quickly.
There are a lot of ways to move short sale properties quickly, but before you get started with that, you need to understand some of the pitfalls that can arise thanks to more stringent lending requirements. If you do not factor in these new developments in lending practice and short sale transactions, you may end up with a property on your hands that you cannot get rid of, your short sale deal could simply fall through all together.
One of the biggest issues with short sales is lender’s requirement that the seller’s name be on the deed of the property. In a short sale, you are the seller, but if you are trying to arrange a quick flip, you may not have been planning to (or be able to) get conventional funding for the purchase of the property. Ideally, you would have your buyer bring in their funding, then purchase the home and you would get the difference. However, many lenders will not give your buyer funding unless you, the seller, are on the deed. This means that you also have to get funding for the short sale.
Sounds difficult? It certainly did complicate things for a while. However, there is a simple answer to this problem that will enable you to get the funding that you need (and your name briefly on the deed) so that you can finish your short sale flip. We’ll discuss this solution in the next lesson.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.
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In the last article, we talked about how you can still flip properties – literally overnight in some cases – in this economy. However, the key to this type of speed actually lies in your willingness and ability to network and set up buyer connections ahead of time so that when a good, qualifying deal arrives, all you have to do is make the call.
Historically, simultaneous closings were a great way for real estate investors, buyers and sellers to all get their “piece of the pie” very quickly in a real estate flip. Simultaneous closings occur when a seller signs a contract selling the property to a real estate investor. This contract is put into the hands of a closing attorney. At the same time, the investor signs a contract selling the property to a third party buyer, contingent on that buyer’s ability to fund the transaction.
Now that you understand how transactional funding works, it probably has taken a pretty big load off your mind. Turns out, despite the new laws that require your name to be on the deed of a property that you sell, you can still get funding that is not a risk to you or the lender without having to have perfect credit and a huge down payment on the property.
In today’s lending environment, most lenders will not lend money for a transaction unless the name of the owner of a property is on the deed to the property. Lenders say that this is because they are attempting to prevent lending and real estate fraud. They say that it helps them insure that the property is actually in a position to be sold. Many of my colleagues say that the real reason is far simpler: it is a way for the lenders to make some extra money.
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