A Short Cut to a Short Sale in Foreclosure

The best short cut to completing a short sale is actually having the lender sell the note to the property buyer.

Yes, often the lender will consider selling the note at a discount when it won't do a short sale. The difference to the lender is the cost and time saved in selling the note versus the drawn-out time required to complete a short sale.

The options to the lender are to:
1.) complete the foreclosure through the court system, which it will have to do if there are additional liens against the property that must be "extinguished".

2.) complete a short sale to an investor who may or may not close on the transaction, despite having given a deposit and showing proof of funds.

3.) selling the mortgage note to a buyer in a few days at a discount they would have accepted on the short sale, and have no further headaches.

Generally this decision is an easy one in accepting the best offer that nets the lender the most money in the least time. However, some lenders have policies about what discounts they will take and often they have an internal policy of not selling their single mortgages at a discount to investors.

This varies greatly from lender to lender and I am always surprised when I make an offer only to be told that the loss mitigation representative says "I'm not sure".

If we want to make an offer to the lender to buy a note, we preface the conversation with "We often buy the mortgage note (trust deed) at the same discount we would pay for a short sale and we continue the foreclosure".

We go on to explain that the lender can be out of the mortgage in seven days or less instead of 30 - 60 days or more. The benefit to us as investors is to get the transaction done and know we control the property. You do not have to have the deed to the property because you can continue the foreclosure and get the property at auction.

The auction offers another opportunity to make money on the foreclosed property if there are other bidders because your discounted note is good for the full face amount as an auction credit.

For example, if you buy a $100,000 note for $80,000, at the auction you would bid $100 to start which means your first bid is $100,000 plus $100. The next bidder bids $100 which is actually a bid of $100,200. If no other bids are made the bid for $100,200 is accepted and you will get $100,000 for your $80,000 note! The result is a clear profit of $20,000 or 25% without ever seeing the property.

We use this method when a homeowner will not take our offering price and says "I'll let the bank have it first!" Well, in this case you become the bank and you get the property for less than the homeowner would have sold it for.

The homeowner can use this same technique by having a friend or family member buy the note from the lender, allow the homeowner to stay in the property and carry the mortgage on the property at the full face amount.

Many investors and homeowners called this an "advanced" strategy. The only advanced aspect of this technique is actually asking the lender, and making a case for why you are doing it. It is very important, to have your attorney do a complete title and lien search even if you know the homeowner.

This technique of buying the mortgage loan at a discount is simple, straight forward and benefits the lender and the note buyer. Historically, lenders will gladly accept 78% - 80% of the balance due and will negotiate to as little as 50% if the property is in serious need of repair or has substantial code violations against the property.

Caution, if there are additional liens against the property, you may have to continue the foreclosure that the lender has already paid for in most cases.