Orlando Short Sales - Techniques For Profiting From a Bad Housing Market

There are many real estate investor trainers that teach the power of short sales. With record foreclosures expected to continue, it pays to learn how to do them. However, what many of these trainers are not telling you is how to actually get paid on these short sales if you aren’t the one buying the property.

One of the most common approaches that many investing gurus teach is the utilization of an assignable contract. With this strategy, you create a contract between you and the homeowner where the homeowner agrees to sell the property to you. Once you get the bank to agree to go through with the short sale for a set price, you sell the contract to an investor for a set price. The investor assumes your position on the contract and goes ahead and closes on the property.

By selling your position on the contract, this allows you to get paid for your work in locating the motivated seller and finding the investor without having to buy the property yourself. The benefit to this is enormous as with this approach you don’t have to come up with any money to close on the property. This allows even a beginner with no money to invest a little sweat equity and make money in real estate without having any money or good credit.

While this strategy sounds good in theory and works in many situations, there are some situations where this strategy doesn’t work. Unfortunately if you review most real estate courses that advocate this strategy, what they don’t share with you are the scenarios in which this strategy doesn’t work. What they also don’t share with you is what you should do alternatively if you find yourself in these scenarios so that you can still get paid without having to close on the deal or come up with any money for the property yourself.

If you are dealing with an investor that is purchasing the property all cash, you should be fine with utilizing the assignment of contract strategy. The bank that is holding the mortgage typically doesn’t care who pays them the money. All they care about is that they find someone who is willing to pay them the amount that they agreed to take.

What the bank doesn’t want is to find themselves in a situation where they have to foreclose upon the property. This is why they are willing to entertain a short sale to begin with. By working with an investor who is willing to purchase the property at a discount, the bank avoids having to foreclose upon the property.

Here’s where the problem occurs. What happens if you are dealing with a buyer that is NOT purchasing the property all cash? This is very important, especially when you are working in high priced real estate markets like California and New York. Most of the potential buyers that you will find for your short sales will not be able to buy the property all cash.

Why can’t the buyer simply purchase the contract from you like the cash buyers? One reason is because the buyer simply may not have the cash necessary to buy the contract from you to compensate you for the property. With tougher loan requirements, many buyers are finding themselves required to come up with higher down payments to get approved for financing. To come up with these down payments and cash to compensate you may not work.

The other problem is that many lending institutions don’t want to lend money to assignable contracts. What they want to see is a straight contract between party A and party B. They don’t want to see a contract between Party A and Party B and then Party B and Party C. Therefore you have to know how to get around this.

So if you cannot do an assignable contract, how do you get around this? There are several approaches that you can take to get paid on your short sales without having to necessarily use the assignable contract option. The challenge is you need to be aware of each approach because all parties involved may not feel comfortable with your preferred method or approach.

The first approach is to simply find an attorney who is familiar with these types of transactions and can simply “work something out.” While this can work in some cases, this approach can be very difficult to implement. Most real estate attorneys are very conservative and have no interest in trying to “work something out” with a creative financing deal. Therefore, you might find it extremely difficult to find an attorney who is willing to do this.

You are also dealing with a very grey area here when it comes down to real estate law and what is considered appropriate practices for an attorney. As such, this may not be an area that most attorneys want to go anywhere near as one mistake can cost them their license to practice law forever.

The other problem with this approach is that because there are so few attorneys who are willing to just “work something out” you will likely find yourself restricted to a single attorney that you have to do all your deals with. If that attorney goes on vacation, charges too much or you simply aren’t happy with that attorney, you may have little choice but to deal with it.

The second approach is to do what is called a double closing. With this approach, what you do is you complete a closing between your investor and yourself. You then use the investor’s funds to complete a closing between you and the homeowner and the bank. Like the “work something out” scenario, this is also a very grey area in real estate and has many of the challenges with that scenario as well.

The other problem with a double closing is that most attorneys and title companies are going to charge you as much as double closing fees to perform this type of transaction. These additional fees eat into the profits that are available to you and can potentially cut into your overall profits if your end buyer isn’t willing to pay the additional amount for the property.

A third approach is to set up a trust. While I’m not an attorney and certainly don’t understand all of the legal ramifications behind setting up a trust, what I do know is that a land trust makes it a lot easier for attorneys to make sure you get paid without treading all of the thin lines that are legally associated with them just “working something out” or doing a double closing.

The major downside to a trust of course is that there is a fee to set one up. This increases your legal fees. However, the fees associated with a trust are typically much less than the fees associated with doing double closings, so it’s a much less expensive alternative.

The easiest and best approach, in my opinion is to simply add yourself to the HUD as someone providing services that needs to be compensated at closing. The HUD is the document that tells the person writing the checks who is to get paid and how much. By adding yourself to the HUD and adding your fee, this makes it simple and easy for you to get paid.

There are some cases where the attorney writing the check might question why you need to get paid. Simply explain your role in the transaction. If there is a problem with that, you will have to use one of the other methods of getting paid, but keep in mind they have other risks associated with them as well.