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Short Sale Pitfalls

October 19, 2009

This past week a guy walked in to our office with a “deal we couldn’t resist”. He was very professional looking. He was claiming to be a buyer working with a group of investors holding a $50M line of credit to purchase short sales.  He wanted one of my agents to help him find short sale properties, negotiate a really low purchase price with the bank, close on that and immediately have a Buyer secured for a back to back closing where he can make money on the purchase price difference.  He claimed that he’ll list exclusively with our associate, pay a reasonable commission and an additional 20% of their proceeds from the net of the transaction.  In essence, shorting a distressed seller even more of a deficiency that they would have been had they sold it to the second buyer to begin with.

It’s amazing to me that these type of business dealings are allowed to happen. You see, if the “option” holder, in this case this company, isn’t able to secure a buyer with a high enough offer to close (covering what they are paying vs. what a new buyer will pay) they will tie up the seller and take them into foreclosure anyway.

I called this gentleman and had an interesting conversation with him. He worked very hard to try and convince me he was doing the homeowner and my agent a favor in this deal. I asked where the “win win” fell for the homeowner. He stated they were negotiating the short sale for them. I asked, if they had over $50M in a line of credit why they wouldn’t simply close on the property and then remarket it. This would, in my mind, create a win win for the seller and this buyer if they were able to acquire the property at a reasonably reduced rate. Why would he do that? Was his question back to me. You see in their current business model there is very little risk to them and all of the risk falls on the homeowner and the real estate agent.

I thanked him for explaining his model to me and shared with him that I would suggest that none of my associates will get involved in a transaction like this. I just can’t see the upside for a distressed homeowner.

If you are a distressed homeowner, don’t get taken by these types of businesses. They may promise you salvation and yet you may find you’re dealing with the devil.

For more information on distressed property options, visit our website by clicking this link.

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