Short sales are an important source of income for many investors. While they have their challenges in terms of time and effort, they can be very rewarding financially. The loss mitigation representatives that represent banks have guidelines and standards for giving short sale approvals and any shortcut to getting an approval can be very lucrative.
A short sale is where a homeowner is upside down on his mortgage and has to sell his property before his lender forecloses. Upside down means that the homeowners mortgage amount due is greater than the fair market value (FMV) of his home. The lender has to agree to a principal reduction of the mortgage for a buyer to purchase it.
Most investors purchase their short sales using one of the following ownership methods:
1. Personally in their own name
2. A corporation which often has a Sub-S structure
3. A Limited Liability Corporation
4. A land trust, which is a pass-thru entity who actual ownership is controlled by one of the above entities.
Most lenders will not accept a land trust purchase because of the ease of transferring the ownership of the property by a simple change of beneficiary that does not have to be recorded in the public record. Lenders hate land trusts because they don’t understand them and believe they are only for the deception of the seller. In actuality, they are one of the highest forms of asset protect an investor can have.
The LLCs and corporation names are most used in the industry and acceptable by every lender. They require more “maintenance” than land trusts or purchases in an individual’s name but offer a high degree of asset protection if used properly.
Buying a short sale in one’s personal name is usually the last choice of investors because of potential liability issues. However, it is used on a regular basis by small and professional investors alike. Our personal experience with hundreds of short sales is that purchasing in a personal name overcomes a lot of the unreasonable stigmatism of an investor purchasing the short sale.
To reduce or eliminate the liability issue, an investor can quitclaim the property as soon as the deed from the seller has been recorded to any entity he chooses if he has not already sold the property. In this case the property will only be in his name for a short period. In the case of deed restrictions, the property can be quitclaimed into an entity as long as the owner of that entity is the same as the original purchaser of the property – always check with a local closing attorney to make sure this applies in your area of the country.
Dave Dinkel has over 35 years experience in real estate investing which has given him a unique perspective into the real estate market. http://www.DaveDinkel.com is the place to interact with Dave Dinkel. You can read some of the latest informative Real Estate articles he has written. Here you can discover and educate yourself on topics ranging from foreclosure, For Sale By Owner (FSBO) Sales, Credit and much more.
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