Short Sales vs Buying Bank Notes


How to do Short Sales, A Tough Investment

This article is for those of you who have tried your hand at short sales and realized that they’re harder than they look.

Here’s a quick side-by-side comparison.

How to do Short Sales, The Requirements

Short sales are transactions that involve a willing borrower you have spent time convincing that they would be a likely candidate for a short sale.

And a loss mitigation officer overwhelmed with short sale proposals who often takes forever to get back to you documentation.

Short sales as compared to buying bank notes often require borrower financial statements, tax filings, bank statements, pay stubs, hardship letters and HUD-1s and money.

If you’re able to close a simultaneous short sale, you may not have to fund anything. Otherwise, you have to finance the purchase from the bank.

How to do Short Sales vs Buying Bank Notes

Real estate note purchases involve a secondary asset manager or loss mitigation officer who has perhaps 5 to 30 investors. (they handle the documentation unlike a short sale). After you have reviewed the loan documents, you have a purchase and sale agreement, and an assignment of mortgage – they will be very similar for all lenders money. Short sale transactions require a lot more paper work.

In defaulted mortgages, you will need money to purchase the bank notes – however, there are strategies to pursue certain types of notes that actually require very little capital. More on that later.

Short Sales and Buying Notes in California

Civil Code 1695 doesn’t apply to you (if you’re taking title as part of a deed-in-lieu negotiation, you’re exempt from the constraints on equity purchasers) You have multiple exit strategies (as opposed to short sales where you need to find a buyer and get the property sold). These include refinance, loan modification, selling your bank note, foreclosing, or getting a deed-in-lieu.

Unlike short sales, there are no licensing requirements if you’re buying a bank note with a singular (as opposed to fractional) interest.

You’re not subject to potential litigation as you are in lease option deals (e.g. your lease option is interpreted as a loan and you’re accused of equity stripping) – in a bank note purchase vs doing a short sale, you can simply modify your loan. You are, however, subject to changing foreclosure laws, since you’re now the lender.

A Closing Thought on Short Sales and Buying Bank Notes

I’ll leave you with this – You may have thought that short sales were a pain-in-the-butt because of the uncooperative lender you were negotiating with. You may find yourself on the other side of the table if you buy a bank note, and have an investor come to you with an offer asking you if you’ll take a discount on your defaulted mortgage in order to sell the property.

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