OfflineSo my father has a client who's is filing BK in Los Angeles, however they have a 4 bed 2 bath home and owe 192k to first lender and 110k to the second= 302k total owed. Comps show that the market value of the property is around 400k. Now, the property was going to go up for auction as short sale in a week or so but my father has postponed it to early November.
How do I go about profiting from this favorable spread? I was thinking of using a flex option to be allowed to market and then assign for 322k but now know that's not possible when working with lenders. Remember I'm a wholesaler, and don't have liquid cash, nor would I like to use hard money, but would it be smart to use a hard money loan to offer the 2 lenders of the property a lump sum payoff 25k less each? That would allow me to attain the property for 252k and I think lenders don't usually allow double closes so I'd have to wait 30 days after taking title and then flip to an end cash buyer for 300k-320k. Would this make sense? There is no rehab needed, the property is just in need of small cosmetic updates that would potentially boost the end buyer's sale price further.
Or would it be more of a pragmatic approach to simply use a bird dog contract with a cash buyer, granting that I receive a fee when- and if- the investor gets their offer accepted by the lenders and closes. How much would I charge as a bird dog fee with this big of a spread? (400k-252k= 148k spread!). AND how would I market/approach this bird dog agreement?
Are there any other ways I can structure this? Joint venture possibly? ALSO, the 2nd is a secure priority loan and if the homeowners chapter 13 filed last week doesn't get approved - which my father strongly believes won't- and switched to a ch.7, the 2nd lender will ask the court permission to sell the house, which most likely will be granted.
Can I do anything at all? Am I leaving out crucial details? Any advice welcome. Thanks.
Working with short sales as a wholesaler has got to be one of the most difficult approaches to real estate. Short sale approval can take months. Closing on an average short sale takes between 3 to 5 months - more with multiple lenders as in this case.
Since the property has such a high amount of equity, I would not expect the lenders to allow much, if any, discounting. If you can use hard money AND lock in a cash buyer, this may be a viable option.
I just looked at a property that is being sold as a short sale but is also part of a BK. In order to buy the property I had to put up 2500 earnest money, and pay 10K on top of what I offered on the property to satisfy the BK. Any time a property is part of a BK there will be a lot more complexities involved in closing the deal. Find out what all the facts are in trying to do something with this property
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Yes, bankruptcy can be difficult. Since this may go from a chapter 13 to a chapter 7 he is not allowed to make a profit. One of my first deals was this exact scenario. Had a 1st and a 2nd mortgage. Homeowners had no luck with mortgage company and I took over. It can become very tricky. I also have a one of my partners / Brokers in L.A who I have been investing with since I started in 2004. PM me and we can talk in more detail. Good luck-
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