Do You Have Your Short Sale Paperwork in Order?

One of the biggest mistakes that a real estate investor can make is to have nonexistent, ill-prepared, or insufficient paperwork that is used to close deals. With all of the legal oversight popping up in most State's foreclosure statutes, using the proper paperwork for the short sale investor is crucial.

When I first started investing, most of my transactional paperwork was purchased from various national authors from Webinars and boot camps. It was pretty much true that these authors said "make sure you have your local attorney adjust these forms or make your own." However, like most folks, I was directly using the forms included in my generic paperwork set from my various workshops.

Two events happened that dramatically changed my mind (and my paperwork!) about using these "generic" forms: First, I started closing many deals with a local real estate attorney who basically "shredded" my generic contracts. Second, the legislature in my State passed new foreclosure laws that specified how these deals were to be conducted and even what font type and wording was to be used in the contracts. Of course, the new rules carried with them the threats to do these deals correctly or we can fine you and/or "toss you in jail."

So what did I learn from all of this?

First, I make sure that my agents use the correct State Commission-based forms that contain all of the required foreclosure disclosures--on buying and selling.

Second, If I am using my own forms (Purchase and Sale contracts or Option contracts), I make sure these forms have all of the necessary foreclosure verbiage plus the required disclosures.

Third, I have a contract with my agents with the appropriate disclosures and the working relationship specified between the agents and myself.

Fourth, I have a separate document between the homeowner and myself with the appropriate disclosures and the details of the transaction. It is hard to have too much disclosure in foreclosure (short sale) transactions.

I must admit, after my attorney OKs my process and forms, I do sleep better.The key point is to understand that we have to be ever more diligent on calculating the offer. Note, formulas used to calculate offers on long-term hold real estate are not at all related to fix and flip formulas, and these deals are normally disastrous for the unsuspecting investor.

We talk much more about this in our REI mentoring program. After years of doing these calculations by hand, my partner and I have developed an online real estate software to make our lives much easier. We can now crank out offers and determine the exit strategy in seconds.

To Your Success,

Tom & Svein