Short Sale Investing Part 2: How to Negotiate Your Way to a Paycheck

Howdy, mi amigos. Today we’ve got Part 2 in my two-parter series about short sales. In Part 1, I covered the basics including the life cycle of a short sale. Go check that out, and then head back over here. Go on, it’s good stuff, go.

Today we’re going to continue down the short sale road by answering this good question:

How do you negotiate your way to a paycheck?

I know I’m gonna be throwing a ton of info at you guys, but just remember that I didn’t become a short sale expert overnight. I've been negotiating short sales for the past four years and I've been involved in hundreds and hundreds of transactions. So, I do have some advice for you that I learned from the school of hard knocks…

Red Flags Investors Face with Short Sales

Luckily, I’ve make some really, really big mistakes along the way that I can red flag as potential problems for you:

  • Unorganization – Short sales are paperwork intensive and if you don't have an organized system, you will easily get swallowed up by a mountain of chaotic paperwork.
  • Procrastination – Remember at the end of the day, there is a homeowner facing foreclosure and a strict timeline that must be adhered to. If you procrastinate on submitting documentation or trying to postpone foreclosures, I guarantee you'll end up losing the deal.
  • Lack of Knowledge – Education is the cornerstone of any good business model. If you are going to invest in short sales, it is probably a good idea that you become an expert in your state's foreclosure laws. Also, you're going to want to keep up your education of the changing programs that each major bank in a federal government keeps creating, so you’ll always know which programs work best for each deal.
  • Full Disclosures. You always want to fully disclose anything and everything that you're doing in the short sale process. There is no amount of money in the world worth getting in trouble over, and the main way you can screw up with a short sale deal is by not disclosing everything to all parties. From the fact that you're an investor making an offer to purchase for profit to whether or not the property is listed on the MLS, every move you make should be disclosed in your contracts.

Types of Short Sale Funding

I get asked all the time how I fund my short sale deals. I do have the ability to fund my own transactions now, but I still love the idea of OPM (you know – other people's money). I never ever use conventional financing. I do use private money, transactional funding and hard money to fund my deals. Here’s the lowdown:

1) Private money is obviously the best solution because it allows you to partner with somebody that has money, but does not want to spend the time to learn the short sale investing process. That's where you come in. You provide the sweat equity and split the money with them once the deal closes. Private money mainly works when you intend on flipping the property because most private lenders don't want their money tied up any longer than absolutely necessary.

2) Transactional funding is when I construct the entire flip before I even have to purchase the property from the original homeowner. I am actively marketing the property for sale at a higher amount than I think I could buy it for. In essence, I am creating a spread that will eventually become my profit. If I find a buyer that is using conventional financing, then I can use transactional funding to purchase the property from the bank, close on the deal and then resell it for a higher amount to my final end buyer.

Transactional funding is simply 100% financing at a high interest rate. I can borrow money only if I have the entire deal put together before the transactional lender will lend me the money. You can Google transactional funding or short sale funding to find lenders and learn more about this process.

3) Hard money. This is similar to transactional funding, but hard money lenders don't really care if you have the entire deal put together ahead of time because they're not lending you 100% of the money needed to buy the property. They expect you to come in with 20% to 40% of your own money. This works great if you have the money and are okay with the high interest rates associated with borrowing hard money. I normally only do this if I believe I can create a huge spread but have not found my end buyer yet.

Switching Gears…

Now it's time for me to give you the goods on negotiating. It was really, really hard for me to narrow down my top five short sale tips because I've learned so many along the way. But, here are five really important tips that you definitely need to be aware of…

Cody’s Top 5 Negotiating Tips

1) Keep your cool. Never, ever react to the somewhat shady tactics that the bank’s loss litigator is throwing at you. Start your negotiations off by being professional and separate the people from the problem. What I mean by this is always keep your eye on the facts of the case and don't get emotional when speaking.

2) > Build long-term relationships with the loss mitigation managers at the banks. Remember, these are the individuals that have the power to approve or disapprove your short sale. Once you make that connection, continue to use them on future deals in order to help speed things up.

3) Continue educating yourself and networking. There are many websites out there, but I found this one,, to be extremely useful. This is an online network of short sale negotiators and real estate agents that all share contacts and tips with each other. The best advice will end up coming from your peers that are actively overcoming short sale negotiation hurdles, and this website is a great way to stay in touch.

4) The golden rule of negotiating. Always ask for more than you actually expect. The reason we do this is because we're betting that the lender(s) of a transaction wants to come in as close to the BPO price as possible.

5) Make sure the homeowner stays current on their HOA payments during the short sale process. I can’t tell you how many good deals got stalled out and were lost at the end of the process after months of hard work because the HOA was unwilling to release their lien on the property. HOAs are complete crooks in my opinion and negotiating with them is next to impossible. It's better to just avoid them if you ask me.

Even though those are five pretty good negotiating tips, you're still going to run in to loss mitigators that just don't care about helping you, the homeowner or even doing what's financially best for the bank. They only care about one thing and that's their commission.

What Can You Do to Fight the 800-pound gorilla?

Two things:

1) Force your way directly to the actual decision makers. If the original loss mitigator is acting like a rude broken record (no matter how much evidence you supply), or if you believe that the BPO came in too high, ask to speak with the manager. This may take a little while, but I would stay persistent until you get to speak to somebody in charge. Call every extension.

2) File a complaint. If you can't get anybody to listen, everybody at the bank is being rude, and you truly believe that you have a provable stance as to why the short sale should go through, then you can visit and file a complaint. This is basically a government oversight website by the office of threat supervision. If you file a complaint, they will contact the bank immediately. I've used this technique when dealing with stalled files or if there's a pending foreclosure that I cannot postpone and the bank has been completely rude and unresponsive.

Well boys and girls, we've reached the end of Part 2 our short sale lesson. I hope you now realize that short sales can be the opportunity of a lifetime.

Short sales have definitely changed my life and the amount of money I have made from short sale deals has just been incredible. Check around in your local market and I bet you’ll find that there's a good chance that you too can make a ton of money investing in short sales.

Whatcha Think?

Got any more short sale questions? Wanna a deal by me? I’d love to hear from you in the comments section below.

Until next time…

Keep it real.

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