That IS the new challenge, and the creativity of the scam artists has tainted the otherwise respected and established option and short sales processes. The jury quite literally should be very much in the picture in this regard, as these con artists have caused regulators and opinion-piece authors to come to well-intentioned, but knee-jerk conclusions.

There are two primary principles that I believe constitute a sound short sale transaction: there should be full disclosure of the nature of the transaction to every party (borrower, investor, lender, title company, Realtor, buyer, Realtor, and lender), and there should be NO FEE charged the defaulted borrower, period.
The juice in the deal for the investor comes from saving the current lender the cost of foreclosure, which runs between $50-80K in most places. So the lender’s loss is reduced, the borrower is saved the angst of foreclosure, the end buyer gets a discounted price, and the investor who facilitates the deal and conducts or contracts the negotiations and finds the end buyer, also gets compensated. The Option Contract method allows the investor to attempt the negotiation as part of the short sale process. If it is successful, the investor exercises the option at the price agreed to by the lender, which means the lender saved money with a smaller loss. That successful negotiation makes the property more marketable and thereby more valuable, so the end buyer is willing to pay a higher price (than the lender took as settlement) because it is now a clean deal. Negotiating a short sale is not easy, that’s why 80% of homeowner and Realtor short sales fail. Professionally negotiated short sales I know of have a record of 80% success however, and I am told by the negotiating companies that the majority of those successes are using full-disclosure Options contracts. What I believe is necessary is for people to stop finger pointing, for the regulators to create Safe Harbor transaction guidelines for the ethical practitioners, and to throw the crooks and scam artists in jail. JMO, YMMV.

Where have I been, where have you been? If I would have heard from you in 1979 when I got in the business and you could have showed me how to make money buying and selling property without cash and credit, and in fact without actually buying it you sure would have saved me a lot of work and taken a whole lot of risk out of speculating!

Seriously though, over the years I have definitely seen some pretty innovative approaches to buying and selling homes, and I like to think at times I had a clever idea or two, but until the last few years there wasn’t the plethora of short sales there are now and I really was not aware of many people using options as a vehicle to flip property. However, all of my experience has been in St. Louis a place that seems to have more than its fair share of professional “speculators”. Therefore from the time I entered the business there was always plenty of competitors out there competing to buy property and they were offering sellers non-contingent, cash deals, plain and simple. That may be one reason that some of the alternative methods have not had much of a presence here.

As for the options on short sales…the reason I feel the jury is out is I am not covinced that the majority of the deals are being done with full disclosure. In addition I wonder if at times there aren’t option buyers or even listing agents that find themselves assisting in convincing a lender to accept the option price and representing it as market value, only to find themselves later convincing the end buyer that it is worth the price being offered for resale by the option investor. That situation starts to get a little fuzzy to me. However, like I said, these are just thoughts…I don’t know for a fact it is happening widespread, which is my the jury is still out. As I become more aware of more of these transactions and how they have been handled I think it will become more clear to me. Call me a slow learner.

Thanks again for you comments..
Take Care,
Dennis Norman