The short sale process is a notoriously difficult affair, one that can take months to square away as agents bicker with banks and other financiers on an appropriate selling price for the foreclosure-prone property.
But according to recent reports from Chicago Public Radio (WBEZ) and Chicago Now’s Gary Lucido, a couple agents at Exit Strategy Realty may have found a way to dramatically quicken short sales and make some additional income at the same time.
WBEZ reporter Ashley Gross first reported the home buying trials of fellow WBEZ reporter Susie An, who attempted to purchase a short sale property in Avondale but was outbid for the property – at a much lower cost. Though An offered $250,000 for the home, the bank instead sold the home for $160,000 to investor Marcie Schmidt, who was working with Exit Strategy Realty. An then purchased the home from Schmidt, but for $285,000.
Why would the bank buy the home at such a lower price? For his part Lucido proposes that the bank never knew about An’s initial offer, and that the Realtors involved concealed the higher offer in order to re-sell the property for additional income.
Lucido writes, “So Susie An eventually ends up buying the home from Marcie for $285,000 and Marcie makes a quick $125,000 less any transaction fees. Meanwhile the bank loses that $125,000 and maybe that loss gets passed along to PMI, that recently went bankrupt, or Fannie Mae and Freddie Mac and the American taxpayer.”
Lucido, however, does note that it cannot be verified that Schmidt anything wrong in the transaction.
The WBEZ story continues with an analysis of the short sales business of Mike Cuevas, an Exit Strategy team lead who was dubbed “The Top Short Sale Agent in the US” by the Super Agent Summit. According to Gross’ reporting, Cuevas has bought and quickly resold 13 short sale properties for a gross profit of $800,000. Two examples she cites are a condo at 10 E. Ontario St that Cuevas bought for $118,500 and sold for $185,000 on the same Nov. 8, 2010 day, and a Park Ridge property that was bought on Aug. 17, 2010 for $466,000 and sold the same day for $543,000.
Cuevas spoke with Gross for her story, and Lucido’s piece summarized how Cuevas operates his short sale business. First, Cuevas acquires an option contract from the homeowner to buy the home at a pre-determined price; he then records the option as a public record, and sets up a short sale with the bank at that price; since the home is under an option contract, Cuevas lists the home with himself as the owner, and after the bank accepts his offer, he then quickly sells it to a new buyer lined up for the purchase.
Cuevas noted in his interview with Gross that he is fully open about his role in the short sale process, and in a statement he provided to Chicago Agent through his attorney, Marc W. Martin, he also stresses the public nature of his transactions. Martin’s statement reads in full:
Michael Cuevas presented contracts to the original owners of record at a time when the properties were not on the market. Third-party purchase offers were not pending at that time. Rather, the original contracts were between Mr. Cuevas and the original owners of record. They were ultimately presented to lenders who sought to do a short sale. Disclosures that the properties would be marketed for a profit were made to the lenders. The transactions between Mr. Cuevas and the lenders were arms length. The initial contracts were publicly recorded and disclosed that the properties would be marketed for a profit. The transactions were conducted in accordance with the law and required disclosures.
“I’m not hiding anything,” Cuevas said to WBEZ. “There’s nothing funny going on.”
Also, Cuevas said that his short sale business offers significant benefits to the underwater homeowners who sell him their properties. Not only do they escape the drawn-out foreclosure procedures (which are more damaging to their credit scores), but they also avoid deficiencies, meaning the amount of money they owe on the home. Though Illinois allows banks to pursue homeowners for their deficiencies after a sale, every one of Cuevas’ clients that Gross spoke with confirmed that their deficiencies had been forgiven by their bank.
Cuevas’ strategy, though, and the quick turnarounds that it produces, may no longer work in the real estate market. Last year, Freddie Mac began requiring additional documentation for any short sale involving its loans to cut back on such deals, and some banks now require that buyers hold on to properties for 30 to 90 days before reselling it.