Can Duplex Investors Do A Short Sale?

Many duplex investors who are upside down on their property believe a short sale isn’t an option for them.

Nothing could be further from the truth.

So I asked Morgan Kavanaugh, an attorney with Wilkerson & Hegna P.L.L.P, who specializes in negotiating short sales for duplex owners, to write the following guest blog.

Often you will hear people say, “You won’t qualify for a short sale, so don’t bother.”

Is that sound advice?

Unless that person is the bank president or investor on that particular loan, I’m not sure that advice is based on any facts whatsoever.

There isn’t a uniform, mathematical formula to determine if someone qualifies for a short sale. Every short sale is different, given the circumstances of the property owner and the particular investor or lender on the loan.

In the investment property context, rental properties may be underwater with negative cash flow. The owner of the duplex may be in sound financial shape, but the annual loss on the property is starting to take its toll.

Could that investor do a short sale on their duplex?

The answer is almost always “maybe”.

It’s important to understand there is no legal right to do a short sale. You agreed to repay the debt, regardless of the value of the property, and the bank did not promise your duplex would increase in value.

However, when it comes to making a sound business decision, it might make sense to do a short sale on an investment property.

Lawyers have been doing what are known as “loan workouts” on large commercial deals for decades. Short sale is simply another term for a smaller scale “loan workout”.

A bank will certainly take a hard look at a sound buyer for a duplex, and it is possible they will consider settling the accounts with the duplex investor-seller. If the duplex owner has some available cash, or is willing to sign a promissory note for a percentage of the deficiency balance on the loan, there is a greater likelihood the bank and seller will come to terms.

How will you know if your lender will work with you?

First, you have to start the process by listing the duplex and letting your Realtor market it to find a good buyer.

Given the complex nature of these deals, getting an attorney and law firm on your side is always a good idea too.