Can You Wholesale Short Sales?
Technically yes, but it is one of the most complicated and time-consuming types of wholesale deals. Short sales involve a third party (the lender) who must approve the sale price, which adds months to the timeline and introduces restrictions that make assignment difficult.
What is a short sale?
A short sale happens when a homeowner sells their property for less than the outstanding mortgage balance, and the lender agrees to accept the reduced amount. For example, if the homeowner owes $200,000 on a property worth $160,000, the lender agrees to accept $150,000 to avoid the cost of foreclosure.
Short sales exist because lenders would rather accept a loss on a negotiated sale than go through the foreclosure process, which is expensive, slow, and often results in an even lower recovery.
Why short sales are difficult to wholesale
Lender approval required
The seller cannot accept your offer without their lender's approval. The lender reviews the offer, orders a BPO (Broker Price Opinion) or appraisal, and decides whether to approve. This process takes 30 to 120 days, sometimes longer. During this time, you have no contract to assign because the sale has not been approved.
Assignment restrictions
Most short sale lenders explicitly prohibit assignment of the purchase contract. Their approval letter typically specifies the buyer by name and sometimes by entity. Changing the buyer requires re-submitting the offer for approval, which restarts the timeline.
Arm's length affidavit
Lenders require all parties to sign an arm's length transaction affidavit, certifying that there is no pre-existing relationship between buyer and seller and that the transaction is at fair market value. An assignment with a fee on top raises red flags about whether the transaction is truly arm's length.
No profit restriction
Some lender approval letters include language prohibiting the buyer from reselling the property within a specified period (often 30 to 90 days) for a profit. This directly blocks both assignment and quick double close strategies.
Strategies that work
1. Double close with delayed resale
Purchase the short sale property yourself, hold it for the required period (if any), and then resell to your end buyer. This requires capital (or transactional funding willing to wait) and turns the deal from a quick wholesale into a short-term hold.
2. Buy and immediately rehab
Purchase the short sale, start rehab immediately, and sell to a flipper or end buyer once you have added value. This crosses from wholesaling into light flipping territory.
3. Negotiate with the lender's loss mitigation team
In some cases, you can negotiate with the lender to allow an assignment or buyer change. This works best when you have an established relationship with loss mitigation departments and can demonstrate that the assignment will not affect the sale price or timeline.
4. Back-to-back close
Similar to a double close, but structured so the funding from the B-to-C transaction funds the A-to-B transaction. The short sale lender sees you as the buyer, and the resale happens simultaneously or very shortly after. Check the lender's restrictions carefully before attempting this.
The short sale timeline
| Stage | Timeline | What Happens |
|---|---|---|
| Offer submission | Day 1 | Submit offer through listing agent to lender |
| Initial review | 2-4 weeks | Lender assigns negotiator, reviews financials |
| BPO/Appraisal | 4-8 weeks | Lender orders property valuation |
| Approval letter | 6-16 weeks | Lender approves or counters the offer |
| Closing | 2-4 weeks after approval | Standard closing process |
| Total | 2-6 months |
This timeline makes short sales impractical for wholesalers who need to close deals quickly. Your capital is tied up in earnest money for months while the lender makes a decision, and your buyer must be willing to wait that long.
When short sale wholesaling is worth it
Despite the challenges, short sales can be profitable when:
- The discount is deep. Short sale prices are often 20-40% below market value, leaving room for significant profit even after the extra costs and timeline.
- You have capital to close yourself. If you can purchase the property and hold it briefly, the profit margins can exceed standard wholesale fees.
- You specialize. Wholesalers who develop expertise in short sale negotiations build a competitive advantage because most others avoid them.
- The lender allows assignment. Some smaller lenders and credit unions are more flexible. If you confirm assignment is allowed upfront, the deal becomes much simpler.
Red flags to watch for
- Multiple liens: Each lienholder must approve the short sale. Second and third mortgage holders can block or delay the process.
- FHA-insured mortgages: FHA has specific requirements for short sales that add complexity.
- Bankruptcy filing: If the seller files bankruptcy during the short sale process, the entire deal may be voided or transferred to bankruptcy court.
- Deficiency judgment risk: In some states, the lender can pursue the original homeowner for the difference. This is the seller's risk, but it can affect their willingness to cooperate.
Short sale regulations and lender requirements vary by state, lender, and loan type. This is general educational information. Consult a real estate attorney experienced in short sales before pursuing these transactions.
Bottom line
Short sales can technically be wholesaled, but the 2-6 month timelines, lender approval requirements, assignment prohibitions, and arm's length affidavits make them far more complex than standard wholesale deals. Unless you have capital to close yourself and expertise in loss mitigation negotiation, focus your wholesale efforts on pre-foreclosures and off-market deals where you control the timeline.