Today's track: Family Romance — Department of Eagles

Yesterday was assignments. You sign a contract to buy a house, then you sell that contract to someone else before closing. You never own the house. You get paid for finding the deal.

Today's tool is the opposite problem. What do you do with a house that's too nice to wholesale? (Wholesaling is the business of doing exactly that — finding a deal and handing the contract to a cash investor for a fee.)

You've seen this one. Three bedroom in Fern Creek, dated but clean, needs paint and carpet and a countertop. No investor will pay you a finder's fee on it, because there's no big repair job for them to make money on. And the seller can't take your cash offer, because your cash offer is 70 cents on the dollar for a house that's worth 100 and only needs six grand of work.

An assignment dies right there. Every time.

A novation is how you get paid on the house that doesn't need you.

Here's how it works, step by step:

Then the swap happens. Your contract with the seller gets replaced by a brand-new contract between the seller and that buyer. You step out. At closing, the seller gets the net number you promised, and you get paid your fee out of the sale money.

The word "novation" just means substitution. A new contract replaces the old one, and one person gets swapped out. That person is you.

The math works because you're selling to regular buyers instead of investors.

Investors need a discount — that's how they make money. A family buying a home to live in will pay full market price. That gap is where your paycheck comes from.

Run it. The seller nets $200,000. The house sells for $255,000. That's a gross spread of $55,000 — "gross" meaning before anybody else gets paid. It is not your profit. Anybody who puts a novation's gross spread next to a wholesaler's take-home fee is comparing two different things on purpose.

Out of that $55,000: the agents' commission, call it $7,500 to $15,000. Closing costs — the title company, lender and government fees that come with every sale — around $5,000. Repairs and staging, $6,000. You're left with roughly $29,000 to $36,000. On a house you never owned, never borrowed money on, and never paid transfer tax on (the tax Kentucky charges every time a property changes hands).

Against an assignment fee on the same house of — nothing, because there was no assignment to make.

The tradeoff is time and risk, and both of them are real.

An assignment closes in two to three weeks. A novation takes 45 to 90 days, because now you're waiting on a regular buyer's bank: the appraisal (the bank's expert confirming the house is worth the price), the inspection, and underwriting (the bank double-checking the buyer's income, credit and paperwork). That's a mortgage timeline, not an investor timeline.

And here's the risk I want you to sit with, because it's the one people miss: once the novation executes, you have nothing. No ownership rights in the deal. No claim on the house. No contract you could sell to someone else if the buyer walks. All you have left is whatever you were smart enough to get in writing before you signed. That's why the fee agreement gets signed at the same time as everything else. Never after.

Use it when the house is livable. Skip it when it isn't.

Novation wins on houses that only need cosmetic work — paint, floors, fixtures, nothing structural — where the seller can wait a couple of months and a regular buyer will clearly pay more than any cash investor would. Assignment wins on houses that need heavy repairs, on sellers who need out this month, and on anything where the end buyer is paying cash anyway.

Assignment is the default. Novation is the exception. Anybody teaching it the other way around is selling a course.

Now the Kentucky part — and it's the same law as yesterday.

Kentucky law — KRS 324.020 (KRS stands for Kentucky Revised Statutes, the state's written laws) — makes it illegal for someone without a real estate license to advertise a purchase contract for sale. Lawyers call that contract your "equitable interest": your right to buy the house. A novation means marketing a house to the public. So who's allowed to do the marketing?

The answer has to be: a licensed agent, under a written listing agreement signed by the owner. And the owner here is the seller, who's still on the deed — which is exactly why the structure works. Kentucky's real estate rules — 201 KAR 11:121 (KAR is the Kentucky Administrative Regulations, the detailed rules that sit under the laws) — say a listing contract needs the price, the signatures of everyone with authority to sell, the principal broker (the licensed broker in charge of the agent's office) and the brokerage name, the dates, the fee, and a description of the property. The seller signs it because the seller owns it. You aren't the agent's client.

And another piece of that same law, KRS 324.020(4), says an agent can't split their commission with someone who isn't licensed. So the investor's payout has to come from the seller's side, out of the sale money, under that separate fee agreement. It is not a slice of the agent's commission. Those are two different things, and the settlement statement — the itemized receipt for the whole closing that shows who paid what to whom — will show which one you did.

On the fee: label it, disclose it, don't get cute.

Underwriters — the people at the buyer's bank who approve the loan — read every line of that settlement statement. A vague fee paid to a company nobody can explain is how deals die in the last 72 hours. Call it what it is.

Now the short sale, which is a completely different animal.

A short sale is when the house is worth less than what's owed on the mortgage, and the bank agrees to take less than it's owed. That's it. The seller isn't the one giving up money — the lender is.

That single fact governs everything that follows, and it's the reason today ends the way it does.

The process in 2026 is more standardized than people think. Here's how it goes on a loan backed by Fannie Mae (a government-sponsored company that buys and backs a huge share of America's home loans):

FHA loans — government-insured loans through the Federal Housing Administration, popular with first-time buyers — run their own version, called a Pre-Foreclosure Sale (PFS). The homeowner has to be at least 61 days behind on payments and has to have already tried the options for keeping the house. The bank's minimum drops the longer the house sits: the sale has to bring in at least 88% of the appraised value in the first 30 days, 86% through day 60, and 84% through day 120. Four months to sell it, at least 15 days on the MLS. Up to $3,000 to an owner who lives there. VA loans (backed by the Department of Veterans Affairs) have a similar process called a compromise sale.

In Kentucky, the deficiency waiver — getting the leftover debt forgiven — is the entire negotiation.

This is the local fact that matters most, and the one sellers here don't know. Kentucky is a judicial foreclosure state — a bank has to go through court to take a house — and it allows deficiency judgments. The "deficiency" is the gap between what you owed and what the house sold for. Under KRS 426.005, the court can order the house sold and leave the homeowner personally on the hook for whatever's still owed.

So when a Kentucky homeowner does a short sale, the question isn't only "will the bank take less?" It's "will the bank forgive the rest, in writing?" On most Fannie Mae short sales, the servicer releases the homeowner from that leftover debt once the sale closes — with an exception when there's mortgage insurance (a policy that protects the bank if the loan goes bad) and the insurance company hasn't signed off. Get the forgiveness in the approval letter, in writing, every time. On an FHA Pre-Foreclosure Sale, HUD (the U.S. Department of Housing and Urban Development, which runs FHA) doesn't chase the leftover debt after a good-faith sale. But those are rules for specific loan programs — not a general rule of Kentucky law, and not something to assume on a portfolio loan (a loan the local bank kept for itself instead of selling) or on a second mortgage.

Credit-wise: it shows up as "settled for less than the full balance" and stays on the credit report up to seven years from the first missed payment. The wait to get a new Fannie Mae-backed loan after a short sale is four years — or two, with documented extenuating circumstances — versus seven after a foreclosure. That four-versus-seven is the honest case for a short sale over letting the house go.

They're coming back, slowly.

Short sales were under 30,000 nationwide in 2025 — six-tenths of one percent of all home sales — but up about 10% over 2024, and up roughly 16% year over year in the first three months of 2026. They sell for about 20% below what the house is estimated to be worth, versus 25 to 30% below for foreclosures, and they take about two months longer to sell.

The pressure behind that is real. Foreclosure filings nationwide hit 227,548 in the first half of 2026, up 21% from a year earlier. Kentucky had 2,053, up 19.2%. And ICE — Intercontinental Exchange, a company that tracks mortgage data — counted about 878,000 loans seriously behind (90-plus days late, or already in foreclosure), with FHA loans making up more than 80% of the recent increase.

That is the wave. It's small and it's building. The empowered will serve.

The objections, because they're different for these two.

"Why don't I just list it?" — On a novation, that's a fair question, and the honest answer is: you can. The novation only earns its money if the investor pays for the repairs, covers the bills while it sells, and takes the hit if it falls apart. If the house needs nothing and the seller has the money to wait, they should list it and keep the whole thing. Say that out loud. It builds more trust than any script.

"Selling my house behind my back?" — No. Written approval before any sale, and you're on the deed the entire time. That's the structure.

"What happens to the difference?" — You get paid first, in full, at the number we agreed. I get paid after, from what's left, and it's on the settlement statement.

"Will this hurt my credit?" — Novation, no; there's no loan involved. Short sale, yes, and here's exactly how much and for how long. Never soften that answer.

Where these leads come from.

Kentucky's court-run foreclosures leave a paper trail anybody can look up. The bank files a lawsuit (called a complaint) in Circuit Court, plus a lis pendens — a public notice recorded with the county that says "this property is tied up in a lawsuit." The homeowner has 20 days to answer. Then comes the judgment (the court's ruling), then the Master Commissioner — the court official who runs foreclosure auctions — orders an appraisal, advertises the sale, and auctions the house. If it sells for less than two-thirds of the appraised value, the homeowner gets six months to buy it back by paying the auction price plus 10% interest a year.

Jefferson County's auctions run Friday mornings at 9:30 at the Hall of Justice, District Courtroom 102, 600 West Jefferson. As of February 1, 2026, cash is capped at $1,000 per buyer, and surety bond forms (a guarantee that you're good for the money) are due by 4 p.m. the Monday before. Louisville Metro posts a list of upcoming foreclosure sales four to six weeks ahead.

Beyond that: homeowners who are 30, 60 or 90 days late on the mortgage, tax liens (a claim the government puts on a property for unpaid taxes), divorce cases, probate cases (the court process for settling someone's estate after they pass), tired landlords, and listings that already failed to sell at full price.

Tomorrow: seller financing and land contracts — and a 1979 Kentucky Supreme Court case that means the land contract you were taught to use does not do what you think it does.

Which of these have you actually done a deal with? Seller financing or a land contract ran away with it at 50%. Lease options 21%. Assigned a contract and "none yet — that's why I'm here" tied at 14%. Assumable mortgages: 0%.

Half of you have been the bank for a buyer (that's "carrying the paper") or signed a land contract. Good — because tomorrow I'm going to tell you why the Kentucky land contract doesn't do what you think it does. And that 0% on assumables? That's the whole reason that issue is coming.

Results in tomorrow's issue.

Today's list is distress: Jefferson County lis pendens filings (those public foreclosure-lawsuit notices), the upcoming Master Commissioner auction calendar, plus properties with open code-enforcement cases (city violations) that still have a mortgage on them.

To be clear about what it's for — not making money on short sales. It's for the tools that actually work on a seller who's behind: a novation on a house that's still clean, seller-financing terms for a seller with equity (they owe less than the house is worth), and the assumables tool — taking over the seller's existing low-rate loan — for a seller with a loan worth keeping.

Reply "DISTRESS" and I'll send it over today. Ask again tomorrow for the next one.

The Top Five is ready as always — five real deals on the Louisville MLS this morning, five lowball setups, and the number I'd offer on each. One-to-one only. That's not a tease, it's compliance. Reply "FIVE".

Warmly,
Rob Bergeron

Owner–Realtor at Award-Winning Winner Realty
Winner Realty | OffMarket.deals | Property Partner Data Company

Schedule time to discuss your goals, bottlenecks, or whatever’s on your mind — book me here.

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PS: If you're behind on a payment and reading this — that's not a pitch, that's the whole reason I wrote it. Book a call and we'll look at it before it's a court filing instead of after. I wrote about that a few weeks back in Shine a Light On It and I meant it then too.

PSS: Winner Realty Offerings (Investor Friendly!) Bring us an offer! Single family properties with seller financing offered. Multifamily with seller financing offered. Land with seller financing. Properties listed for rent 120+ days…maybe it’s time for a different solution? You ready to find out?

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