BiggerPockets

There are Five important points regarding Short Sale Double Closings (A to B; then B to C): 1) Necessity of Title Insurance for the A to B transaction; 2) Necessity of Disclosure to Short Sale Lender ("SSL"); 3) Necessity of Wet Funding (aka Transactional Funding); 4) "C" lender's consideration; 5) Title Company Concerns.

I deal with many investors across the country and the above issues are a major concern. There are a few bad apples that have caused an ugly stigma for this particular real estate practice. Done correctly, this will speed the recovery of our current crises. That is not only my opinion, but Alan Greenspan's today on CMBC. So let us take advantage of this opportunity, but do it right!

#1 speaks for itself and is mandatory per every title audit I have had in the last 12 months. Remember that these are two transactions.

#2 Most/All underwriters require disclosure to SSL. This can come in many forms. The best form displays disclosure conspicuously in original offer. It will not materially deter acceptance in most cases. NOTE ON APPRAISALS: A BPO is ordered by the lender and is based on other distressed comps (A to B); B to C is an arms length transaction and is based on other similar sales. This is not a hard concept. Certainly is not fraud.

#3 Get Wet or get in trouble. This is probably the most important concept of all. You must maintain separate closing status. (Note: shop price).

#4 Land Trust vs. Option Contract; FHA lenders like Land trusts, Fannie Mae will do no seasoning option contracts loans.

#5 Your title company may not close your transaction if you do not do the above. You must emphasis that you are playing by the guidelines as they have provided it. Make sure your title company knows how to explain this transaction.

Let me know what you think.

Robert MacKinnon

I am curious how a simultaneous close can be successfully done in a short sale...if the bank gives an approval at 100K...I find an end buyer at 130K...does the title company disclose or not disclose to the foreclosing lender that I closed previously at price of 130K and then am using 100K out of that 130K to close on my end...won't the foreclosing lender argue that they are entitled to the excess funds?

I understand the concept of a back to back closing...I operate with option contracts...negotiate to the point where I get an approved price...while at the same time marketing the property to an end buyer...since I file the option with the county I can enter into a purchase and sales with an end buyer and they can get financing set up...ideally both closings happen on the same day.

First of all I would like to thank you all for responding.

Mitch,
Just as a point of clarity, I am using simultaneous closings and Back-to-Back in the same way, much like the option closing you mention.

As for disclosure, we require disclosure to the Foreclosing lender at the earliest stage (Offer of short sale). It must state some language to the affect that the property is being purchased by an investor with the intent to sell for a profit.

There should be no difference in the disclosure method between using the option contract and the land trust.

If anyone is intersted in the option contract forms please contact me. I will email them to you.

Thanks

For most otherwise qualified Fannie Mae borrowers, there is no seasoning, FHA, always. However, some lenders have an internal policy, no options!, no land trusts!

But I have another choice that is working, email me for details

Mitch,
Tell me more about equitable interest, I might know that as a different term.

E-mail address removed per forum rules. Use profile for e-mail address. Please do not solicit business in this forum. If you have a strategy for situations like this, please describe it here.

I'd say that if you do deals where the previous homeowner do not stay in the home and rent back or have some sort of option to buy back then you are fine.

Any sort of transaction where you are withholding information from the lenders will also get you into trouble. Practice full disclosure and you will be fine.

Otherwise...the article doesn't really relate double closings to scams..not sure if I missed something but I didn't see that as part of the article.

If someone confronts you about what you are doing and you cant disclose exactly what it is you are doing then you probably shouldnt be doing it. My thoughts anyways.

Thanks guys. My deals are structured in a way that the lender we negotiate with knows in all the documentation that we will not hold the property and this fact is fully disclosed to them. Also for teh second transaction it is fully disclosed that this transaction is subject to a previous transaction. Now with the paragraph you quoted a deal structure like this could be labeled as "equity creation" and like you guys I do not see why this would be a scam. Any wholesale would need to be considered a scam and this would apply to so many industries. Like selling on ebay and actually purchase from a drop shipper. I do not order the product until I have the order in for a higher price. Really appreciate your input.

Mitch, I see your point and it was not a good comparison from my end. Basically I wanted to state that any wholesale in any industry could be classified as a scam and my point was that it is not. But I totally agree that it would be, if you charge fees or not completely disclose what is done to make the transaction work for all parties involved.

The article definitely just looked at it from one angle and talking about parties, who are in it to defraud someone.

** For most otherwise qualified Fannie Mae borrowers, there is no seasoning, FHA, always. However, some lenders have an internal policy, no options, no land trusts. **

Title seasoning for FHA loans is 90 days. You cannot enter into a contract with your end buyer until the 91st day of your ownership.

http://www.mortgagebankers.org/files/Residential/2003/fha-03-07.pdf

Title seasoning for Agency (Fannie/Freddie) loans obtained by your end buyer is 12 months for new higher value.

http://www.mortgagebankers.org/files/News/InternalResource/64858_Announcement08-22.pdf

No outstanding liens (e.g. purchased for cash or previous mortgage loans have been paid off)

âˆ' If the property was purchased within the 6 to 12 month period prior to the
application date for the new financing, the LTV ratios will be based on the lesser of the original sales price/acquisition cost (documented by the HUD-1 Settlement Statement) or the current appraised value. Standard Selling Guide or DU eligibility will apply, as applicable; or

âˆ' If the property was purchased more than 12 months prior to the application date for new financing, the current appraised value may be used to calculate the LTV ratios.

Unfortunately, most lenders interpret this as applicable to your new end buyer, especially in a declining market.