Short Sale Flips. New Laws.

I am working a few short sale deals that already have been approved and negotiated down to a good price. I planned on putting an option contract on them and then perform a double closing. Short Sale laws seem to be changing everyday now. I live in Oklahoma and have talked to many local lenders and national lenders and NONE of them will accept a B-C transaction due to title seasoning. I know FHA/VA has title seasoning issues for 90 days but these buyers are trying to buy with a conventional loan and still no luck.

Has anyone had better luck? or maybe Im doing something wrong? Maybe the laws have changed again and some of the posts on here for flipping are older.

Also is using an option to assign contract the right contract to use in this situation? If so how long should I write my contracts for to give me adequate time to find an end buyer?

Thanks for the help.

Edited: 06/26/2010 at 08:28AM

Justin S.

Rehabber · Chandler, Arizona

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Icon_minipost Jun 06 '09, 12:50 AM

Matt-

There are lenders out there will lend on a B-C closing. If you're title company doesn't know which ones, then you are using the wrong title company and ask around more. You need to disclose this to your end buyer so they are aware of what is going on. When they do a title search and find you are not the owner, then red flags go up unless you communicate the plan to them.

Some argue for the use of option contracts and some argue against. I've been taught not to use them (for short sales) because they do not give you an "equitable" interest in the property. They only give you a "marketable" interest. You cannot legally market the house for sale, you have to market your contract. Which means you cannot market on the MLS if do not have an equitable interest.

I'm sure others will pipe in and say a option contract does give you equitable interest, but some of the most experienced investor on here tell you otherwise. Eitherway, you can do both strategies as long as you do a double close. The banks typically will not allow assignable contracts.

Also, ask some of the flash funding companies on which lenders are allowing B-C funding. They'll be able to tell you as well.

Edited: 06/26/2010 at 08:28AM by Justin S.

Justin S., Wheelhouse Properties
E-Mail: wheelhouseproperties@gmail.com
Telephone: 4806780446
Website: http://www.wheelhouseproperties.com
Realtor, Re-modeler, Cash Buyer

Lafi S.

Wholesaler · North Jersey, New Jersey

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Icon_minipost Jun 06 '09, 05:12 AM

Matt,

are you recording the contract?

Edited: 06/26/2010 at 08:28AM

Nick J.

SFR Investor · Scottsdale, Arizona

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Icon_minipost Jun 06 '09, 09:48 AM

Matt, these "laws" are actually "lender policy" and they change and vary from lender to lender.

Edited: 06/26/2010 at 08:28AM

Matt Chandler

Loss Mitigation Specialist · Edmond, Oklahoma

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Icon_minipost Jun 07 '09, 01:45 PM

Thanks very much for all the support and feedback.

I have done a lot more research on this topic since I wrote this post and here is what I have came up with.

Every deal is different. One lender might not accept a B-C in one case but will in another case. The one thing that is certain is no FHA/VA. Only conventional and it depends on the bank/investor and the deal.

Im sure there are some companies that are more lenient than others but the fact of the matter is it has to be a legitimate GOOD deal that truly is worth what you are selling it for to the end buyer. Also I have seen that you always want FULL disclosure and get everyone on the same page.

About the option contracts:
I do plan on recording them at the court house which I heard gives you equitable interest. Where I think some people say it does and some say it doesnt might depend on the law for that state.

One thing I have heard is that most end buyer lenders will NOT fund an option contract so it is better to just end up doing a double closing. Any thoughts or advice on this?

Great idea though on asking the flash funding companies about end buyer lenders.

I have a question on the reply from Justin:
You said most lenders wont accept option contracts for a short sale. What is the best way to structure a deal so that you can wrap a deal into contract and then market it to an end buyer? What is a typical time frame and length a bank will accept a contract for? Is there any risk involved in doing this? Could you lose your ernest money?

I appreciate all the feedback and hope that some of these answers might help other investors.

Edited: 06/26/2010 at 08:29AM

Scott Hubbard

Rehabber · Tucson, Arizona

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Icon_minipost Jun 09 '09, 03:09 AM

In order to be successful at short sales you must have at least an alternative plan to transactional closings with the ability to close with your own finance or with cash.

If you are unable to use your own funding, then look for investors who are willing to go to bat for you.

With respect to option contracts and marketable vs. equitable interests. I have used both PA's and Option contracts and find you can use either contract and still market the property on the MLS if you use them correctly and inconjunction with other agreements.

You cannot use an out of the box PA or option contract and expect it to be your end all device. You must be flexible when using contracts and tailor the contract to fit what it is you are trying to accomplish.

Most Real Estate transactions, no matter what other people tell you, are not boilerplate.

Edited: 06/26/2010 at 08:30AM