Need your short sale expertise.

I need your help. I want to buy a short sale property. I am going to negotiate it for $50,000. I want to resell it for $80,000. I am thinking of doing a double escrow. I have been negotiating a lot of short sale for my clients, but I never did a double escrow on a short sale. Do I need to disclose the short sale lender that I am going to flip it? Should I fund it with my own money or should I use the end buyer's money.(of course I rather use the end buyer's money, but what works best?).
If I have to disclose that I am flipping it to the short sale lender. How should it be written in the contract?
Also, how do I use a Land Trust to do the deal?
I heard that if I did a Land trust, I would not have to pay closing cost twice and my name and price will not show on the property record.

Thanks for your help.

Edited: 06/26/2010 at 09:54AM

Lafi S.

Wholesaler · North Jersey, New Jersey

213 posts
3 awards
50 influence

Oct 02 '09, 07:00 AM

Rodolphe,

First, using the end buyer's money to close is illegal. You do not want to go that route. A double close has to be two separate and distinct transactions. You close with the bank (A - B) then you close with your end buyer (B-C)

If you have your own money to use than you should close that way, if not you can use a transactional lender, who will provide you the funds to close your first deal giving they see the end buyer's contract and a bank approval. There are plenty of companies out there that provide this funding plus a few of the BP members here can offer it to you as well for a pretty fair price.

Second, you need to disclose that you are flipping to all parties. It's going to be a mess if you try to hide your intentions especially when dealing with so many different parties and you are likely to lose the deal that way.

Third, I have never used a land trust but your best bet is the option contract. It includes everything you need to protect you and discloses your intentions to everyone, including the bank. I have found a title company that provides it for free on their website.
You can go to www.oldschooltitle.com and get the full contract package that has everything you need to get your deal going.

Edited: 06/26/2010 at 09:54AM

Rodolphe Brun

Real Estate Investor · Pittsburg, Pennsylvania

65 posts
2 awards
50 influence

Oct 02 '09, 07:56 AM

Thanks Lafi, for your advise.

I still want to use a land trust to purchase the property. An I can use a option contract for that as well. But I am not sure it's the best way to negotiate it with the short sale lender.

Edited: 06/26/2010 at 09:55AM

Scott Hubbard

Rehabber · Tucson, Arizona

1,031 posts
11 awards
57 influence

Oct 02 '09, 03:04 PM

Originally posted by Rodolphe Brun

Thanks Lafi, for your advise.

I still want to use a land trust to purchase the property. An I can use a option contract for that as well. But I am not sure it's the best way to negotiate it with the short sale lender.

I would think long and hard about using a land trust in a short sale flip. The problem with Land Trusts will be with your end-buyer's lender. Typically, you use a land trust to help with seasoning, but most lenders will question the legitimacy of transaction. Land Trusts, when used properly, are a legitimate device. However, as a short sale, you would be misusing it and the lenders are aware of this.

Like Rafi, I agree you should use an option contract to avoid a whole set of new problems.

Edited: 06/26/2010 at 09:55AM

James Ward

Real Estate Investor · Ocala, Florida

748 posts
18 awards
55 influence

Oct 02 '09, 11:02 PM

Rodolphe,

1) It is not illegal to use the end buyers money to fund your deal! But, it is almost impossible. A) Most title companies do not want to do these types of closings. But you might find one that will. B) The end buyers Lender also do not like being involved in these types of deals. But, you might find one that will.

2) As for disclosing your intents, this is real simple. Just put in the contract to purchase that you are purchasing this property with the intent of resaling the property.

3) Land trust- some lenders will not accept offers when a land trust is the buyer. But some do. I know a few investors that this is the ony way the purchase. We do not. We buy in a company name.

4) Not wanting the end buyer to see how much you purchased the property for. Why? If the buyer is getting what they consider a "deal" than who cares how much you paid for the property.

5) Not paying closing costs twice. Talk to your title company about holding open title until you close the second time. This will assist in lowering the closing costs. Or ask them if they have another way to save money. They will help!

6) Using your own money. IMO if you have the cash or funds to close, why not. Why would you want to pay to use someones elses money if you had the funds yourself. But if you do decide to use transactional funding, use a member here a BP. He offers GREAT rates. Plus, it builds the BiggerPockets community.

Hope this has helped!
James

Edited: 06/26/2010 at 09:55AM

Rodolphe Brun

Real Estate Investor · Pittsburg, Pennsylvania

65 posts
2 awards
50 influence

Oct 02 '09, 11:55 PM

Thanks James,
That does help!
Do you have a special option contract that you used?

Edited: 06/26/2010 at 09:55AM

James Ward

Real Estate Investor · Ocala, Florida

748 posts
18 awards
55 influence

Oct 03 '09, 12:59 AM

Rodolphe,

Sorry but we do not use an option contract. We use our states standard purchase and sale contract (FAR/BAR). I do not have anything against option contracts, we just do not use them.

But there are lots of option contract out that you can use. My advice, either get your attorney or title company to review the contract that you want to use. Either one will be helpful with their knowledge. (I have even heard of a couple of title companies that will give you the contract that they want you to use.)

Edited: 06/26/2010 at 09:55AM

Will Barnard

Rehabber · Santa Clarita, California

Donor Pro

7,834 posts
23 awards
92 influence

Oct 03 '09, 01:21 AM

First, using the end buyer's money to close is illegal. You do not want to go that route. A double close has to be two separate and distinct transactions.

Lets clarify a few things here. It is NOT "illegal" to use the end buyer funds to close your A to B transaction. This type of transaction is called a simultaneous closing. As James pointed out, it is getting near impossible to do these due to title companies, the government cracking down on those that commit fraud (not all of these transactions are fraudelent), and the end buyers lenders.

A "double closing" is where the A to B and B to C transactions close on their own merit and thus require "wet funds". These wet funds can be your own cash, borrowed funds, or transactional funding (also borrowed funds).
As James mentioned, if you want to go that route, which allows you to have an UNLIMITED amount of short sale transactions taking place all at once, I can provide the flash cash and I can also provide the funding for the B or A and Wellsa Fargo deals which require you to hold the propery for 30 days before resell.

2) As for disclosing your intents, this is real simple. Just put in the contract to purchase that you are purchasing this property with the intent of resaling the property.

A very important aspect! Disclose, disclose, disclose. Several short sale investor stamp in big red letters right on the hud1 that "This property may be resold immediately for a profit"
Disclose to your end buyer, their lender, title, and the A to B transaction.

Edited: 06/26/2010 at 09:55AM

Will Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com

Brian Haskins

Real Estate Coach · St. Louis, Missouri

421 posts
2 awards
50 influence

Oct 03 '09, 12:53 PM

I would talk to your title compnay. They will tell you about their policies with land trusts and in some cases can provide you with one. They should also be able to tell you if they will do a double close and let you use the buyers funds which is the best way.

Brian Haskins

Edited: 06/26/2010 at 09:55AM

Will Barnard

Rehabber · Santa Clarita, California

Donor Pro

7,834 posts
23 awards
92 influence

Oct 03 '09, 02:46 PM

They should also be able to tell you if they will do a double close and let you use the buyers funds which is the best way.

You mean simultaneous close. Also, the "best way" depends on your perspective, objectives and opinions.
As already stated, simu closings are next to impossible to get done these days and you should have enough room in your deal to pay for transactional fudning if you dont have your own cash, otherwise, your deal is not quite good enough for the efforts.

On top of that, even if you can find a title company to perform the simu close for you, if your end buyer is using debt financing, then their lender may not be ok with it either - just another large hurdle to jump.

Edited: 06/26/2010 at 09:55AM by Will Barnard

Will Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com