Can you wholesale a short sale

27 Replies

can you wholesale a short sale, property?  The owner wants to quit claim it over to me.  To make it easy does that help anything?

Most banks will not allow you to assign a short sale.  The entity on the contract must be the entity that buys.  Additionally, many short sales have contractual limitation on when you can resell, so double closing is probably not an option.

What you CAN do, is "borrow" the funds from the end buyer, and write up something like a purchase option agreement that allows them to purchase the house from you when holding period is over (essentially eliminating the mortgage they hold, giving you your fee and transferring title) maybe with a power of attorney given to them to execute your side of the deal.  This is riskiy for the buyer, though, so there needs to be a lot of trust.

Alternately, you could form an LLC, secure the deal (you'll need to have an accepted offer and will need proof of funds) and then sell the LLC just prior to closing to the end buyer for your wholesale fee.

@Larry T. Have you ever done a wholesale deal the way you described? I am in NJ and I have never heard of that but it sounds interesting.

Originally posted by @Gilbert Ross Jr:

Larry T. Have you ever done a wholesale deal the way you described? I am in NJ and I have never heard of that but it sounds interesting.

 Hey Gilbert and larry,   I recommend NOT doing that.  Here's a fed indictment where the guys were doing the same thing.   be careful out there...  check it out..  

http://mortgagefraudblog.com/five-indicted-for-illegal-property-flipping-scheme/

@Gilbert Ross Jr  No I have not. I have only spoken to my attorney about it.

@Kris Haskins  Thanks for the link. I definitely don't want to do anything illegal.  I'll forward this to my atty.  The article says they submitted false documents. I didn't know it was illegal to profit from a short sale. Indeed, I thought the purpose of the bank not allowing assignments of contract or requiring 90 days to resell was simply to make it more difficult, though not impossible to profit.  Is there a law against re-selling short sales?

Don't transfer title .. it will do nothing other then save the seller from signing the purchase agreement.

A few can be wholesaled, but you have to be VERY familiar with which servicer holds the mortgage and their documentation because 90% will not allow it.

so many different opinions from different so called gurus/experts that it's just confusing..who is right on this?

An interesting subject!

@Kris Haskins   - I've just read the actual indictment fully:

http://mortgagefraudblog.com/wp-content/uploads/20...

It would appear that the 5 defendants involved, actively & knowingly participated in the creation & submission of false & fraudulent documentation to secure the short sales - 9 counts of fraud in total, and it would further appear that they were aware of their actions.

There also seem to be issues with "declared relationships" (which is interesting as it could pose problems for wholesalers with relationships with realtors finding the short sales on their behalf). However, I don't really see any problem wholesaling a short sale if the transactions are fully transparent and conducted properly with full disclosure.

Question: Is it "actually" illegal to put a short sale property under contract via an LLC, and sell the LLC to the investor, providing the legal process of setting up the LLC and complying with the banks documentation are followed?

Question: Is it "actually" illegal to create a "Revocable Living Trust" and use that to put the short sale under contract, then sell the Trust to the investor (for investors who intend to fix ' flip and not buy and hold).

Question: Could there be a problem in making financial gain from the sale of either of these entities to an "end buyer" prior to the end of closing?

Question: Is it possible to change the name of the buyer in escrow, a few days prior to closing?

(Possibly the attorneys on the forums might care to provide their opinions on the above questions for clarification or further discussion)

When the bank counters the offer, if it is opposed to assigning the contract, there will be a clause in the counter offer stating that the property cannot be re-assigned. If it's not included, I'd assume there shouldn't be a problem with re-assignment (???) !

A call to the Realtor working for the lender, or the Bank's representative (prior to making the offer) would reveal the banks requirements regarding re-assignment.

Is this situation USA-wide or just restricted to certain states?

Again . . .  an interesting subject!

I don't know the laws or processes.  I've offered I've not purchased any. 

Most short sale situations require some sort of proof by the seller of reduced value of the property perhaps by affidavit. The seller cannot benefit in anyway!

I've seen some where the buyer becomes a party to this reduced valuation and could be accused of participating in the fraud if trying to aid the buyer in establishing a false value. 

@Leon Duncan To answer your specific question, if the owner QCD's the property over to you, No you will Not be able to do a short sale, only the Borrower can, while still on title.  In general short sales are difficult to short sale, and I don't recommend it, for both the wholesaler and especially the owner.

@Steve G. buyer's names will Not be allowed to be changed from that on the purchase agreement. Assignments will be specifically denied. It doesn't matter what's in your purchase agreement (with the owner, Not the bank) the Approval Letter is specific to the buyer named in the purchase agreement. As to transferring of LLC interests; that could go either way, depending on exactly how it's done, the specific language in the Arms Length Affidavit all parties will sign, etc. Banks don't usually allow any type of Trust entities as buyers theses days, or this very reason.

@Wayne Brooks - so creating an LLC, making the offer in the LLC's name and the selling the LLC to the end buyer is a legal way to work a short sale, and to ensure the lenders criteria of no-reassignment or seasoning is met?

How do rehabbers/investors/end buyers view the prospect of owning a new LLC, doing a rehab and then closing the LLC down once they've unsold the property, and what are the costs involved in the setting up, holding and closing down of the LLC?

you can wholesale a short sale. I do it all the time. It will have to be a double closing and the easiest way to do it is to buy it in a land trust and then sell the beneficial interest of the trust.

Wayne it is a double close. The seller closes with the land trust and second closing happens when the beneficial interest is sold to the end buyer. 

@Christian Marin My understanding of "double closing" has no reference to whether it is bought into an LLC, or Land Trust, or any other specific sort of entity. Rather, it just means that whatever name is on the Purchase Agreement is the SAME name that the Title transfers to in the first closing (at which point, the Seller/Owner MUST receive their agreed purchase price). Only AFTER the Seller/Owner is fully paid can your second closing take place to the end Buyer that you are wholesaling it to.

Can you see regarding "double closing", that "selling the beneficial interest of the trust" after "buying it in a land trust" is just irrelevant mumbo jumbo? Cheers...

A double close generally refers to the transferring of the "deed".  Hence the reason behind transferring the beneficial interest, as opposed to a double close, when there is a deed transfer restriction.

Thank you Brent for that amazing explanation of a double closing. However to be able to pull your money out of the deal you will have to sell the beneficial interest of the land trust which can be done with a lawyer or title company hence you still have to sign documents again and cash is disbursed jus like a closing. What I meant by you have to double is that you can not in anyway assign a short sale contract. I do also close in the traditional double closing way but there is a special way you have to do it which I will not disclose as this gives us an advantage over other investors that can't come up with ways to close a deal and I assure you it is all legal as lawyers are involved in the transaction.

The short sale paperwork on the ones I've done were very specific about the seller making a profit and restricted selling right away. 

You cant do traditional assignments of contract or double closings, but like has been said, you can contract it in an entity and then sell that entity. Land Trust works if the bank will sell it to the trust and the buyer is OK buying the beneficial interest of the trust. LLC would be cleaner I think, but more work and cost.

Ideally you'd have a buyer in mind before you put it under contract, you dont want to be shopping that thing after the fact selling an LLC or Beneficial interest with as small a timeline as you would have with the short sale between approval and close, plus you'll need an experienced guy to sell it to that would be willing to buy the entity.

@Darrell Shepherd You said: "The short sale paperwork on the ones I've done were very specific about the seller making a profit and restricted selling right away... You cant do traditional assignments of contract or double closings, but like has been said, you can contract it in an entity and then sell that entity". 

Hmmm. So Darrell, are the short Sellers still ignoramuses? Or is it just that you and your ilk are so much cleverer? Cheers...

Hi

Life is Beautiful

Earning money the Legal way keeps it that way

Committing Bank Fraud is not the way

Short Sale is an Arms Length Transaction

No Disrespect only expressing my views

DO NOT LOOK FOR WAYS TO WORK AROUND THE LAW
WORK WITH THE LAW

Stay in love with your Life
Good Luck

Different banks/lenders . . .  different rules. 

There are no "one size fits all" solutions and if good, reputable and knowledgeable lawyers are involved and understand the lenders contractional short sale criteria - it should be OK .

Creativity is the key - as it always is in investing!

"Find a way" (Diana Nyad - TED Talks)

@Steve G -

The rules are not different for banks/lenders. They are all subject to the same rules and regulations. "the most restrictive restricts" so, even if local rules may be more lenient or favorable, the federal rules won't. There IS a one size fits all with banking regulations. Unfortunatley, "Creativity" is not a term that is favored in the banking world.

-One correction; size does matter so, if it's one of the big 5 subject to the National Servicing Settlement or, a bank/lender subject to "Large Servicer" designation by the CFPB, the rules are even more restrictive and...while it's great in theory and on television,

"good, reputable and knowledgeable lawyers" are like Unicorns.

@Ron S. - thanks for the post.

So just to clarify . . .  are you saying the Federal rules prohibit the assigning of short sales negotiated through a lender?

No, not at all. I'm simply rebutting what you said about different banks having different rules. They don't have different rules where they are subject to Federal regulation.

@Ron S. - Thanks for the clarification.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.