Short sale POF & Funding help, I already have it sold, just need to close.

15 Replies

I had a property that I was wholesaling, needed a complete rehab down to the studs as a hoarder lived there, highest real offer I got was $155k, I had it under contract for $171k. ARV was easy 220k best day $235k with $40k rehab and it's in an awesome neighborhood.

Told the seller he needed to shortsale, he agreed, my shortsale specialist I networked with here said the lender is cooperative and we are at the point where they are waiting for my POF to send for decision... the offer price is $97k, and the attorney said it's most likely they will approve at that price or near it as the place is in horrible shape and it's a hoarder house.

So I was going to Fund this myself from an IRA using the 60 day rollover deal, but the bank didn't accept my POF letter, they want bank statements in the company name showing the balance as POF.

Other than risking not getting my money back in my IRA fast enough to avoid penalty, what is the best option here? Can I take a loan for just a few days to show the bank statement, then right before closing either use my IRA/other loan? I have buyers from $120k - $155k on this one.

You need to check the banks sales contract very carefully.  Most of them will prohibit resale of the property for some period of time.  Most often 90 days.  So 60 days is likely not possible.

You can look into long term transactional funding which very few of us do.  Those that do will require large non-refundable security deposits from your buyer.  That funding is also pretty expensive and I am not sure you have the profit margin built in.  If there is a rehab down to the studs required, I think your price will look more like 120 than 155.

@David Sicherman  

Do review our short sale approval carefully once you get it.  Most short sale approvals (FNMA and Freddie) will have an addendum requiring you to hold the property for 30 days; or for 90 days if you resell for more than 120% of your purchase price, and it generally comes in the form of a Deed Restriction.  Extended Transactional Funding could work but they are challenging funding's for the funder and are expensive, and the funder or a hard money lender is generally not going to put funds into a personal or company account in your name.  You might consider a joint venture partner and requesting the short sale bank to amend the contract from your company name to your company name "and" the name of your joint venture partner. 

720-291-9100

@Ted Akers   At what point in the process does the addendum come out as I haven't seen any restriction of sales to this point?

Actually Ted, I did find a company that basically does POF in your busniess name into a money market account that you basically "rent". basically cost 1.5%

Hey @David Sicherman,

You should see it within the conditions of the short sale approval, or it may come as an addendum requiring signature at closing.  The more critical part is that it can include a Deed Restriction to be recorded to preclude sale within either the 30 or 90 day timeframe.  You cannot tell until you see the approval, although you can have your negotiator ask now if there will be resell restrictions.

720-291-9100

Usually it's only FNMA/Freddie with a resale restriction.  Whoever is negotiating the short sale should know.  With some borrower info (address, SS#) anyone can look it up on the FNMA site.  If so, it will now just be a 90 day restriction on sale/mtg of greater than 120%.  You won't see it on writing until you get the actual written approval letter.  So, if that happens, you simply do an immediate deed transfer, to maybe one of your other entities, for the same price, your deed restriction is gone as it doesn't apply to the new deed holder, then that entity can resell for whatever price it wants.

The FNMA restriction is: no transfer (or encumbrance)within 90 days for more tan 120% of purchase price.  I haven't seen the "no transfer within 30 days" for a long time.

@David Sicherman . I am late on this post, but I've used, and still use, a self directed IRA to purchase some short sales and never had an issue. The IRA is the buyer so when I show the IRA statement it has always been suffice. The company I use is very inexpensive and provides top-notch customer service.

http://www.mountainwestira.com/

Most banks will also require you to disclose any agreements related to the property outside of that between you and the seller (and sign an affidavit at closing this affect).  If you have an agreement to resell the property, this will legally need to be disclosed to the lender, and there's a very good chance the lender will not approve a short sale where there is a wholesale agreement involved.

For this reason, wholesaling short sales is near impossible these days, unless you're willing to wait until after your closing to sign a resale contract (and then wait 30, 60 or 90 days to actually sell the property).

I am going to close on it fund it using the IRA roll over and sell it within 60 days. If they have something that says anything about resale date restrictions past 30 days guess it's no deal.

If you have to take it down to the studs, there's a better than average chance that it will take at least 60 days to rehab. I've done several hoarder houses from the 30s and 40s, and it takes a lot of time to get those houses updated and beautiful. So unless you have a very fast contractor, the point may be moot. 

How are you getting these 'multiple offers'? .. and what is a 'real' offer?  .. and more importantly, what does that make your offer?  Hopefully not a fake offer (straw buyer).  This sounds really bad, but I'll give you the benefit of the doubt that maybe your just wording things the wrong way. ;)

The clause is usually found in the 'Short Sale Addendum' or 'Arms Length Affidavit'.

Phil Z., Real Estate Agent in Connecticut (#REB.0789205)
203-936-7776
Originally posted by @Phil Z. :

How are you getting these 'multiple offers'? .. and what is a 'real' offer?  .. and more importantly, what does that make your offer?  Hopefully not a fake offer (straw buyer).  This sounds really bad, but I'll give you the benefit of the doubt that maybe your just wording things the wrong way. ;)

The clause is usually found in the 'Short Sale Addendum' or 'Arms Length Affidavit'.

I had it as a wholesale deal and under contract with seller about 6 months ago, price was too high because of a mortgage on it.  During that time I got the offers and now have a long list of buyers for the house from back then.  And the cherry on top is the market has gone up each month since then.   What exactly is a "fake offer" in your head?  

Originally posted by @Donna Florio :

If you have to take it down to the studs, there's a better than average chance that it will take at least 60 days to rehab. I've done several hoarder houses from the 30s and 40s, and it takes a lot of time to get those houses updated and beautiful. So unless you have a very fast contractor, the point may be moot. 

I digress, the drywall is fine mostly (at least 6 months ago), but kitchen, bathroom, flooring and roof need to be redone.   House is CBS built in the 60's.

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