Real Estate Investor · SPRING HILL, FL · Member since 2009 · 12 posts · 0 votes
Since they instituted a clause in their approval letter that says they will rescind the short sale transaction if the property is resold within 30 days . This is provision # 10 in their short sale approvals which is policy they adopted from countrywide when they acquired them.
If you have your title agent or attorney challenge this verbiage, BOA/COUNTRYWIDE will usually replace # 10 with a new clause that is even more broad based and prohibitive for flips/resells.
has anyone else experienced this? , or challenged this successfully?
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:
I offered 275k on a BofA property. They countered with 370k, which I'm guessing is their BPO.
What do I counter back at? 80% of that? 82%?
I agree with Will... You need to know how much the property will sell for quickly. This is where your listing agent should be helping.
Secondarily, you cannot assume BOA is countering at the BPO valuation. BOA does not always counter at the BPO. Sometimes they counter above, at or below. Where did your market analysis say the FMV is? Assuming the BPO came in at $370K, is that accurate? What are distressed comparables selling for?
Thirdly, it is a fallacy that lenders will automatically discount up to 80% of the BPO.
Instead, substantiate your offer with anything that shows they will NET less as a foreclosure than would by selling to you. At what discount to FMV do homes sell for at the courthouse steps? How much have REO comps sold for? How much is the average foreclosure cost in your area. What are the carrying costs? Does the property need any repairs?
You need to know what it will cost them to foreclose an how much they can expect to NET as a result. After all, this is the formula they base their decisions on.
Lastly, based on your numbers and adding extended financing via Will and 6% commissions, closing costs, a 5% price discount to the end-buyer, then 80% is probably a loser. I think you would be leaving a lot of money on the table if you settled for 80% of BPO.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Originally posted by H Mann:
I offered 275k on a BofA property. They countered with 370k, which I'm guessing is their BPO.
What do I counter back at? 80% of that? 82%?
What can you sell it for on the B to C side? That makes all the difference in how mcuh you can pay.
Also keep in mind your holding costs for the 32 days will be much higher than a standard double close.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Sorry to anyone who I missed answering to. Yes, my funding services are online and ready and we have been doing transactional funding deals all this month.
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Originally posted by H Mann:
I offered 275k on a BofA property. They countered with 370k, which I'm guessing is their BPO.
What do I counter back at? 80% of that? 82%?
I agree with Will... You need to know how much the property will sell for quickly. This is where your listing agent should be helping.
Secondarily, you cannot assume BOA is countering at the BPO valuation. BOA does not always counter at the BPO. Sometimes they counter above, at or below. Where did your market analysis say the FMV is? Assuming the BPO came in at $370K, is that accurate? What are distressed comparables selling for?
Thirdly, it is a fallacy that lenders will automatically discount up to 80% of the BPO.
Instead, substantiate your offer with anything that shows they will NET less as a foreclosure than would by selling to you. At what discount to FMV do homes sell for at the courthouse steps? How much have REO comps sold for? How much is the average foreclosure cost in your area. What are the carrying costs? Does the property need any repairs?
You need to know what it will cost them to foreclose an how much they can expect to NET as a result. After all, this is the formula they base their decisions on.
Lastly, based on your numbers and adding extended financing via Will and 6% commissions, closing costs, a 5% price discount to the end-buyer, then 80% is probably a loser. I think you would be leaving a lot of money on the table if you settled for 80% of BPO.
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
16y
The property can sell from 350-380, so 370k seems accurate for FMV.
Also, the realtor commissions doesn't really apply to me. I use my cousin as my realtor, so I get most of that money back. I just have to pay the end buyer's agent...
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
It is 32 days, giving your title company 2 days to record and return my funds. That cost is 10 points based on the amount I lend.
So if I lend you $300k, your points cost is $30k. Factor that into your numbers so that you leave yourself enough room to profit as do others.
Real Estate Consultant · Irvine, CA · Member since 2009 · 102 posts · 24 votes
16y
Hey all,
Great discussion going on here. I've been researching a bit on trying to get around this bottleneck at BoA. I've heard of some instances of investors creating an entity/LLC (which many transactional lenders require anyway) and then selling that entity instead of assigning their contract or double closing with another investor/retail buyer. This supposedly takes care of the negotiation/assignment fee and no transactional funding is necessary. Has anyone heard of this strategy or tried it? It would be good to know the legal/tax ramifications as well. Looking forward to hearing everyone's feedback!
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
16y
Assuming the end buyer is cash...why not secure them with a deed of trust in the short sale closing...use their funds to close...sign and notarize a deed...stick it in a drawer for 30 days...and once that time passes...have the end buyer record the deed.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Hazel, that is a possibility but it would only work if you were selling to an all cash investor buyer. A homeowner does not want to have to hold their property inside of an entity and most do not have all cash.
Mitch, have you tried and completed that successfully? I see a few holes in that your offer is in the name of your entity and not your end buyer's requiring some additional paperwork to push throough and get approvaed via by the selling bank.
Also, you could have problems with the title company not being willing to provide a title policy. Thridly, your end buyer is wiling to have you hold the deed for 30 days when they have all their cash in the deal? I sure wouldn't do that! Lastly, you would need to be paid outside of escrow unless I am missing something from your explanation, which is not legal.
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
16y
Hi Will,
It's actually not as complicated as it initially sounds. I have closed some deals like this already.
I write the offer, get the approval in my name (or LLC name) and actually close in that name. My end buyer is most likely another investor that I have done business with in the past...therefore there is a relationship between us. I agree that if the end buyer doesn't know me then there could be some trust issues...especially since I am using their funds to close. But wholesale deals are done all the time between parties that didn't know each other before hand...if everybody is comfortable with the situation and the proper paperwork is drawn up...no big deal.
Now, as far as doing anything outside of closing...once I own the house I can do whatever I want with it. If I choose to deed the property to my so called "lender" for a consideration of 5k...how is that illegal?
What if we decide to go down to the county recorders office and file the deed...not everything has to be done through a title company.
And as far as a title policy...everything is taken care of in the short sale closing...plus, as a real estate investor paying cash, others can attest to this, we do so much due diligence before we purchase...how many can say a title policy is really worth anything? I believe they exist for those who are getting financing to purchase because the lenders require it. Read through a title policy...there are so many ways a title agency isn't liable its rediculous. I'm not saying don't get a title policy in the short sale closing, just saying let's not let these deals fall through due to that being an issue.
In this scenario the end buyer is funding the deal in the short sale closing...at which point a title policy is issued...the protection is there.
If the big worry with B of A is the title company not writing a policy to the end buyer within 30 days...just have the end buyer take the deed down to the county recorder immediately after the closing...don't even wait 30 days, and that solves the other problem you presented of the end buyer holding the deed with all their cash in the deal.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Mitch, thanks for your response.
I have not done what you explain here, so I can not speak from experience, however, I personally would want to check this out with my legal counsel as some of the things you are stating may be "gray" areas.
For instance, the deed over after you own it statement. It is a possibility that the selling bank could take issure and force a claim. Not sure, just assuming the possibility.
Perhaps your plan could be written down in exact detail and then forwarded to me so that I may consult my attorney. If it does work and I have 0 liability issues, I am all for it and all short sale investors could have another option under their belt.
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
16y
Well one thing with the banks...I can't imagine they've got the time or resources to investigate issues like this.
But let's give them the benefit of the doubt for arguments sake. Are we even sure they have a claim? So they write up a letter stating that the property cant be sold for 30 days...or else what? If they make a claim what is the damage done to them? They accepted the wire transfer in the short sale closing...if they thought the property was worth more then why did they approve the contract sales price. Good luck convincing the court that even though they accepted the money in closing...they somehow have claim to more just because the property was re-sold within 30 days.
And about the 30 days...they came up with that number...whats to stop them from saying 6 months...12 months..etc...
So I think they are full of it....but it is working because title companies don't want to do anything that compromises their business.
So, if the B to C transaction really wants to close in escrow but the title company doesn't like the 30 day wording in that letter...you can always sign a document to indemnify the title co. in case the bank tries to pursue something after the fact.
But here is what I don't get...the bank has no ownership interest in these properties, they are just the seller's lender...therefore how can they make a claim regarding ownership and future transfers?
I mean, we don't have the right to go back to the bank (or the seller) after the Short Sale and make a claim if the property value decreases 30 days later.
Property Manager · Portland, OR · Member since 2008 · 212 posts · 14 votes
16y
Also, I checked with a title agent friend of mine who closes a lot of short sales. An approval letter just like that came across her desk...she called the negotiator and got the 30 day wording removed. If they had a legal claim they wouldn't have removed the wording.
Real Estate Investor · Gainesville, GA · Member since 2009 · 241 posts · 34 votes
16y
Oh Boy! This is getting better and better.
Thank you so much for the information. I lost a deal two weeks ago with BOA because of this 30 day transfer crap.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
We need a BP attorney on the payroll here!
What if we all chipped in to pay a high powered knowledgable attorney on this matter to find out once and for al for ALL of us?
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Doctors are the same way in their advice to you, yet we all do what we want to anyway and return to the doctor to fix the mess we got ourselves into.
Attorneys advice seeked out and should be heeded as a loss prevention medicine not as a deal killer. We will return, after doing what we want, and ask them to clean up our mess.
Real Estate Consultant · Irvine, CA · Member since 2009 · 102 posts · 24 votes
16y
Good to know, Will. Maybe BP should try a Pre-Paid legal RE attorney? I don't work for the company, but I"ve heard good things and for only 20-30/mo. how can you go wrong. Has anyone had experience with them for real estate deals?
Real Estate Consultant · Irvine, CA · Member since 2009 · 102 posts · 24 votes
16y
Good to know! Will & Andrew--Thanks for your input, I will definitely keep that in mind. I've been wondering about this issue as I haven't found a lawyer yet in So. Cal. I'm glad this network is here for answering questions like these!
Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
16y
Getting the 30 day restriction removed is best handled by an attorney. Why?
1. Though it is unenforceable it is still effective. As already discussed in this thread, the lender does not have the legal right to place restrictions on (at least in Arizona) transferrability. The problem lies with the title companies and their risk-adverse position on these psuedo-restrictions. Since they will not insure the title, they make the restriction valid.
2. Most negotiators will not have the authority to remove the clause as of June 1st (BOA).
3. Your attorney will contact the lender's legal department (in-house or outside) to discuss the rights issue.
The problem with having your attorney making phone calls is this will not be cheap. My attorney charges $300 per hour and there is no gaurantee this will even be effective.
A cost effective alternative is to use seperate closing companies on the A to B and B to C.
My attorney says, there are some risks involved in this arrangement. The first obvious risk is title insurance and the lack of disclosure of the restriction to the B to C closing company. Should the B to C find out about the lack of disclosure, or the A to B learn of the transaction prior to the 30 days, the title could be clouded and the end-buyer may have a case against you.
The fact you did not-disclose this restriction and you knew would give insurability problems would certianly look very bad on you. The fact of whether the enforceability is valid or not is now secondary, becuase it would be considered material since the title company on the A to B said they would not insure the title if resold within the 30 day window. This actually is considered fraud in my state.
The least cost prohibitive and legal approach in my opinion is:
Have your attorney issue a legal opinion in the form of a letter addressed to the lender which is sent to the negotiator and the ntitle agent. In this letter, the attorney should support the fact this is unenforceable along with the suggestion his client (you the investor) has the right to protect its interest in the subject property and will tie up the property including filing an injunction against the foreclosure proceedings.
Once the letter has been written once, it now becomes a template and can be issued by a paralegal on future files thus cutting the cost to resend.
Assumptions here are your attorney agrees with the lack of validity and believes that a judge will agree. Also agrees you are not hurting the seller and believes this will be enough leverage to get the clause removed.
Regardless of which route you decide to take, I would sugest you make sure your seller is on board and you have enough of a spread to absorb some of these costs.
Recently I ran into this clause and I asked the negotiator to remove the restriction... that did not work. I asked my title officer if she would issue a letter to the lender explaining this is unenforceable and uninsurable and her legal department said she could no longer intervene. Although she said she cannot interevene becuase it does not hinder the title insurance to be issued under most transactions, I believe the real reason is they do not want to piss of lenders for fear they will pull business.
I called my attorney to discuss my risk using seperate title companies. After a long winded speech about the different risks, the one I recall is the one above which ended with the word FRAUD. My attorney is very conservative which is good since I am not.
He suggested the opinion letter because it is the cheapest route and believes we could leverage my option contract and tie this transcation up. Although I do not have a lot of margin on this deal, I am willing to roll the dice as it would be an investment in future BOA deals. Either way, win or lose, it will payoff in the long run.
Since my attorney has only recently submitted the letter, I do not have any results to report. I figure, if it does not help, then I will pursue only those deals where I know I can carry the property for the 30 days. If it works, then I will again pursue BOA deals.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
We are working on a way around this legally and ethically as well. In the interim, don't lose your deal or let it go as I can fund your deal via transactional funding and carry the hold for 32 days giving you the seasoning required to sell to your end buyer (that you already have in place).