Don't do Double Close Escrow for Short Sales
Commercial Real Estate Broker · Fontana, CA · Member since 2008 · 68 posts · 20 votes
I have been seening alot of post of how to do double close in CA.
YOU CANNOT OR YOU WILL BE IN JAIL
Detectives label this transaction as "you a perpitraitor". You will be in prison 5-10 years even on the first offense.
As you know they do not like us investors, so they have made a rules on short sales. Short sales are a dangerous game.
To make it easy if you do a SS keep it for CASH FLOW ONLY. Because even if you flip it after 90 days the seller can still go after you.
You want less headaches not more.
I found this when I searched:
https://www.efanniemae.com/utility/legal/pdf/fraudnews/mortgagefraudnews0709.pdf
I emailed the mortgage fraud department at Fannie Mae about their exact position on this matter and I'm waiting for a response. The newsletter doesn't say its fraud. It says its an inappropriate property flip.
I'm curious what laws it actually violates if any. If you are honest with all parties involved I don't see how it could be fraud. Obviously Anthony's antics are extreme and unfounded but I'd still like to know exactly what Fannie Mae thinks about it.
I am NOT an attorney, but from my ignorant reading of the act it doesn't necessarily care what your intent is. It doesn't qualify your actions based on intent. It specifies that if you do or say this then you are a foreclosure consultant. It doesn't say if your intention is this then you are a foreclosure consultant.
And even in that first paragraph of intent it also states that homeowners "often lose their homes, sometimes to the foreclosure consultants who purchase homes at a fraction of their value before the sale." If that doesn't describe what a short saler does I don't know what does.
It also worries me because it states in 2945.c(2) "The provisions of this article shall be liberally construed to
effectuate this intent and to achieve these purposes."
"Liberally construed" would scare the crap out of me if I was working preforeclosures in California. Until case law develops to define this act more I think making assumptions about it is a very dangerous thing to do. Again I would highly recommend getting very competent legal advice if you are working preforeclosures in California.
I'm not a "the sky is falling" kind of guy, but with legislation that can even be "conservatively construed" to include my business model I would be very cautious.
There's really two ways to go with it. One, you make sure you don't do anything to fall under the act as a foreclosure consultant which can be a challenge if you are going to work short sales, or two, you do everything you need to do to follow the act and be kosher as a foreclosure consultant which includes quite a few hoops to jump through. The act says in 2945.4.e that it is a violation for a foreclosure consultant to "Acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted." So purchasing the property as a foreclosure consultant may not be an option.
Again, the bottom line is talk to an attorney.
This is a great topic and I appreciate everyone's insight. This isn't new in CA, I remember dealing with this in 2007 and we actually met with our attorney about this because we used to charge for our services. There are 3 key things I'd like to point out in the statute which I think is more about controlling foreclosure rescue firms than investors purchasing as principals.
1.) The first sentence of section (a) seems to be the context of what they're trying to stop: fraud on the homeowner which could stop them from getting any "surplus funds" from the trustee sale. In other words in a foreclosure trustee sale there are times (rare) where the homeowner actually had equity and would be entitled to a refund after all liens are paid. I actually heard of homeowners walking away from their homes, but they actually had equity and were owed some money after the foreclosure sale. The Feds want to prevent "consultants" from charging people up-front fees and having the homeowner deed over their property and thus potentially stripping the property of its equity.
"2945. (a) The Legislature finds and declares that homeowners whose
residences are in foreclosure are subject to fraud, deception,
harassment, and unfair dealing by foreclosure consultants from the
time a Notice of Default is recorded pursuant to Section 2924 until
the time surplus funds from any foreclosure sale are distributed to
the homeowner or his or her successor."
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2.) The last sentence of section (a) continues the context that the homeowner could on their own get "remaining funds" from the trustee sale directly without having to pay "exorbitant fees" to consultants. Again, this to me supports they do not want the homeowner to be taken advantage of by deeding over their property to a consultant and losing out on their equity (rare in these days).
"This results in the homeowner paying an
exorbitant fee for a service when [b]the homeowner could have obtained
the remaining funds[/b] from the trustee's sale from the trustee directly
for minimal cost if the homeowner had consulted legal counsel or had
sufficient time to receive notices from the trustee pursuant to
Section 2924j regarding how and where to make a claim for excess
proceeds."
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3.) Section (i) defines the intent and purpose: "agreements to be in writing", "to safeguard the public against deceit...". In other words do not commit fraud and make sure things are disclosed and to give the homeowner a chance to change their mind.
"The intent and purposes of this article are the following:
(1) To require that foreclosure consultant [b]service agreements be
expressed in writing[/b]; to safeguard the public against [b]deceit and
financial hardship[/b]; to permit rescission of foreclosure consultation
contracts; to prohibit representations that tend to mislead; and to
encourage fair dealing in the rendition of foreclosure services.
(2) The provisions of this article shall be liberally construed to
effectuate this intent and to achieve these purposes.â€
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Although this is scary because we don't want a witch hunt, but also we have to get where they are coming from. I am not giving any legal advice. Just my opinion and experience (sad we have to say this).
Moe
Agreed. I don't see them trying to stop investors from making their living. What I do see is them stopping "consultants" from stripping equity in the manner described above. They know that investors are keeping things running & people as well as banks would be screwed without us.
DISCLOSURE, DISCLOSURE, DISCLOSURE....
:wowie:
Politicians don't care about your living. They care about votes, and that means we are definitely not their priority.
And frankly investor speculation was one of the major contributors to the over inflation in the bubble markets. I would think most people and especially most liberal politicians care more much about protecting the person in foreclosure from any possible threat then ensuring you can make tens or hundreds of thousands of dollars in profit from them.
I would always be weary betting on people's empathy
I would have to say that the "major" contributors were the greedy banks giving loans to anyone with or without a heart beat (also to their qualifying pets, ha ha) as well as wall street and their infinite greed, finding very lucrative ways to package up the loans and sell them off for billions of dollars.
Your thoughts?
After reading the first few paragraphs of teh article, I find that the article is directed towards laon mod companies and the frauds and scams they attempt to pull off on homeowners. I don't see a connection to short sales in the doc. Am I missing something?
would 'Builders' be put in the same category as 'speculating investors'?
Builders were building spec homes and having their own appraisers and lenders involved, while you may have statical proof which I don't deny or object to you having. I'm just curious if the builders would be put in the same category or do they have their own special category like 'Bankrupt' :)
Good point Nick. I am not sure builders were in that catagory or not. Could be, could be not.
If not, then that would need to be added of course and many of them added to the problem. I would say that overbuilding (case in point, Vegas, AZ, FL, etc) was a "major factor" as well.
ya, I agree. It would be interesting to see if there is a report out there on the world wide web that put more clarity to factual data on consumers, speculation investors, builders, hedge funds/wall street and their perspective roles or percentages to the collapse/meltdown/downturn or whatever you wanna call it.
I think we can all obviously agree that RE in general was the playing factor, and now laws like the one being mentioned here come to life.
I'm not a lawyer either and I asked this question a few days ago. The portion of the law that I find interesting is bolded below:
2945.1. The following definitions apply to this chapter:
(a) "Foreclosure consultant" means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following:
Because short sellers are not charging the homeowner any fees, I don't believe this applies to us. I guess only time will tell, though.
Nationally recognized attornies are fine with and promote double closings; but ALWAYS with the premise of full disclosure to all parties. Hiding any part of the transaction not only from the homeowner but also from the lender is where your potential problems can surface. California, Colorado, and most other states have enacted legislation to prevent foreclosure abuse and to require cooliing off or recission periods and more detailed disclosures. Much of that legislation focuses on people that advertise as "consultants" there to "help" the homeowner, when the intent is to purchase or flip. Suggestions from several seminars and webinars is to never advertise or tell the homeowner you are there to "help" if you are not truely performing a consulting function.