Las Vegas, NV · Member since 2009 · 197 posts · 32 votes
I am surprised no one else posted on this today! This is some scary stuff.
It seems that non-disclosure to the respective lenders in short sales flips has already gotten the feds involved - and some investors will be sentenced to prison because of it:
http://www.connpost.com/ci_13523546
I know investors are not lawyers (Thank God!), but, given this latest news, how on earth now will an ethical, law-abiding investor know if he or she is breaking federal law when it's been vague as to what disclosures need to be made in order to avoid an "intent to defraud", in this case, the short sale lender.
Where does one cross the line from what is considered free enterprise and the essence of capitalism to what is outright intent to defraud???
Even the guys doing simultaneous "dry closings" didn't go to jail. All I've heard is that the title cos. have put a moratorium on these transactions, but that's about it!
Though I've read a great deal about it being a good idea to disclose the resale price to the short sale lienholder, where does it say in the law that it's mandatory? Again, isn't that what capitalism is all about - buy low, sell high?
If the investors in this example were using "wet funds" closing on the buy and then simultaneously selling to end buyer they already pigeon-holed as the end buyer - isn't that how most investors are doing these?
And even if you disclose to the bank taking the loss on short selling, what happens if the feds decide all of a sudden to indict investors who failed to disclose the facts of the transaction to the other side of the deal - the end buyer's bank? You might think it's a non-issue and completely legal and within your right and none of the end buyer's bank's business when all of a sudden the feds think it should be - and boom, you're screwed!
When you really look at it objectively and in general terms, how is this transaction any different than one in which the investor ( or any buyer) would have held, say, a few months and then re-sold for a profit???
I do short sale flips and fully disclose everthing.
My contract states that I can market and resell for profit. Its states I am investor and my intent is to make a profit. My final HUD-1 that the bank approves is stamped with big letters "BUYER MAY RESELL THE PROPERTY FOR AN IMMEDITATE PROFIT."
Anything can be done illegally if its done unethically. The banks are not our enemy if we disclose.
Reasons banks like investors:
1. We are cash/hard money buyers.
2. We don't walk away from the deal if we can make it a profit. If we cannot make a profit we refer a retail buyer.
3. We know how to do short sales
4. We close our deals
A banks main goal is to make money. Right now in most areas of Phoenix, banks will make more per square foot on a short sale versus an REO. So banks want to sell.
There are bad people who screw it up for us. Just like their are insider trading at big companies. It doens't make buying and selling stocks illegal as long as its done ethically.
Disclose, disclose, disclose. I have only one bank tell me they will not sell to me and that was ING. Every other bank will play ball. I'm buying a house this week where the 4th bedroom was filled with dog feces. Do you think the bank wants that house? Nope. Do you think a retail buyer wants that house? Nope. But I do. :)
I just had Wells Fargo send me an addendum for all parties to sign that stated there were NO other transactions of any kind happening except for this sale and there were no other buyers waiting to purchase the property, and the home owner in no way or arrangement will be allowed to stay in the property.
I'm not using an option contract or a trust. Whats the advantage there? Can you tell me about that?
I've just got an LLC as the buyer and using a regular Florida Association of Realtors contract with some extra disclosures and provisions.
I heard from a title attorney last week that the banks are making people sign those addenda stating no other transactions were in the works.
Justin- Have you experienced the banks requiring those addenda?
If this becomes the standard it is going make the investments much more risky (requiring one to close w/o a buyer lined up), require a lot more capital and drag out the holding time substantially, this could destroy my business model.
I've certainly heard of it but never had one sent to me yet. I closed a Wells Fargo deal 3 weeks ago and I did not have the addendum. My HUD even stated I intend to immediately resell for profit.
The homeowner not staying in the property is the norm. But BofA, Wells Fargo, and Wachovia have recently made it so no other transactions can take place. I would perhaps go back to the bank and have them put a time frame on it like BofA does. Keeping it open ended is very vague. If they say 30 days then you do a hard money loan or some companies are doing 30 transactions now. Will and Rich are.
Maybe you can convince them the property is not in retail condition and will require an investor to fix it up sell it.
I'm not sure a trust will get you around it. When a trust transaction is done, the A-B is actually not a real estate transaction, I think its simply transferring who the beneficiary is once the liens have been satisfied, only the B-C is a real estate transaction, so perhaps that is a way around it but I've never used a trust before. Perhaps someone who has will pipe in.
That was a lot of random thoughts, so I hope they made sense.
How do you sell that to the banks when negotiating the short sale? You tell them you are going to add value with a remodel or what?
A time frame on what?
I'm still not clear on what's the benefit of the trust?
To get around the addenda I'm thinking one could advertise the property, tell interested buyers you can't enter into a contract yet but will take their contact info, then the day you close, call them up and tell them its available. What do you think?
H man, how could the trust be used so there is no 2 seperate transactions ?
From the investors I work with, the trust is used for fha seasonsing but since most people use FHA there has to be a seperate transaction from A-B to B-C
H man, how could the trust be used so there is no 2 seperate transactions ?
From the investors I work with, the trust is used for fha seasonsing but since most people use FHA there has to be a seperate transaction from A-B to B-C
I've never done this but this how its explained to me.
When you first contact the homeowner and get them under contract, you move the house into a trust and the homeowner is beneficiary. You do this immediately before the short sale so the its recorded and seasoning starts. After you negotiate the short sale, the investor will pay off the liens and the homeowner will sign over the beneficiary rights to the investor. Hence, the property remains in the trust, just the beneficiary changed. This is not considered a real estate transaction, nothing new is actually recorded.
The investor then sells the property to the end buyer. The trust has been seasoned for 90 days, then the end buyer can buy the property which is still in the trust. The last part is a real estate transaction and the end buyer will get the deed. Make sense or clear as mud?
I also heard that you could do a quit claim from the seller to you or your LLC similar to doing it with a LT, but was told it doesn't get recorded. Not really sure how that works.
JD, I'm not sure what you asking. Can you please clarify?
Thanks Justin S. For the clarification. its clear to me now but now my point is isnt it still 2 transactions?
Me- the investor --> Buying from the Bank
Banking---> Selling to me the investor
Andrew - I assume you are still referring to the trust method.
A-B Transaction is "hidden" in the trust. The recorded transaction is when the homeowner transfer the house into the trust which is done at the very beginning of the short sale process. When you pay off the bank loans, the beneficiary of the trust is transferred to you instead of the homeowner.
The B-C is a recorded transaction when the property is bought from the trust to the end buyer.
Also, on short sales you never buy anything from the bank. The transaction is the same as any other normal transaction, you just need the bank to say okay because they are losing a bunch of money. You still buy it from the homeowner.
Justin- When negotiating the short sale with the bank how do you get them to accept a low price, say $100K when you tell them you have a contract to immediately sell it for more?
And does the bank ever ask you what the actual price is of your B-C contract?
It looks as though the main complaint is the transactions were not arms length, they were Realtors and had the duty to disclose the higher offers while negotiating the short sale, and then profited from it by participating as the low ball buyers.
Does this mean one can not have a higher offer without disclosing the actual price of that offer?
I'd be interested to hear some of the other members feedback after analyzing the document.
My contract simply states I may resell it for immediate profit. It does not state that I actually have entered into a new contract. The bank has never asked either way.
Hey Justin, quick question--just wondering what made you decide to negotiate your own short sales instead of hiring an experienced short sale negotiator/listing agent from your area?
Hazel - For the learning experience and that is how I was mentored. I now have processors that work for me so I do very little of the calls and putting the packages together. I still do the market analysis, counter offers, and BPO's. I have a hard time giving up my shorts, too many deals are lost for stupid reasons and I'm not comfortable giving up control...yet.
I have yet to meet a listing agent that can do what I do. If I meet one, I would certainly entertain using them. Most agents I know want me to do the negotiations versus them doing it for me.
I just received this link on my google alerts and wanted some feedback. They are quick to stomp on the flip promoters, yet it appears they are doing flips themselves. Check out their website. It looked real flakey to me, especially when they're promoting other things that have nothing to do with real estate.
" Is flipping short sales a mortgage fraud?
The Feds will enforce the laws prohibiting short sale flipping.
Defrauding The Banks Means Defrauding The Feds!
Watch Video Here
There was a lot of controversy in recent discussions whether flipping short sales were to be considered ethical, beneficial for sellers and lenders, or a predatory hunt for easy profits by unscrupulous investors. Thousands of “Gurus†and “Coachesâ€, having proudly proclaimed themselves as saviors (or vultures) of the struggling housing market, created their own internet schools, training programs, universities, institutes, etc. where they pushed their students to trick lenders and sellers to complete a short sale deal and put a lump sum in the pockets. The tuition is not cheap: from $297.00 and up to $5,000 only sign-up fee.
In addition, there is a certain monthly fee always applied: for using their Web resources, or updated materials, or Webinars, or phone consultations, or Seminars - you name it, in average of $197.00 a month. Combine all the above and you’ll get a personal coaching program starting from $5,000 and up to $50,000. There’s no guarantee, though, that you’ll achieve any significant results. Your chances to succeed are equal to ones of some street smarts who just are knocking the doors of defaulted homeowners and offering their services to save the latter from foreclosure. But a level of annoyance by such mentors can only be compared with the perpetual ocean tide where a student is locked in the metal barrel surfing the stormy surface. Endless emails, calls, webinars will never let you focus on the practical activities since you’ll be always involved in some new technique or strategy that, according to your mentors, are absolutely essential to learn. The funny thing is, that all these “Gurus†are playing the same tune using different instruments. They would sell to you somebody else’s program for thousands of dollars just to get their share of the sales proceeds. They may not even know the content of such program. Is there anything that may help you to accomplish your goals, they don’t care. They are not interested in your success. The more miserable you are- the more useless stuff you would buy to get out of your misery. They can invite the lawyers, CPAs and other paid professionals just to show you a new move and/or defense from the most recent regulations imposed by authorities in order to prevent fraud or unethical actions by investors. They will teach you, actually, how to commit a crime and get away with it.
If only. They are not that smart as they want you to think they are. If they were, they would have never revealed their techniques to you, but rather made tons of money quietly, without these pompous parades. But they prefer to stay in the shadow and expose you to the all storms and thunders while charging fat lump sums from your credit card accounts. Because they know that you’re violating the Federal Laws on your way to the top. If these Laws had not been enforced by now does not mean they would not be soon.
And they will be! Please keep in mind that there is statute of limitations in each individual State for any criminal offence committed in the past. Some violations even don’t have such statutes and may be prosecuted indefinitely. However, lucky you, fraud is not one of them. But still, it’s a federal offence and may be punished by up to 30 years of imprisonment plus thousands of dollars in fines and penalties.
As you probably know, FannieMae and FreddyMac are now subsidized by US Government, and by defrauding them you actually defrauding the US Government.
You may reasonably ask, “How, for my deal sake, I’m defrauding my beloved Uncle Sam?†The answer is as follows: your deal actually consists of 2 separated deals: from original seller to you, and then from you to a new buyer. Failure to disclose existence of a new buyer and the second Purchase Agreement before closing is considered as a fraud. Why? Because the very existence of this buyer and the second Contract are the material facts that may affect the Lender’s decision whether accept or reject your offer. You may again reasonably retort that you disclosed your intentions to profit in the Option Agreement presented to the Lender along with your initial offer. However, your intentions don’t count in this case. Your intentions are rather something volatile and intangible. The written (2nd) Purchase Agreement and your new buyer, on the other hand, are substances very much tangible and physically palpable. Thus, you must disclose above facts before closing. This will relieve you from any further responsibilities. The only thing which worries me is if the Lender would accept your offer after disclosure that there is a very real person who is willing to pay for the very same property thousands more, or rather kills the deal.
What do you think?
This is a riddle, isn’t it?
Please post your comments below.
You may also ask your “Mentor†of how to sneak your way around it. If your “Mentor†is still there by then. “By then†I mean January, 2010 when all already existent laws and regulations will be enforced. There will be enforcement agencies formed to persecute violators as per banks request. And what is the most convenient, it won’t cost the banks a dime compare to the civil law suits since this process will be implemented by the Feds for free as a part of the Mortgage Fraud Program."
Much of what I question in the following post truly belongs in the hands of competent counsel, but we all know that can be more confusing than it's worth half the time!
Why isn't the buy-and-hold investor held to the same standards of mandatory disclosure if he or she suddenly decides that after buying, the rebab costs turn out to eat up all the profit or the rent doesn't pencil as well as originally planned - and the investor decides to dump it after a few days - for a profit? Because he really didn't intend to resell it but did anyway, he's off the hook as far as disclosing? And how is it determined that the investor really didn't intend to resell and just told everyone that? It's still a flip, isn't it?
So then, am I correct to assume the difference in terms of what necessitates mandatory disclosure between the investor who negotiates/purchases the short sale from the lender with the intent of simultaneously reselling it (simo flipping) vs. the investor who negotiates/purchases the short sale from the lender that plans to resell it at a later time is that the investor who does a simo flip knowingly negotiates the buy solely contingent on having an end buyer secured well before the close that has agreed to purchase the property at a profit above the price the investor originally paid and therefore MUST disclose all details of the transaction to all parties involved?
According to the author of article I previously posted, disclosing the basic intent to resell isn't good enough. The investor need also disclose to the lender the details of the sale to the end buyer as well, or as Justin stated, by simply making available the end buyer's HUD-1 statement:
"You may again reasonably retort that you disclosed your intentions to profit in the Option Agreement presented to the Lender along with your initial offer. However, your intentions don’t count in this case. Your intentions are rather something volatile and intangible. The written (2nd) Purchase Agreement and your new buyer, on the other hand, are substances very much tangible and physically palpable. Thus, you must disclose above facts before closing. This will relieve you from any further responsibilities. The only thing which worries me is if the Lender would accept your offer after disclosure that there is a very real person who is willing to pay for the very same property thousands more, or rather kills the deal."
(whether the author has researched the disclosure laws and knows for a fact this is true or whether it's just common sense is unknown)
I could see defense lawyers continuing to have a real field day with this because so much is based literally on subjective interpretation and intent or lack thereof - both of which ALWAYS become the exclusive province of all white collar cases involving fraud. Why the #$%^ innocent and ethical investors continue to be left without 100% clarification of this PRIOR to entering in transactions makes for a veritable mine field when it comes to doing business wherein any action can be potentially criminalized when in fact it was never the intention to defraud or deceive anyone - unlike those that are unethical that clearly did wrong. That line seems to be getting more and more blurred until we are given specific guidelines.
I have yet to meet a listing agent that can do what I do. If I meet one, I would certainly entertain using them. Most agents I know want me to do the negotiations versus them doing it for me.
Justin & Mike--Thanks for sharing your experiences! It's somewhat disconcerting for me to hear that from your neck of the woods, short sale negotiators who are also listing agents are not common. So sorry to hear about that. I know some excellent agents who have come out of the lending industry with key contacts at different banks and use them to leverage their short sales. PM for more info, they also work out of my state (CA). Maybe it's a location thing?
Justin--I agree there's tension with full disclosure and see the argument for each side, but double close short sales happen in CA all the time and my short sale negotiators have never run into any problems UNLESS it was a real estate agent who originated a seller and came across an investor who wanted to double close (CAR laws make it difficult because of RE agent-client agreements). If the real estate agent is negotiating on the behalf of an investor who originated the seller, then it's fine.
Unethical? depends on your point of view. Illegal? for investors, no.
I do have to say it does depend on who you use, personally the company I work for employs a 3rd party negotiator who works all of our short sales. I have run across alot of those agents who do their own negotation and they really don't do a good job (not to offend anyone, just from what I have seen)
and yes to agree with Justin that many wont lend on a flip but there still are those who do
How do you convince your end buyer to borrow from (that) bank, rather than their choice of Conventional and gov lenders?
And if you can't convince them--or they don't meet the qualifications for those banks, it sould appear that they can't be your end buyer, then. Right?
Ofgift