short sale flipping-I represent buyer

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short sale flipping-I represent buyer

Diane B.
Member since 2010 · 6 posts · 0 votes

I am a new agent in New York and submitted an offer on a short sale on behalf of my client on a listing that was originally listed with an agent. I was then contacted by that agent and was told that she was withdrawing her listing and a "short sale negotiator" was stepping in. This short sale negotiator is an investor who tells me that she is is negotiating with the seller's lender and if accepted, the property will transfer to her and she will then transfer it to my client. I asked her if the bank was aware of the amount of my client's offer and her reply was "the bank is aware that she is an investor and her contract clearly states that she has control over the property and will sell the property for a profit" and that my client's offer is to her - not the lender - and my commission will be paid by her.

Should I be concerned about anything here? I will disclose this to my client and let them make a decision but my broker is not comfortable with me doing the deal. I don't want to walk away if not necessary.

Any suggestions?

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Bill Patterson
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
16y

Diane,
Don't give up entirely on this process. Sam & Eric are correct that when done in the proper sequence and full disclosure, this type of transaction with an investor buying and selling the short sale can be of benefit to all parties involved including the lender and the end buyer.

They are also correct....this one smells a little fishy and you are wise to be concerned. Sorry Sam, you've got Bill instead of Jackie....., but there may still be a way for your buyer to get their home, Diane! As a broker, my advice would be to talk to the agent or have your broker talk to her broker. If indeed your offer went to the listing agent before the investor stepped in, they may be interested in the CT case. They may also be interested in dropping the deal with this "investor" and just going with your client's offer. If you do decide to do this, I would have your client's offer accepted and make sure that it is the only offer submitted to the lender. There is no more reason to have the seller accept and submit another offer when your client has a valid contract than if they had a valid contract on a non-short sale property and wanted to accept a higher offer that came in. You have a contract that should be negotiated until the lender or your client cannot come to a meeting of the minds. Short sale negotiation is a specialized field! Is there someone in your office that is experienced and has a good track record of successful outcomes and no or low deficiency judgments?

Good luck,
Bill

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  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    While I cannot be sure as to the validity of this particular transaction, this type of transaction happens quite frequently and the key element in the transaction is disclosure.

    BTW, your original offer should have been written the owner not the lender as stated above. While it is common to be told all offers must be submitted to the bank; it is not true. If the owner does not want to submit a higher offer to the bank they are not required to do so. (if so stated in writing) The investors offer (terms) likely required all offers to be submitted to the investor. The bank will read the contract (price and terms) and it is up to the investor to disclose whatever is necessary so as to avoid fraud.

    Is your buyers' offer cash? If they are getting conventional loan you will need to be certain the bank and the underwriter do not have title seasoning requirements

    I am not an agent so I will leave that part to someone who is....Jackie...........

    0Reply
  • Diane B.
    OP
    Member since 2010 · 6 posts · 0 votes
    16y

    thank you for your reply. So I would think as long as I disclose this to my buyer and and let them that they may have some financing issues that I will be ok. Obviously their offer is never going to make it directly to the lender and if they really want the house I don't see any other way around it. I just want to make sure that I am not doing anything unethical that could get me in trouble. Thanks again -

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  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    16y

    To me the question is timing here. When did you submit your offer? When did this negotiator enter the picture? Who was first? Is there any relationship between the realtor and the negotiator?
    It is true that the owner of the home does not have to submit all offers to the lender but there is a gray area and this potentially sounds shady. You should not be being forced by this "negotiator" who is really an investor to deal with him. Your offer is not to him yet because he doesn't own the property yet.
    The listing realtor is treading a very thin line here.
    Document everything clearly. Be prepared to find a different house.
    Check out this article. It is a popular one that has been spread around and often misinterpreted. But in your case it might be relevant.
    http://www.dailyreportonline.com/Editorial/News/singleEdit.asp?origin=EmailRefer&l=em52306861103498323

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  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Eric,
    One can have a valid contract with the investor (contingent on the investor working out a short sale with the lenders) WITHOUT them currently owning the house. Nearly anything is possible with an agreement in writing and proper disclosures.

    The OP has no relationship to the parties or agreement to split the profits with any party involved so the CT case does not directly apply. A direct application would be if OP was also the investment company without disclosure.

    If the owner was presented with multiple offers and decided to go with the investors offer then it is a valid scenario. If the agent waits for a higher offer then calls the investor it is a substantially different matter.

    1Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Often the investor has a better chance at working out a short sale than any agent. In my town agents can only close 13% of their short sales mostly because they do not understand the business or negotiations. If the bank counters above the offer they just throw up their hands and give up on that offer.

    0Reply
  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    16y
    Originally posted by beckidi:
    I am a new agent in New York and submitted an offer on a short sale on behalf of my client on a listing that was originally listed with an agent. I was then contacted by that agent and was told that she was withdrawing her listing and a "short sale negotiator" was stepping in. This short sale negotiator is an investor who tells me that she is is negotiating with the seller's lender and if accepted, the property will transfer to her and she will then transfer it to my client.


    This could have the makings of Mortgage fraud, so you need to be careful and here is why:

    This might have the makings of fraud if your client's offer preceeded the investor/negotiator's offer and thier offer is for a less. This is witholding material information in order to profit and is clearly fraud.

    Just because the agent is withdrawing her listing, does not make your offer null and void, nor does it exempt anyone from disclosing such information. The agent actually could be an accessory to fraud by simply agreeing to look the other way.

    You need to find out more about the "negotiator/investor" and to see if their offer preceeded yours. The only way i could see this not being fraud is if the negotiator's offer is higher than yours, the investor's offer preceeded your clients offer and was disclosed to the lender.

    While it is true all offers must not be presented, it is however false to assume that fraud is not being committed to knowningly to withold an offer that preceeded yours, not disclose the offer to the lender and then resell to that same party.

    Transactions must be seperated into a to b and b to c. You cannot subsititute b with c in order to profit unless it is disclosed to all parties especially the lender.

    Agents have been convicted of fraud in this exact scenario which has already been brought to out attention on this forum. So, be very careful.



    1Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    16y
    Originally posted by Sam M.:
    Eric,
    One can have a valid contract with the investor (contingent on the investor working out a short sale with the lenders) WITHOUT them currently owning the house. Nearly anything is possible with an agreement in writing and proper disclosures.

    The OP has no relationship to the parties or agreement to split the profits with any party involved so the CT case does not directly apply. A direct application would be if OP was also the investment company without disclosure.

    If the owner was presented with multiple offers and decided to go with the investors offer then it is a valid scenario. If the agent waits for a higher offer then calls the investor it is a substantially different matter.


    Yes, of course they can have a valid contract with the investor but I don't think that investor can force the end buyer to "only deal with him".
    I think the CT case is valid if the listing agent has an arrangement with the investor, not the OP.
    As I said, the owner of the property can choose to go with the lower investor offer and it could all be legit. I am generally on the investors side...I lend to these guys all the time.
    But there is gray area and to me the way the OP described the scenario of this investor who popped into the deal posing as a "negotiator" after the fact seems a bit suspicious.
    Seems to me like the listing agent saw a retail buyer come in at a higher price and decided to call in his investor buddy to swoop in and take a piece out of the middle of the transaction rather than send a juicy retail offer to the lender.

    Maybe not, but that was what I read into it.

    0Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    As the OP tells the story it does seem like it could be fishy....but then again this is coming from someone who has never done a transaction like this.

    The relationship between the Investor and the listing agent is not going to affect the OP. The only danger I see is in getting your deal unwound by the bank IF something was fishy. I don't see the OP being indicted on fraud charges like the CT case because there is no relationship between the buyers' agent and the sellers’ agent or between the buyers' agent and the investor. As long as those lines are clear and or disclosed I don't see how it applies to the OP. Maybe it applies to the listing agent but not to the OP.

    If the listing agent withdrew the listing is the property being listed again???? Is the listing agent being paid a commission? This story has some odd elements. Maybe the listing was just a ghost to locate a buyer so the investor could do his thing???? That would be fishy. For your buyer's sake I would find out a little more from the listing agent if possible. (maybe they can't say anything)


    BTW, OP refers to the original poster

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  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    16y

    I also see no "danger" to the OP. I wasn't sure that was what she was asking.
    But if the listing agent and the investor have an inappropriate arrangement, it may not affect the OP but it affects the OP's clients and it is wrong/maybe illegal and should be reported.

    What I see is the OP's clients getting their deal hijacked and missing out on a house they want to occupy because an investor wants to get a cut.
    That is where I think the OP should care...to defend her clients.

    0Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y
    Originally posted by Eric Michaels:
    I also see no "danger" to the OP. I wasn't sure that was what she was asking.
    But if the listing agent and the investor have an inappropriate arrangement, it may not affect the OP but it affects the OP's clients and it is wrong/maybe illegal and should be reported.

    What I see is the OP's clients getting their deal hijacked and missing out on a house they want to occupy because an investor wants to get a cut.
    That is where I think the OP should care...to defend her clients.

    If it is a valid arraignment and the OP's buyer is first position contract with the investor then I don't see a problem. I see your point though about how an inappropriate relationship between the listing agent and the investor could affect the OP's buyer.
    The only way to tell what went down is to check the contract dates. A contract is not binding until the seller signs/accepts the offer though. It does not matter who was first to send in an offer if this is an arms length deal and the deal wasn’t set up to get a buyer first before the investor stepped in.

    Could go either way. Why did the listing agent withdraw the listing?

    0Reply
  • Diane B.
    OP
    Member since 2010 · 6 posts · 0 votes
    16y

    Thank you all for your input. I have made my clients aware of the situation and advised them that I cannot represent them. It's a shame because that's exactly what happened - their deal was "hijacked" and now if they really want this house it could be a long and difficult road for them.

    0Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Diane,
    What makes you believe the deal was hijacked? Did you see any documentation? What exactly happened and how did you find out?

    0Reply
  • Diane B.
    OP
    Member since 2010 · 6 posts · 0 votes
    16y

    I submitted the offer through the listing agent at the time - not the investor. I'm pretty sure the lender is not aware of my client's offer. My client had a pre-approval for a conventional mortgage which now from what I am reading might have a tougher time getting financing in this situation. I wanted to make sure that the seller's lender was aware of my client's offer and never got a straight answer. I just don't feel comfortable being involved in this and I don't think it is fair to my client. The investor's website says that they can not work with the seller if they are listed with an agent. So I'm thinking (since I don't have all the facts) that the listing agent was asked by the seller to withdraw the listing. The property is still in withdrawn status btw.

    0Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Your duty is to make sure the seller gets the offer not the lender. If the seller signed an agreement with the investor to not continue to market the property (boilerplate short sale addendum choice in some states) CHECK OUT MN SHORT SALE P&S ADDENDUM http://www.northmetro.com/_uls/resources/ShortSaleAdden09.pdf It would be normal for the offers to then go to the investor and is not inherently illegal. The timing might have just worked out to where it seems as though it was hijacked.

    The question is whether or not your offer was hijacked or if the timing was such that it just seems to be so.

    Can you talk to the listing agent? Even if the listing agent speaks negatively to the situation that still doesn't mean it is not legit. You just need to know if the investor was waiting in the wings for an offer before making his move.

    Other than that it is up to the investor to make sure they do not misrepresent any material part of the transaction. They should make at least some of their documentation open to review as long as the request is in writing.

    1Reply
  • Maryann L.
    Specialist · MA · Member since 2009 · 858 posts · 306 votes
    16y

    Beck,
    If I'm understanding all this correctly, the investor had the home under contract? If that's the case then your client's offer is to the investor, not the lender.

    In my area we have to disclose upon acceptance that the sale is "contingent upon us taking title" - So when you submitted your offer to the listing agent was it disclosed to you that the offer was to an investor?

    I think everyone is over thinking this. It seems cut and dry to me. My guess is you've never put in an offer like this before and it's normal to question it because it's new.

    1Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    16y

    Sam and I completely agree on this though our suspicions are on opposite sides.
    He is completely right that just because it looks strange and shady that does not mean there is necessarily anything illegal. The timing could have been coincidence.
    I don't quite understand why you seem to be running from this though. I don't think you need to tell your clients you can't represent them, just prepare them that this will be a more difficult one and they may end up not getting the house. And work on trying to find out what really happened here.
    This could end up being a very valuable learning experience for you as a new Realtor.

    In reality it will be tough for your clients though. #1, the investor will be pushing the lender for a low approval price so he can make a profit from you. This will make any approval slower and less likely to even occur.
    #2- It may cause a problem with your buyers lender.
    #3- Being NY, they have tougher titleing regs so in all likelihood your clients will have to wait 90 days after the SS approval to actually close. So your clients are looking at a several month process regardless.

    So it is not a great scenario. But again, don't run from it because of fear. Just be honest with your clients and represent them best you can.

    And if you do investigate and the evidence shows that the deal was improperly hijacked, report the agent to his broker and the realtor assoc.

    Good luck.

    0Reply
  • Bill Patterson
    Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
    16y

    Diane,
    Don't give up entirely on this process. Sam & Eric are correct that when done in the proper sequence and full disclosure, this type of transaction with an investor buying and selling the short sale can be of benefit to all parties involved including the lender and the end buyer.

    They are also correct....this one smells a little fishy and you are wise to be concerned. Sorry Sam, you've got Bill instead of Jackie....., but there may still be a way for your buyer to get their home, Diane! As a broker, my advice would be to talk to the agent or have your broker talk to her broker. If indeed your offer went to the listing agent before the investor stepped in, they may be interested in the CT case. They may also be interested in dropping the deal with this "investor" and just going with your client's offer. If you do decide to do this, I would have your client's offer accepted and make sure that it is the only offer submitted to the lender. There is no more reason to have the seller accept and submit another offer when your client has a valid contract than if they had a valid contract on a non-short sale property and wanted to accept a higher offer that came in. You have a contract that should be negotiated until the lender or your client cannot come to a meeting of the minds. Short sale negotiation is a specialized field! Is there someone in your office that is experienced and has a good track record of successful outcomes and no or low deficiency judgments?

    Good luck,
    Bill

    2Reply
  • Diane B.
    OP
    Member since 2010 · 6 posts · 0 votes
    16y

    the investor stepped in after I made the offer to the seller. That is why I'm not liking this whole thing.

    0Reply
  • Diane B.
    OP
    Member since 2010 · 6 posts · 0 votes
    16y

    I have explained this all to my clients and they have decided not to pursue this.

    Thanks again all! Glad to know I have somewhere to go for some great advice when I need it.

    0Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    I think the best way for you to represent your client is to stick with it and find out the material facts. You way have just walked away from a perfectly legit scenario where your buyer could be let down by you just getting scared and not actually finding out the facts before deciding you couldn't represent them.

    If the investor is on the up and up they will back out of the deal and allow you to buy directly from the seller if they are unable to work out a wholesale price. Instead of A-B then B-C (The seller is "A" the investor being "B" your client being "C" ) The contract will go from A-C and bypass the investor. It does happen whenever a legit investor cannot work out a deal.

    0Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Doggonit! I got Bill instead of Jackie!

    Actually I just forgot who all were agents and ss investors.....

    Thanks Bill.

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y
    Originally posted by beckidi:
    It's a shame because that's exactly what happened - their deal was "hijacked" and now if they really want this house it could be a long and difficult road for them.

    With ANY property that's a short sale (or REO), your buyers will have a long and difficult road. If they're patient, not too picky, and willing to accept any of a number of houses, they can get a good deal with a short sale or REO. if they need to move by a certain date or want a specific house, don't even bother with short sales.

    My usual advice for someone trying to buy a short or REO is to look at at least 10 houses per week. Make offers on as many of them as you'd be willing to live in. If the listing agent wants a copy of a check give them a copy. But put "Earnest Money to be provided by certified funds within 72 house of XXX". For REOs, put MEC (mutually executed contract, or whatever you use if that's a Colorado term). For shorts, put SSA (short sale approval.) Put a response deadline of about a week in the contract. That way you don't have too many offers out at once.

    With shorts, the seller is just about irrelevant. Certainly their signature in no way makes you have a valid deal. Its just a step in the right direction.

    If you have clients who are going to fall in love with one specific house, don't bother showing them REOs or shorts. Just show them regular retail houses and tell them to write full price offers.

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  • Maryann L.
    Specialist · MA · Member since 2009 · 858 posts · 306 votes
    16y

    Beck,
    If you didn't have a signed purchase and sale with the sellers, then I don't see anything wrong here and your'e walking away from something that will likely work much quicker than traditional old negotiation.

    If you submitted a contract and the investor submitted a contract the seller has every right to accept the investor's contract. It was likely a cash offer with a skilled negotiator. If your buyers like the property (which I assume they do) do you care who you buy it from? It's the property they are interested in, not the seller.

    Again, I think that FEAR is what's stopping you at this point. This could be a great opportunity.

    1Reply
  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    One reason it is actually better is that you can lock in a first position offer and are not going to get bumped off the table by an idiot seller wanting to present other offers to the lender.

    I am still in shock at the oddity of presenting other offers to the lender????? It is the dumbest thing I ever heard of in the world of contracts.

    0Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    16y
    Originally posted by smitnlit:
    Beck,
    If you didn't have a signed purchase and sale with the sellers, then I don't see anything wrong here and your'e walking away from something that will likely work much quicker than traditional old negotiation.

    If you submitted a contract and the investor submitted a contract the seller has every right to accept the investor's contract. It was likely a cash offer with a skilled negotiator. If your buyers like the property (which I assume they do) do you care who you buy it from? It's the property they are interested in, not the seller.

    Again, I think that FEAR is what's stopping you at this point. This could be a great opportunity.

    I think she smelled a rat and moved on from this deal. Nothing wrong with that. Plenty of fish in the sea.

    0Reply
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