Quick Cash and Short Sales

From another perspective, having an investor involved can hurt the Seller. Recently, I submitted an offer on a short sale property. Our offer was considered along with an investor's offer. The Seller decided to go with the investor's offer. The investor's contract with the Seller allows him to now have offers directed to the investor's name (and contingent on the Seller's Bank approving the investor's offer) and their purchase will not go through until a buyer can be found and both transactions are to close simultaneously. My Buyer's lender has said they consider this a "flip" and therefore there has to be 90 days between closings (even though this is a conventional loan). The lender also stated that the investor has to show improvements in the property of any difference between the investor's purchase price and my Buyer's purchase price (even if the difference is only $5,000). The Seller loses in that our offer was placed in January and would be closed by now. Because of the lender's guidelines, the house is still on the market (the price was raised by the investor and is now back at the same price it was when we placed our offer).

Kathleen Garrison
SRES, e-PRO, ASP,
People's Choice Brokers
California

Kathleen,

This is precisely the kind of deal most in this blog are talking about. That sounds like an "Option" contract. The investor will only close on his end IF they find another buyer willing to pay his price in order to make a profit. If that cannot be found, or if the lender balks at the "seasoning" of ownership, or if the lender puts a stipulation in their approval that there can't be this type of transaction involved.

For this kind of deal to be finalized with full transparency there needs to be a lot of luck or a lot of manipulation of the facts. Either way, the homeowner is the one that loses the most if the investor can't make his number.

So what is the great deed the investor is doing in this transaction. None! You still have to find a buyer willing to purchase the property.

Because....here in California many real estate attorney's have stated..."watch out you are putting your license on the line".

Actually, there are many investors funding these short sales with a buyer already in place. I did a few of these about 2 years ago, but I wasn't really impressed with how I felt afterward...so now I steer away from doing it unless the situation presents itself NATURALLY.

It's a bit scammy to attempt this "double dipping - flipping" short sale even if there ARE two separate fundings like mine were...no assignments, or "may assign", or option contracts.

It "sounds" good because that means 2 real estate commissions and 2 closings...however, it doesn't seem like the "right" things to be doing in a time where Realtors should be rising up to the "call" of duty for a country - empire in financial trouble.

That may sound a little too "deep", but it seems like a shady deal to me.

The other side of the coin is this question:

When has "the market" ever cared about me or my family having food to eat?

It's a "war between every Realtors ears" that decide to engage or have the opportunity to be included in a transaction of this sort.

Follow your gut and cover your butt!!!

Food for thought:

A short sale can sit for months and the price keeps going down. The banks net more in an investor purchase. The deal gets done faster and the investor is aware it takes some time to get the response from the bank/lender and they wait it out. Disclosure, transparency, and full funding & close of the investor transaction is a must.

EX: Original purchase and loan amt. $289,000 - Listed last July $210,000. Offer first week: $201,000 - lender did not respond for 3 weeks - buyers walked. Bought something 2 blks away for $215,000. My listing closed, after 2 more offers, in Jan. sold for $175,000 lender net $142,000 less the $2,400 + payments they lost over 7 months.

Even If a investor had offered approx. 65% $136,500 in July and the lender approved. This is what the lender would have gained: Totaling pmts, the taxes, & HOA fees over 7 months plus the sold amt:equals $155,000 approx. This does not include additional caring cost to the lender .

The lender benefits. The investor benefits if he now puts the property back on the market sells if for a higher price and so does the neighborhood and the properties don't sit for months they get sold, inventory stays down, less vancant houses, less foreclosures and the market stays stronger and so do the prices.

EX:I have a short sale with an offer - all docs are in- the lender says it is going to be 3 to 6 weeks before I get an answer. A normal buyer will walk. An investor will wait it out.

Brandon,

I agree whole heartedly. Your comments "feel" right to me. Thank you.

Keith

Like Brandon, this whole thing has never felt "right" to me. The strategy I was approached with was slightly different in that they do all the negotiating and I would only be involved in the resale (so one commission only), but my concerns were several:

1. No discussion of helping that homeowner stay in their home first, the entire "strategy" is geared toward making money and getting homeowner out. Does the realtor and investor make sure seller seeks advice of attorney , CPA or other financial strategist to be sure they're making the right decisions?

2. What if the seller will have a tax liability, that first transaction is geared at getting the bank to accept the lowest possible price (in order to leave room for profit later), house never goes on MLS, never had a chance for the market to speak to value. If seller has a tax, or has a recourse second, this does not thing to protect the seller from a bigger tax or recourse liability. Does this investor (in my case the investor would do the negotiating) try to remove the possibility of a lender pursing a deficiency?

3. If there is more money to be made just by flipping within weeks, then it just doesn't feel right (to me) to "cheat" that money out of that lender. I know its a way to make money for the "investor" and the agents, but shouldn't our goal be to minimize our CLIENT'S damage, tax liability and recourse implications? If so, highest and best should be going to the bank.

4. I'm starting to see approval letters saying clearly property can't have been part of a sale in the last 90 days. Obviously, they are getting wise to these "schemes" too. I call it a scheme as Webster defines a scheme as: a plan or program of action ; especially : a crafty or secret one. Is it not secret if we are asking bank to accept an offer, knowing full well within a month or two we are going to flip it and make a profit?

So, all that said, it doesn't "feel right" to me. I know some will not agree with me, and that is ok. This is my moral /ethical code - and yours may be different.

Someone here posted a rationale that a short sale would stay on the market months - in my market that would almost NEVER happen. If a house was on the market for months it is priced wrong for the market - period. We typically get multiple offers thus guarantying both seller and bank the optimum offer price and terms. A "regular" buyer would not walk away after 3 weeks on a short sale unless they were VERY misinformed by their agent, or the listing agent. People who write offers on short sales with responsible and knowledgeable agents are informed of the process and if their threshold for waiting is only 3 weeks or less, a short sale is not where they should be making offers.

Quoting Amy Ransdell:

James

Yeah!!! Finally an agent / investor making sense.

Why not earn more than the standard commission?

We work twice as hard as the standard team and create great results for all clients. The key - is full transparency and ethically remembering to do whatever we can to protect the seller in distress.

Thank you for being another voice of reason. Please read my last comment. We should team up.

Amy Ransdell; The Southeastern Group

www.shortsalemanagement.com

Investors that have no exit strategy should not invest in short sales.

I am glad that some of you Real Estate Agents are learning the way

the honest short sales investors work. With out us, the market would

even take much longer to recover, or possibly not at all.

Really now, I know not all lenders were that bad in toxic loan, however,

look at how many were and still are. How many agent told the homeowner, that they could afford the house and just refi before the junk loan,adjusted?

Or a loan that they new they couldn't afford from the get go??????

I have a case like that now. Who is just making a buck now,that doesn't feel very ethical now does it?