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The End of Short Sale Flipping?

By
Real Estate Agent with Trademark Loss Mitigation

Whether you agree with the short sale flipping method of buying and selling real estate or not, it has become a popular method of making money through short sales. 

 

Short sale flipping is done where an agent or investor submits a contract with the seller - usually as an option contract.  The contract price is low balled, with the intent of getting the lowest approved payoff agreement from the lender(s) through a short sale.

 

The property continues to be marketed at the higher end of fair market value.  The intent is to find a "retail" buyer at a purchase price that provides a sizable difference between the anticipated lender payoff and the higher purchase price.  A contract is then executed between the higher end buyer and the agent/investor or "Owner on Record".

 

If the short sale is successful, the investor or agent buys the property from the seller directly through an A - B Transaction.   The investor/agent, now the owner, sells the property - usually in a back to back closing - to the higher buyer through a B - C Transaction.

 

Depending on the geographical area and home values, the "profits" made from these transactions can be significant - far exceeding the standard "commissions" received from listing or selling the property.

 

But, all things must come to an end.

 

  • The lenders are not stupid (regardless of what the government thinks).  They know these transactions exist.  They realize they are potentially losing a lot of money where they have the potential of getting a much higher payoff.  That is why more and more lenders have begun to require that the property cannot be resold for 30 days.

  • Just within the past four weeks, many of the major and not so major title companies stopped doing these transactions.  They now require title to be held for 30 days or more, if they do them at all.

 

Most investors/agents are not going to sit on a property for 30 days hoping the buyer waits or hoping another buyer is available.  The whole point of these transactions is to "quick sell" the properties with "hard money" avoiding any money out of pocket.

 

I will be interesting to see if these method prevails or if enough title companies are willing to buck the trend and continue to allow these transactions.

 

Foreclosure Prevention Network
Providing Short Sale Negotiation, Training and Loan Modification
Address: PO Box 1998 Spring TX 77383.
E-Mail: info@TrademarkForeclosurePrevention.com
Web Site:  http://www.TrademarkForeclosurePrevention.com
Blog:  http://www.shortsalereporter.com

 

Posted by

 

 

Houston TX, Spring TX short sale specialistThe Trademark Loss Mitigation team is a family owned business and  includes a multi-state network of real estate agents, attorneys, title companies, short sale negotiators, credit repair providers, mortgage providers, inspectors and investors. Together, those professionals act as a NO COST short sale outsourcing solution for Realtors and Homeowners.

Jim McNinch, Certified Distressed Property Expert (CDPE);

Short sale agent, Short sale specialist

Jim@trademarklossmitigation.com
http://hosted.cdpe.com/trademark
http://www.trademarklossmitigation.com
832-330-4588

 

Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

First off, the agent who facilitates this transaction can be sued by the seller as the agent has a fiduciary responsibility to the seller, not the investor holding the option contract.

Anyway, they did get smarter. Approval letter state that the purchase contract cannot be assignable, they state the buyer's name, etc. The transfer of title is none of their business, even if they ask that it doesn't get transferred.

I haven't heard of title companies refusing to insure title. I just know some lenders require title seasoning.

What we do is get rid of the investor. We first ask for 10% listing agreement. We then find a cash strong retail buyer and submit their purchase offer at a very low rate on the basis that they will pay the difference of what our commission agreement is and what the bank agreed to. It works out great for everyone. If you think about it, real estate investing is just like being a real estate agent, just without a license. So we make a lot of money and we don't have to use option contracts or use flash money. And since the seller agreed to the 10% commission, we are legit.

 

Apr 25, 2009 06:43 PM
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

I've never understood how this actually works to make a decent profit because the lenders never take less than 70 cents on the dollar in a short sale. Thanks for sharing.

Apr 26, 2009 02:19 AM
Jim McNinch
Trademark Loss Mitigation - Spring, TX
Short Sale Specialist, Texas

Satar:

Thanks for the response.  A couple questions regarding your comments:

  1. "that they will pay the difference of what our commission agreement is and what the bank agreed to."

Does this mean that if the bank pays you a 3% commission, the Buyer will give you a 7% short sale fee?

     2.  Doesn't the buyer's lender object to the added fee?

Apr 26, 2009 11:50 AM
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

JIM,

This process doesn't actually work the way it was designed because the lender agreeing to the short sale is making their approval letters tighter and giving the "option" window less time to function. The lenders that are financing the purchasing of these properties are requiring longer seasoning periods.

What I'm seeing these investor do is to take the option contract and filing them as part of the public record. They then disappear until there is another buyer found. Their option contract will cause a cloud in the title and they will then ask for a certain payoff in order to remove the cloud...Nice!

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Apr 27, 2009 08:51 AM
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Hi Jim,

1. Yes. If the bank gives us 3%, we counter the purchase offer for up to 7% (depending how cheap we got the property) and even ask for a "short sale processing fee" depending on the situation.

2. They do not finance this, so it only becomes an issue if it affects the buyer's reserve. That is why it is important to find a cash strong buyer. Ideally someone putting more than 40% down.

To add to what Sid stated. Another way to get money out of a short sale is to have a contractor put a mechanic's lien on the property.

Apr 29, 2009 10:09 AM