Are short Sale Flip Transactions, aka back to back closings, Legal or Illegal?

Real Estate Agent with Realty Mark Nexus

I have often read,here on Active Rain and elsewhere, the ongoing debate and question are short sale flip transactions, aka back to back closings, legal or illegal?  

This leads to the debate of Real Estate Investors vs Real Estate Agents.  My experience as both an investor and realtor allows me to have a unique perspective and understanding of both sides of the equation, but that is a debate for another time.

As an owner of a real estate brokerage, title company and as a real estate investor in the Bucks County, PA and surrounding areas, this has been a subject I have paid very close attention to, especially over the last 12 months.    It is no secret distressed real estate can be found anywhere and everywhere and it is not hard to find.  As short sales and reo properties become more and more prevalent and are no doubt now a part of every day real estate life, I feel it is imperative to be "all over" this subject.   


angel vs devilWhat I have learned, after spending lots of money and time, I am somewhat reluctant to share.  You see, I consider most of you to be my competition and I am human, which means I am falible and greedy (let's be honest we all are!!) and the devil on my left shoulder says "keep this knowledge for yourself."   Then I am reminded of the teachings of my coaches, mastermind groups and other angels on my right shoulder who say, "if you want to become the best possible person you can and you want the finer things in life you must practice the art of abundance and reciprocity regularly."   For those of you who don't know what that means, It means in order to get you must give and do unto others as you would have others to do unto you.   Plus, honestly, unless I had someone who was willing to share their knowledge with me, I would not know what I now know.  So, brace yourself because I am going to spill the beans about one of the most important subjects facing real estate today and the foreseeable future.  I am going to be blunt, so if you have a weak stomach or don't like constructive criticism then you should move on to the next blog.

By law, us real estate agents are supposed to have an in depth knowledge of the transactions we are involved in or we are, at the very least, misrepresenting. It has been appalling to me to see and read the comments of my 'real estate brethren' post comments or write blogs about this subject when they obviously have no idea what they are talking about and have not spent the time to actually research, read and learn about the subject they are writting about.  It's no wonder why the general public has a bad view of real estate agents and love to diminish and devalue our profession.  If you ask me, we do a pretty good job of doing that to ourselves.  I hate to generalize but the 80/20 rule in real estate is accurate for a reason.  80% of us are floating in the breeze praying for the next "sale" to hit them over the head and may practice real estate but in no way treat it like the business it is or like they should.  When it comes to short sale transactions I think it is more like a 95/5 rule.  So, before I go into the meat of this blog do yourself and all of the distressed home owners out there a favor and either buy a clue and really commit yourself to learning and understanding short sales or do the right thing and refer them to someone who does.   By the way, this includes you realtors out there who take a short sale listing only to pass on the negotiations with the lender (the most important part) to a third party.  I must admit I was one of those at one time until I learned the error in my ways the hard way.  Unless you are referring those negotiations out to an attorney who is local to you. And it is one who actually knows and understands short sales intimately themselves (few and far in between), this is one of the biggest mistakes you can make.  But I digress as short sale negotiations in house vs referred out is a debate for another day.  

short sale help buttonLet's get on with the Flip or Back to Back Transactions are legal or illegal debate.  

Are you ready??..............

They are legal, so legal that Wells Fargo and Freddie Mac have both recently released updated and specific guidelines that say so.  Don't believe me??

See for yourself (this is the part where you actually have to take the time to research, learn, read and oh yeah comprehend what you are reading!!!!)

Wells Fargo Guidelines

Freddie Mac Guidelines

So legal that there are a bunch of lenders out there who will fund both the A-B and B-C transactions and title companies who will insure both transactions!

So legal that myself along with a host of top notch investors, attorneys, real estate agents and title companies have been and are doing hundreds, of these transactions and have been doing them for much longer than one year and on a national level!!   

So legal that our contracts and addenda have been scrutinized by attorneys, lenders, title companies, TRENDMLS and the Pennsylvania Real Estate Commissions legal hotline attorneys and all have given the green light!

So legal that....well, I'm sure you get the idea.

house money

How could this be, you ask?  I've been at seminars where the speakers said they were illegal.  Well, it's all about disclosure and transparency.

Are there illegal flips and back to back closings taking place?  

Absolutely and unfortunately they are occurring everyday.  Some do it unknowingly do to lack of knowledge and understanding while some do it purposely because they are scam artists.  They all should pay and they should and probably will pay dearly for their actions.  

Remember your real estate 101, not knowing is not an excuse.  If you don't know then don't take on the client or the deal.

The question is, Do you want to be one of the 5% of agents out there who understand how to construct and navigate the short sale jungle and prosper because of it?


Do you want to continue to be one of the 95% who just don't "get it" and never will because you won't take the time or spend the money to learn even though that is the oath you took when you became a Realtor?




Disclaimer: While attempts have been made to verify information provided therein, the author does not assume any responsibility for errors, omissions, or contradictory information contained in this document. This document is not intended as legal, investment or accounting advice. The reader of this blog assumes all responsibility for the use of these materials and information.  

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Kevin Kravcak
Realty Mark Nexus - Levittown, PA

We can go back and forth forever on this but I'll maintain Lenders may be obligated to offer HAFA but HO's are not obligated to enter into HAFA.  

Back to the original topic, Flips are here to stay HAFA will not make them go away as it will only effect a small portion of loans and home owners.

I did mean to include that link, not sure what happened there.    

In PA, foreclosure takes about a year or so, at least, that leaves plenty of time to work a short sale even if the lender does not stop the foreclosure process. As you stated earlier, individual state laws have to be considered.   Having a working relationship with private equity firms and lenders I know first hand, at the end of the day, lenders do not want to be owners.  If you provide them with an agreement of sale with an acceptable price they will approve it HAFA or non HAFA.

and touche, but I have read it a few times myself as well and I guess just interpreted things a bit different than you plus I take into account PA law.  To be honest, I rely on my attorneys and their point of view on it more than my own as the thing is not an easy read at all and that's what I pay them for.

I too am enjoying the conversation on HAFA even though it is not the original topic at hand.......gosh, we are geeks aren't

Jan 09, 2010 07:29 AM #13
Dawn Uselding
A New Dawn Real Estate Services, LLC - Manitowoc, WI
Short Sale Assistant

I am glad that flips are here to stay!  Alot of my clients are investors, and I would hate to lose their business.  Enjoyed the conversation greatly.  If I am ever contacted by a homeowner in PA I will contact you about listing the property.  But you would have to work with my company LOL ;).

Have a great weekend!

Jan 09, 2010 07:37 AM #14
Brandon Joaquin
Re/Max Executive - Manteca, CA

Thank goodness that FHA has decided to pull there heads out for at least a year to allow FHA mortgages on "flip" properties. This is not to say there won't be plenty of restrictions to come along with this new, yet exciting change.

Jan 21, 2010 08:17 PM #15
Rick Cauthon

Kevin is correct! 

HAFA is a JOKE and does not help the seller. All agents need to really read up on this, because it is not good.

And for Tom B., if it wasn't for us investors and having access to transactional funding and getting these short sales negotiated and sold there would be even more sellers with foreclosures.

Our group has been performing Short Sales for over 6 years, when no one new what they were. This year is going to be overwhelming for sellers and short sales are going to be their answer. Most won't be able  do a loan modification and can't afford to bring  back payments to current.

We can help seller's that has to sell their property and avoid foreclosure. We get 94% satisfaction of liens for the sellers. We do all the negotiations with the lenders, so the agents can spend their time wisely getting more listings and buyers.

We are Nationwide! RC Real Estate Solutions at

Feb 09, 2010 03:07 PM #16
Dawn Uselding
A New Dawn Real Estate Services, LLC - Manitowoc, WI
Short Sale Assistant

Rick -

I have been doing short sales for 8 years and have a similar sucess rate.  I agree HAFA sucks.  What I want to know there a way for a HO to opt out of a HAFA short sale if the lender/servicer is participating in HAMP/HAFA?   Kevin thinks so but I have not seen anything that indicates this is true.

Also what are straight flippers going to do to withthe 90 hold required by HAFA?

Feb 09, 2010 03:43 PM #17


There are VERY ATTRACTIVE SPREADS &  and as little risk as any Liquid Investor would dare to RISK.

The Southeastern Tn & N. GA areas need 60 to 90 day transactional funding. This timeframe give or take a month give time for BOTH repairs & Loan TurnTime. I happened upon Transactional Funding thru trial, error and Losing a Great Deal with an end buyer.  The "Investor" misrepresented himself as Principal investor (more than one mind you) when using trans funds but did not disclose.  Therefore, the endbuyers that are already in place. (About 30 or so different tenants/properties only qualified FHA). The appraisals require repairs to move forward in the loan process. 

I am aware Transactional Funding is Legal but when improperly disclosed.  And the ingredients for trans funding w/immediate endbuyer is NOT there.  IT DOES NOT WORK but the Unsuspecting loan officers, realtors, and sellers MINDS are WORKED OVER in the Process!!

Can be a Great Opportunity for some but MOST in my area are either HUSH HUSH.  Or just now getting the hang of how it works.   MAJOR NEED FOR EXTENDED TRANS FUNDS as MOST pre-foreclosures are in need of repair or EVEN vandalised but REALLY GOOD DEALS. 

Please advise TIme is of Essence in one that I've worked hardest on.

Best Regards,



Feb 10, 2010 12:12 PM #18
Kevin Kravcak

Brandon - Sure, there will be and are guidelines, but something is better than nothing!!

Rick - Keep up the good work, sellers need you!

Hi Evette -  Yes that could be a potential problem when dealing with novice investors who have no financial backing other than the transactional funding and very little to no experience with these deals.    There's always more than one way to skin a cat and most fly-by-night short sale investors think their only exit plan is to use transactional funding.   In a very worse case scenario, they need to back out of the deal and let it go A-C so foreclosure is avoided and the C buyer still gets the house they want at a great price!!  See my blog for tips to be sure you ask an investor or any agent who represents an investor before moving forward with a short sale!!!    Lot's of wanna-be, Johnny come latelys out there who are neither experienced enough or prepared to adapt when something goes awry.   Bottom line, if you are greedy and are only in the short sale flip game for the money, you need to be doing something else. People's lives and credit are at stake and that should not be something that is overlooked, ignored or taken lightly.   Goal #1 always, ALWAYS has to be stopping foreclosure, even if it means the investor has to back out of the deal and make no money!     You win some and you lose some, at the end of the day, money will be made but only for those who are in it for the right reasons.

A true investor will also have access to funds other than transactional funding.  Including private money and hard money.  Any investor who only has one exit plan is not a very good investor at all and I would be very wary of such investors!!!   How do you know if they are experienced or not??   ASK QUESTIONS!!   This is also another reason why it is best to have an agent involved who actually understands this process even better than the investor buyer.  IMHO, as an agent, no way would I want an investor/negotiator team who I have never worked with before "control" these deals without showing me some kind of personal track record of success, at the very least.  Even then I would not allow it, I'm the one with a license,career, reputation and livelihood on the line, not the investor!! To many speculators out there who bought a "short sale investment course" but really have no practical experience and can't be trusted.   If an agent is going to be involved they should know and understand the process themselves or they shouldn't get involved at all.  Think about it, a licensed agent allowing an investor (their client) to control every aspect of the deal??   That is not what being an agent is all about.  We are supposed to be the experts, not our clients!!   My investor clients know this and appreciate the fact I am just as knowledgeable, if not more knowledgeable than they are. At the very least we learn from each other, doesn't that make more sense?


Dawn - HAFA is entered into through the signing of a contract and like any other contract is not enforceable unless it is signed, sealed and delivered!!!  That is common contract law, there does not need to be, and I'm sure lenders and our illustrious government will not ever include, specific language that states so in any document they create regarding HAFA.  That does not mean the law does not apply, it just means they are not going to broadcast it out to the masses. 


Thanks for all your comments!!




Feb 10, 2010 01:18 PM #19
Evette Savage


Are you licensed to do business in TN or GA??  If so, I believe there is quite a bit of good business and give peace of mind to many good people.  Who have been jerked around by the banking industry, place their faith in the investors only to fail there also. 

REAL Investors needed in the deals but MUST SHOW:LIQUIDITY.....LIQUIDITY.......LIQUIDITY......

Please let me know whether there are some that may be interested in our area. Primarily TN but North Ga also.  15% to 24% pursuant to Usary Laws in state of TN AVAILABLE on their short term investment.  LENDER APPROVAL not Mtg Broker approval letter (With all Due Respect) AVAILABLE on a couple endbuyers.  Bank approvals for 2 others but MUST MAKE Repair and the Seller can not get credit, does NOT have the capital, and does not have the clout to have worked done and paid at closing.

I have taken heed your message for proper Proof of Funds NOT Transactional FUNDING letter.    I gotta get back at it.  I will look at the blog you mentioned this evening.


Currently researching other strategies with regard to principal reduction??, Mortgage Purge??, etc.   Lots of people out here some scamming and some on the level.  Some validity in principal reduction concerning proper assignment, etc. but does NOT mean BANKs Have to agree to shortsale terms. But may give a little leverage.  If you've experienced success where this program is concerned.  Please advise me.  Otherwise, I will update as I can in that regard.

Thank You All,

Feb 11, 2010 03:14 AM #20
Kevin Kravcak
Realty Mark Nexus - Levittown, PA

Evette - contact me via e-mail with your contact information and I will get back to you to discuss the opportunities in GA and TN.  Investors don't necessarily have to show liquidity and transactional funding is NOT a totally bad way to go.  More important is you definitely want to see a track record of success and they should have more than one exit strategy in case they get a 30 day anti flip approval letter!  What is their plan gong to be if that occurs?    What is their plan going to be if the C buyer backs out?  Will they be in a position to buy it anyway?   E-mail me and I'll help you with all the stuff you asked about!!



Feb 11, 2010 05:37 AM #21
Tracy Royce
Short Sale Arizona, Arizona Short Sale Realtor - Phoenix, AZ
Royce of Real Estate - Short Sale Arizona

We're in the 5%...and foraging forward because of it. I'm excited about HAFA as well. THanks for the post!

Feb 14, 2010 12:08 PM #22
Robert Earl -The Earl of St Pete
St Pete LUXE Living Group - Saint Petersburg, FL
The Earl of St. Pete

This is a good back and forth on the subject.  Very little mention of the initial customer and how they are properly taken care of...but a good dialog.

Mar 12, 2010 08:50 AM #23
kevin Kravcak


thanks for the feedback, you just gave me an idea for another topic.   This subject was on legal vs not.    Benefits for the seller vs risks is another subject entirely.  stay tuned.

Mar 12, 2010 09:57 AM #24


Great points, I'm glad Real Estate Agents are gaining clarity on the legalities of these processes, we are in North Dallas, and have helped many sellers here and all the agents who bring us deals love the ability to have a buyer willing to stay in the game and even handle the process no matter how long the bank takes.

We close 80% plus of our transactions, and the question of an investor buyer backing out because there is no end buyer, in reality is no different than the likelihood of the transaction completing in the first place, unless they have no marketing effort going into the back end selling efforts. 

The typical reason for an investor not moving forward has more to do with the BPO evaluation and less to do with there genuine intention to purchase the property.  Real Short Sale Investing Experts can be a huge assets to Real Estate Agents.

Some keys to weed out not so savvy investors, ask for proof, like HUD's.  And more than just 1 in the last 4 months.  Second, ask them what they will do if the bank gives a real shallow discount, a good investor should still know how to get the deal done.  We are willing to make no money and get the short sale done if that was the only way to do so, and we get verbal agreement with our agents likewise.  Both of our reputations and the chance to save someone from foreclosure, and get a future referral is worth more than making all the effort and just letting a deal die.

Use your gut, and you'll find us out there.  My agents are making a killing on short sales with me as there buyer, and they have much less work involved, I hope more agents can find groups like us. A ton more lives will be helped.

Regarding HAFA... well read closely there are some real concerns there.  Don't want to burst anyones bubble, but take a look if you care to know why HAFA's might not really be the best solution for your sellers -

Good luck to all investors and agents alike, lets help turn this market around together.


Apr 14, 2010 05:04 PM #25
Justin Boland
Back Brain Media - Springfield, IL

This was...amazingly educational.  Thanks to everyone who made this such a great discussion, especially Kevin and Dawn!

Apr 28, 2010 11:23 AM #26
Mary Vega

This is for Tom at Exit Realty.  Tom, I understand your concern about nothing holding the investor to the deal, but what makes that different from ANY BUYER THAT WALKS before the short sale is approved. ..or even after approval??  I had an agent call me last week that had a two family go to foreclosure because over the period of 18 months trying to get this sucker sold, he had THREE buyers walk!!  Now none were investors.  The same risk for the seller is there whether it's an investor or just a regular home buyer.  If they walk they walk.

Sorry, but I've encountered agents saying that to me before.  There is no difference between an investor or regular home buyer if either chooses to walk.

Jul 21, 2010 12:11 PM #27
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

Lenders continue to change Short Sale requirements, processes and timelines it seems like weekly if not more frequently!

Jul 27, 2010 01:52 PM #28
Connie Gohata
REMAX College Park - Cypress, CA

I am a Realtor in So Cal with a few new investor clients from an investor association.  They want to do back to back closings, but I don't have a good title/escrow that will do this.  My Broker says they are illegal and he owns an escrow company, so i will have to look elsewhere.  He says we have to close an escrow before we can open another one on the same property.

Your articles above give me a smile - there's hope!  But I may have to sever relationships with my Broker unless I do it his way.  Can you send me in the right direction to find title/escrow in Southern California that will do a back to back closing (on the same property)?  It can be a few days between, but certainly not a 30-60-or 90 day wait!


Oct 06, 2010 08:13 PM #29
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Awesome blog. It should have been a feature. I am also sick of people stating that short sale flips are illegal. Great conversations all around as well.

Finally, I process short sales for other agents. I can understand your concerns, however, one of my clients is a savvy short sale agent who decided to outsource the short sales to leverage his time, especially since our services are free. So if you can find someone who gives it the same attention and knowledge as you do, then there should be no issues with outsourcing. After reading Dawn's responses, I consider her as a sister in the family of short sales!

Oct 09, 2010 11:24 AM #30
Dave Whittington - Ocean City, MD REALTOR
Associate Broker - Coastal Life Realty Group - Ocean City, MD
Associate Broker

Thanks for the info and all of the discussion and comments from others.

Dec 07, 2010 07:39 AM #31
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

With full disclosure, among other things, a short sale fip is not necessary illegal. But there are a lot of scammers who took advantage of this so colled AB-BC transaction( especially using an option agreement). The legal problems can be: 

mortgage fraud, false statements about the condition or price of the property and other terms of a AB transaction, breach of duties for realtors who intentionally misrepresent their clients, etc. , and of course, the A seller compensation and intentional misrepresentation of property and other terms.


Jan 24, 2018 11:32 PM #32
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