This series of posts reviews my experience with a convoluted, so-called A to B to C transaction in which I represent the ultimate buyer. I am sharing the details publicly in the hope others will chime in with their experiences and opinions, as these transactions walk a fine line between legal and outright fraud. You can imagine which side I would prefer to stay on.
And "Oh, By the way" ;-)
******Tinker to Evers to Chance - For those of you who are not baseball fans (say it ain't so!), the footnote at the bottom will clarify what in the world my title is referring to. The rest of you may read on...******
Today I would like to expand on my observation that the bank being asked to accept a short payoff in the
A to B segment is not receiving anything close to fair market value in this deal. Ya think that might be a problem?
Step one in the transaction: the investor, B, finds the property and convinces the owner, A, who is likely underwater and in default, to either deed the house to him or to give him an option to purchase contingent upon the lender agreeing to a short sale. In order for the investor to make a profit, that short sale just got a whole lot shorter. Step two: the investor (we'll assume he is licensed) or his agent begins the negotiations with the bank for the short sale. Presumably they provide, as part of their short sale package, evidence of current market value to justify their purchase offer. BUT, meanwhile, the house goes back on the market at a MUCH higher price. Step three: a buyer makes an offer at what is arguably by definition actual fair market value. If this offer is sufficiently more than the price the investor is paying the bank, the offer is accepted, and the A to B transaction is closed out. Note that sequence: the offer is accepted and in contract before A to B closes. Step four: the investor sells the property to the end buyer. Sometimes this happens via a back-to-back or "double" closing. In our situation, the investor plans to hold the property for a month, which he says is a bank requirement.
Ok. So in what conceivable contortion of the facts can the bank be said to receive anything resembling fair market value? The highest and best offer has not been presented. I know, I know, all offers are not sent to the bank in a short sale situation, even though sometimes higher ones come in. My concern here is that only one offer was even considered by the homeowner, namely the investor's offer, even though the assumption has been made that there will be much better offers coming (or why bother?).
Now, having said all that, is it possible the bank doesn't care? We shall see, but I think so, and here is why. The bank has the opportunity to do all the appraisals and/or BPOs it wishes to assure it is satisfied with the offer it is agreeing to, and is perfectly capable of countering the lowball offer or rejecting it outright. It must be disclosed by the investor that a)it is his intent to resell at a profit, and that b)the bank should make its own assessment of value rather than relying on the investor's. In our situation, I had no idea what disclosures were made, so took it upon myself to notify the bank's local short sale negotiator that my buyer was offering much more than they were likely receiving. Although he seemed interested to learn that information, it may not change their response to the short sale. Only they know for sure their anticipated loss going forward with foreclosure, and really, I have a vapor buyer at this point from their perspective, who might evaporate before they get the house relisted. They may decide it is in their best interest to just let the deal go forward. But at least they can't come back later and say they didn't know.
Note that if all the subsequent steps after step one don't fall into place, the investor skates away leaving the homeowner holding the bag. Investors justify this by pointing out that the homeowner is circling the drain anyway, and they are only trying to help. Perhaps. But it is hard enough to get a short sale closed without the need for someone in the middle making a profit. Is the homeowner being well served here? You make the call. More on that next time.
Here are the links to the rest of the series:
Close Encounters of the Late-Night TV Guru Kind
Tinker to Evers to Chance - The Saga of an A to B to C Transaction Part I
Footnote: Tinker to Evers to Chance refers to three Chicago Cubs baseball players at the time the Cubbies won back-to-back Word Series in 1907 and 1908. Joe Tinker, Johnny Evers, and Frank Chance were a short stop, second baseman, and first baseman respectively, who have been credited with perfecting the modern double play combination. Their remarkable prowess at turning the double play was commemorated in an eight line ditty by newsman and Giants Fan Franklin Pierce Adams that began: "These are the saddest of possible words, Tinker to Evers to Chance..."
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