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The End Of Short Sale Flips?

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?

 

Ø      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.

Ø      Just within the past four weeks, many of the major and not so major title companies stopped doing these transactions.  They also require title to be held for 30 days or more.

 

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.

 

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

 

Memo from National Underwriting:  Memo From National Underwriter on Short Sale Flips: 

 

Short Sale Underwriting Memo

Comments (2)

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  1. admin says:

    Good question. The answer is simply yes… to both.

    We develop and keep a list of active and cash buyers who are looking for specific properties. So, when we find a distressed home that meets their criteria, we will offer that property to our buyer’s list.

    However, we also market it through our realtors to find the C (or end) buyer.

    Both of these scenarios are done simultaneously and ONLY after we have submitted our option contract and it has been signed by the seller (A – B). You do not want to offer and have the seller sign and accept your contract after a higher contract from a C buyer is received and accepted. This can be considered fraud so make sure your sequence is done right.

  2. Jim says:

    Bernie:

    Thanks for your comments. But here is what many of the major title companies have done.

    They are no longer doing back to back closings, whether or not its cash, because of title approval from their title insurance underwriters. It takes up to four weeks for them to recieve clear title from the major title insurance companies. Therefor, they require title insurance on the first transaction before they write the second.

    Don’t confuse this with seasoning requirements from the lender. This is a “release of the lien” issue not a loan issue. Underwriters are concerned about insuring title until “a release of lien” has been recieved from the A-B transaction before they will insure the B-C transaction. As stated above, this could that 2-4 weeks.

    I have added a letter one of our title companies recieved from their underwriter. Their underwriter has followed what I believe Fidelity Title started.

    All I know is that the three title companies we have used in the past to “flip short sales” have stopped allowing that transaction.

    Click here to see the memo from National Underwriting above