Replies to This Discussion

Permalink Reply by Roberta Hutchings on December 30, 2011 at 6:37pm

There are new arms-length rules to go into effect on January 1. These rules tighten up and strengthen the prohibition against less than arms length transactions. The rules are to prevent the underwater owner from staying in the home- exactly what sounds like may happen should your set of parents buy their daughter's house.

Bank management frowns on this, and investors are savvy as well. And if you are upfront with the bank about it (as you should be, ethically) they're going to issue the kibosh immediately.

 

That being sai, if the parents have the cash to pay daughter's loan(s) in full, then there is no need to do a short sale.

 

Permalink Reply by Michael W. Logar on December 30, 2011 at 6:52pm

I'm a Realtor and investor, and I'm sure my opinion will not make everyone happy, but here it is: 

As an agent, we DON'T work for the banks, unless we're an REO agent, and our client is literally the bank. In a short sale, where I represent the Seller, I work for the SELLER only. To me the bank is just a lien holder, with no power to do anything other then tell us how much they need to satisfy the lien, PERIOD. In PA, where I practice, the ONLY legal way to prevent someone from selling a property that was sold to them, is by creating a deed restriction, in which case the Buyer would be fully aware of the deed restriction before closing the transaction. If a standard Warranty Deed is granted to the Buyer, then the Buyer has the highest form of ownership of the asset legally possible, and could do whatever they want with it. They could literally sell it 5 minutes later, and the former owner CANNOT DO ANYTHING, much less the lien holders of the previous owners! 

As an investor: Flipping is not illegal. Your bank flips your mortgage whenever they feel like, sometimes right at settlement, and your very first payment is made to another entity. Flipping is a "dirty" word, made so by the banking lobby to prevent "John Q. Public" investor from cutting into their profit. I have YET to see one case where a property was LEGALLY purchased where anything in a sales contract added by a lien holder who was NOT a party to the contract (either buyer or seller), could be enforced by said former lien holder. Imagine if you sold your car to a car dealership, and Wells Fargo was going to sue the dealership because it didn't want the dealership to resell the care for 90 days. That's ludicrous! What's even more insane is thinking that the salesperson at the dealership should be looking out for the interests of the bank who lent his customer (The Seller of the car to the dealership) the money to buy the car. The salesperson (obvious parallel drawn to a Realtor) works for the dealership and his customers, and WILL resell that car to the very NEXT person who walks onto the lot. WHY IN HELL should real estate be any different? The truth is, is that it's not, though the banks would love to have you THINK it is...!!!  

Permalink Reply by Roberta Hutchings on December 30, 2011 at 7:09pm

I agree wholeheartedly we work for the sellers, not the banks. Whenever I run into one of those misguided souls who submits multiple offers  to the bank on a short sale, I seethe. The bank shold NEVER be a party to the transaction.

However, the rule of no sale for 90 days is one I will not argue with. It prevents those less than ethical A-B/B-C transactions- back to back closings where the only one profiting is the B buyer, who closes, then goes to another room and closes that same property for a much higher amount. Then the original owner is screwed royally out of a higher sales price. How is that in any way representing my sellers best interests? This is not a matter of looking out for the banks best interests- it's looking out for my client.

 

Permalink Reply by Michael W. Logar on December 30, 2011 at 8:29pm

The 90 day no-sale rule is to prevent individual investors from profiting, and why, so the Sellers could reap more money, NO, it's so the Banks could. (And THAT, by the way, is not necessarily in the best interest of the Sellers, but selfishly in the best interests of the banks whom we don't work for). Most of my Short Sale Sellers don't care one bit about the amount received for the home, because they don't keep ANY proceeds, as is standard on most short sales. They care about settling their living situation, which in most cases, they want to have taken care of ASAP. It's not in their best interest to be evicted from their home and become homeless, just because the bank wanted to hold out for Top Dollar in a crappy market. It makes the most sense for a strong buyer (read: cash offer, quick close), to enable the short sale process to start and the Seller's new living arrangements to be made. 

I assume you are talking about a short sale here, because let's be honest, if I buy a property that's not in distress, who has ANY right to tell me how or when I could sell an asset that I legally own? You guessed it, no one.

Onto a short sale scenario: Why is a double close unethical? If the Seller, your client, whom I assume is an adult not under the influence of any mind-altering drugs, decides to sign a sales agreement from an investor for a particular price, maybe even against your advice (when you've advised them market price could be much higher), who are you even to say that the buyer is now behaving unethical or even doing something illegal? I assume your Seller did not have a gun to their heads when signing the agreement, and you made them aware that the buyer is an investor, who by definition, buys properties for a wholesale price with the intention of selling them for a profit.  The entire world of commerce works this way. Go to Walmart and buy something. Did Walmart screw you because they just got the item in 5 minutes before you purchased it, and they only paid half of the retail price they charged you? Did the factory get screwed because they only reaped half of the ultimate retail price? NO, everyone was HAPPY with what was received. As an agent, you advise your clients whatever you wish, but if they of their own free will decide to sell their home for a fixed price, their lender agrees (if it's a short sale), then there's absolutely nothing wrong with an investor making a profit by reselling an asset they legally purchased, whether it's 5 minutes after the sale or 5 years down the road. 

I was raised in NYC and watched in horror as Rockefeller Center was sold to the Japanese. There was a huge public outcry. Japan's response: If you didn't want us to own it, why did you sell it to us?

The bank wants to have it cake and eat it to: You can't expect me to lay out hundreds of thousands of dollars in cash to buy you out of your defaulted loan, and then dictate to me when and how I can sell my legally purchased property. Nuff said.

Permalink Reply by Roberta Hutchings on December 30, 2011 at 9:01pm

Having closed over 40 short sales in the past two years, I have yet to have a seller who didn't evince concern about how large their deficiency might be. Unless the approval letter specifies the bank waives the deficiency, then sooner or later those banks CAN pursue, in a recourse state. I live in Colorado, which has recourse status.

Our Real Estate Commission is opposing A-B/B-C closings due to the questionable ethics involved.

We've already been through the era of "short Sale Companies" who opererated by having the seller quit claim the property to them, before any "negotiating" was done. Those companies slunk out of town with their tails between their legs when their operations were nailed as being fraudulent.

I don't look upon investors as being the enemy. Flipping is NOT illegal, as you point out. Many neighborhoods are finally seeing a resurgence because ethical, professional flippers did their work well, and earned their profit.

But whether you like it or not, it's a shady practice to have back to back closings on the same property where the middleman reaps a huge profit, and the seller and subsequent buyer both get taken advantage of.

Part of the reason I've been successful is I don't look at the banks as the enemy. I may not like their tactics and values, but the people I deal with on a daily basis are not the ones who make corporate  policy.

Demonizing those folks doesn't get me co-operation or to a closing table. At the end of the day, I feel positive about how I'm doing my business. I don't choose to do deals with sellers, buyers or investors who are ethically challenged. My view has always been that those who like to bend the little rules love to break the big ones, and I refuse to be a part of that.

Have a nice night.

 

Permalink Reply by Michael W. Logar on December 31, 2011 at 12:01am

I been negotiating short sales since 2004, not just closed, but negotiated where I create the package from scratch. As an investor, I've personally reaped huge profits, ethically, and made a win-win-win situation for all involved (seller-buyer-bank). In 2006 I was licensed, and still laughed at by Realtors who thought I was wasting my time with short sales. 2008 brought the term 'short sale' into the public vernacular. The personal history is to demonstrate that I'm not new to this either.

Sticking to the point of ethical, legal transactions with full disclosure, not "short sale companies" or any other scam artists, to which this thread doesn't pertain to, the legal and moral jeopardy of giving up even a little bit of my property rights as a private citizen is to say the least, a slippery slope. 

I would as you say, "Demonize" any industry, company, or institution that infringes upon my private property rights. I'm not in Colorado, but I'm pretty sure that prior to the housing collapse no one was too concerned about so called A-B/B-C 'flip' transactions. 

Scam artists & bad-apples always seem to poison the lot, but that doesn't mean we should legislate away the ability of legitimate law abiding investors to make a profit. Your right, we DO need them to turn around neighborhoods and absorb the raft of excess inventory.

It saddens and sickens me at the same time that Realtors are often used as the enforcers of rules made by banks and 3rd parties who receive financial gain by the rules they create, and make us feel like if we don't play by their new rules, 'we're going to lose our licenses'. I don't like being under the thumb of the banking lobby, particularly when they are looking out for their own self interest and not mine OR my clients (many of which can tell you horror stories about how their lender treated them. Closing 40 short sales, i'm sure you've heard at least a few). 

I can bitch until I'm blue in the face, (I've elevated more short sales to the executive level with legal complaints than you've closed) and that won't damage my relationship with any bank, because at the end of the day when the bank decides they've received an acceptable offer, I get a payoff, no matter how warm or nasty the negotiations have been.

One final note: I will not accept a short sale payoff unless it states that it's being accepted as payment in FULL. There is little benefit to a homeowner to sell the home only to still be in a mountain of debt, with a deficiency judgment hanging over them. 

Roberta, I don't see you or the banks as an enemy. The only difference between us, is I don't see the A-B/B-C flippers as enemies either. 

You have a good night as well. :)

Permalink Reply by Jerry Giordano on December 30, 2011 at 8:57pm

I have NOT had it removed but I have had a clause added that the Buyer (then turned seller) could not make more than a 50 percent profit .I have also substituted an actual dollar figure too that they could not go above if sold in 90 days.  It seemed to satisfy everyone.  For example:  Buyer cannot sell property for more than $50,000 during his first 90 days of ownership. 

 

You probably already know this, but the time to fight it out is during original negotiations.  That way the Buyer will make his own decisions about time table.  But by the time he/she closes, lines up workmen, gets work done (maybe even permits) lists the house (with you of course) and you market and find buyer who does inspections and has a 30-45 close, it'll be over before you  know it!

Permalink Reply by Tommy Flynn on December 31, 2011 at 10:32am

Lets stir the pot a little.

An investor gets short sale approval to purchase a home. Then, with sellers permission, renovates the home before buying it. Investor finds a buyer for the newly renovated home. They close same day A-B/B-C.

Thoughts?

The bank is accepting a payoff on the old value of the home. The new buyers are paying fair market value for a renovated home.

Opinions?

Permalink Reply by Chris B Johnson CDPE on December 31, 2011 at 3:29pm

I have not read all the posts, so please excuse any redundecy. The 90 Day Anti-Flipping Waiver has been renewed through Congress so this is not a problem with FHA. Most Banks/Investors base their Anti-Flipping verbage on this rule, so if you can get a copy of the Waiver renewal to your negotiator, maybe you can make some headway. In California, A-B-C transaction are considered fraud, so we stay away from anything that even looks like one.  Lease option probably won't work because the buyer still has to wait 90 days from the date they take title.  See 90 Day Anti-Flipping Waiver has been renewed below:

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media... 

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