Closing Short Sales Back to Back While the Money Stacks!

I was just up speaking for Atlanta REIA when a member asked me “isn’t closing short sales back to back illegal?”  My answer was NO!  He asked me, when did that change?  It has never changed.  He just didn’t ask the right questions to the right Attorney or Title Company.  Closing a short sale back to back can only be done with full disclosure which I always do on my paperwork to the short sale lender and to the “C” Buyer.  I provide copies of my purchase agreement which I have signed with my “A” Seller and me as “B” Buyer to the short sale lender.  I then provide copies of paperwork that I had signed with my “C” Buyer and me as “B” Seller to my title company.  If you are using my paperwork, here is how I disclose the back to back CASH closing.  Remember, disclose, disclose, disclose!

1.  The “C” Buyer is a cash buyer.

2.  The “B” Seller/investor must has signed a form along with the “C” Buyer, stating that they are aware that the “C” Buyer’s money is going to be used to close the first transaction between the “A” Seller who is doing the short sale and the “B” Buyer/Investor who is purchasing the property prior to selling to the “C”/Buyer.

3.  In addition, the Title Company and/or Attorney who is writing title insurance on the property, their underwriter has no problem with this type of transaction as long as this form along with the disclosure stated in your purchase agreement to the short sale lender is provided to them for review.

There is also another concern that the “B” Buyer, investor, should be well aware of which is the terms and conditions of the short sale.  Some of the Lenders such as Bank of America, Wells Fargo, and GMAC will require that the “B” Buyer hold the property between 30 and 90 days.  These terms could be written in the Arm’s Length Transaction Form and/or in the Short Sale Approval Letter.  Violation of these terms and conditions is a civil and a criminal offense.  So … what do you do with these types of deals, close them and hold them per the terms as required by the lender and then sell it on the 1^st day after the timeline that was stated.  Therefore making the right offer amount is important right from the beginning.

Recently, I received a short sale approval letter from Bank of America stating “The deed conveying the mortgage premises to the purchaser must contain the following provision:  “Grantee herein is prohibited from conveying captioned property for any sales prices for a period of 30 days from the date of this deed.  After this 30 day period, grantee is further prohibited from conveying the property for a sales price greater than $51,000.00 until 90 days from the date of this deed.  These restrictions shall run with the land and are not personal to the grantee”. 

I have requested the lender to add the following verbiage in addition to their verbiage above.  “The Buyer agrees not to sell the property within 30 calendar days of the date of the sale without having substantially refurbished or added value to the mortgaged premises.”  This statement will allow me to fix and sell the property quicker than 30 to 90 days.

 I really don’t like the fact that they have added how much more I can sell the property for which by the way is $42,500.  Lenders are trying to control the sale of the property when they don’t even hold an interest in the property.  Remember, the Lender only has a lien on the property.  I would highly recommend to you that on all your transactions you add the above verbiage for your protection and be real as to what you consider substantially refurbished.  Remember who determines what “substantially” means will be is in “the eye of the beholder!” 

Happy Negotiating!

Kimberlee Frank