Short sales. Everyone is doing them. They are all the rage right now and will be for several years to come until all these foreclosures and distressed properties get through the system.
In my last article Short sales and double closings - the good, the bad, and the ugly - Part 1, I discussed the basics of what a short sale double closing involves. I also discussed "The Good" things about these transactions. Before you proceed with reading this article, I do suggest that you read Part 1 as this article is simply a continuation of that one.
There is an absolute necessity for investors to legitimately conduct and close these deals the right way - legally, ethically, and with full disclosure to all parties including the lenders and mortgagor. There is simply too much inventory to be bought up right now and there are even more foreclosures on the way. In this Part 2, I will be discussing the more questionable "bad" side of these transactions.
The Bad -
Some investors (just like some Realtors, some attorneys, and some mortgage companies) will do things that are not win-win. Thus giving these double closing transactions a bad name. The information below has not been run through any lawyer, it is simply my layman's opinion based on many hours of attending various seminars and classes as well as being involved with several hundred foreclosure transactions over the last few years.
One instance is when an investor puts a property under contract to buy, negotiates the short sale, but when they don't find an end buyer the investor simply walks away from the deal or worse lets the property get foreclosed. I just don't understand the ethics behind indefinitely tying a property up with a purchase contract or an option contract and then not closing on it if you get the short sale approved, unless maybe you gave the seller some non-refundable money for doing this. Especially in an option situation if there is no consideration that has changed hands between seller and buyer, then the option is more than likely null and void anyway. You can't take away the seller's rights in a property (even temporarily) without paying for it. Almost every state has laws regarding contracts, options, and consideration. Florida is no exception. Check out Florida Statute 475.43 . Without "substantial consideration" changing hands, then by law the contract or option is considered null and void.
Then we come to the practice of having the seller sign a deed over to put the property into a land trust with the buyer (or some entity or other person that they control) being the trustee and the seller being a beneficiary. The law in most states has clear limits on what a trustee is permitted to do. After all, a trustee has a legal duty to be looking out for the best interests of the beneficiaries. Trustees are supposed to have a fiduciary relationship with the beneficiary. How can a trustee realistically do this if they are trying to profit off the property by purchasing it? Either you are acting in an arm's length transaction or you aren't. Regardless of the paperwork you had the seller sign, judges have liberal discretion to throw it all in the garbage can if they think you are "acting in bad faith" or with a "conflict of interest" or doing something "unconscionable." In Florida we are talking about Florida Statute 736.0802 . A trust is voidable by the beneficiaries for this type of nonsense because the trustee has a legal duty of loyalty to the beneficiaries. An analogy would be letting the opposing football team's quarterback be your team's coach - obviously they could not realistically be looking out for your team's best interests even if you made them sign a 20 page contract saying otherwise.
Next we come to title companies. In nearly all 50 states, there are very few title companies that will even consider handling a double closing or an option closing on a short sale transaction. The reason they will not handle these closings is because the title insurance underwriter typically will not allow them. Check out these official guidelines.
From Attorneys Title Insurance Fund and Old Republic Title .
From Stewart Title.
Most other title insurers have similar guidelines and in fact nearly all title agents will require full disclosure to both the buyer's lender and the seller's lender before allowing a short sale double closing or option closing to take place. Disclosure is the key in this instance. Now if both the buyer's lender and the seller's lender know exactly what is going on and have given written approval of the entire transaction, there should be no problem. Odds are extremely high that they don't know the exact details of the end buyer transaction.
Lastly for Florida investors please be aware of the foreclosure rescue law Florida Statute 501.1377 that went into effect on October 1, 2008. It made major changes to how investors can buy homes from people in foreclosure. Pay particular attention to the "equity purchaser" part of this new law. Many other states have passed similar laws and the federal legislature is talking about passing one as well.
In the next article, I will get into the "ugly" part of the short sale double closing arena. The way to cross the line and get into potential criminal mortgage fraud. Yikes!
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(Copyright © 2009. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold - Your full service and investor friendly Realtor ® in Orlando and Central Florida.
407-389-7318 / 1-877-389-7318 www.SDRhouses.com www.WeBuyHousesFlorida.com
We sell foreclosure, short sale, and bank owned REO house home throughout Central Florida, metro Orlando, and the Space Coast. We sell and list Central Florida real estate and Orlando real estate. Free list of foreclosure and short sale houses available. Our firm also provides flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Florida including Orlando, Altamonte Springs, Apopka, Kissimmee, Sanford, Lake Mary, and Deltona.
Our firm has been assisting home buyers and real estate investors find great Central Florida real estate deals for years now. Right at this moment we have available some 100+ homes in inventory that are either foreclosure, short sale, bank owned REO, estate sale, handyman special, or just a super cheap investment deal.
Whether you are buying in Orlando, Kissimmee, Apopka, Altamonte Springs, Deltona, Daytona Beach, Clermont, Ocala, Titusville, or any other area in Central Florida we have the deal for you. And if we don't have it listed, we can find it for you.
You can sign up for our free weekly hot property email list on our Sand Dollar Realty Group website. Or if you have something specific you are looking for, simply give me a call or shoot me an email with the criteria you are looking for. Prices in metro Orlando are super cheap and deals are plentiful. Your Central Florida investor friendly Realtor since 1996.
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(Copyright © 2009. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold - Your full service and investor friendly Realtor ® in Orlando and Central Florida.
407-389-7318 / 1-877-389-7318 www.SDRhouses.com www.WeBuyHousesFlorida.com
We sell foreclosure, short sale, and bank owned REO house home throughout Central Florida, metro Orlando, and the Space Coast. We sell and list Central Florida real estate and Orlando real estate. Free list of foreclosure and short sale houses available. Our firm also provides flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Florida including Orlando, Altamonte Springs, Apopka, Kissimmee, Sanford, Lake Mary, and Deltona.
Wow, the month of August has come and gone. School started up for pretty much all of Central Florida and the closings are down slightly from what I can see. We still had a bunch of deals close, but just be ready to see a slight slow down from the last batch of ORRA statistics. June/July is typically the market peak so know we continue to slow down until about February and that start it all over again. Regardless here are the latest real estate deals that our office closed during August 2009.
413 Lochmond 2736 Palm Isle 6881 Moorhen
1. 413 Lochmond Drive, Casselberry, FL 32730. Actually in Fern Park, but close enough. 4 bed/2.5 bath/2-car garage. This was a short sale foreclosure deal. Sold in just 121 days from listings to closing. $174,000.
2. 836 Grand Regency Pointe, Altamonte Springs, FL 32714. This was a beautiful 3/2 condo right near Maitland Center. Walking distance to Publix and Seminole Community College. This was a bank owned REO upstairs condominium. Sold at auction for a mere $68,250.
3. 2736 Palm Isle Way, Orlando, FL 32829. 3 bed/2 bath/2-car garage. Another fantastic short sale deal that closed just Monday. Hard to believe but it sold for only $115,000.
4. 7759 Whisper Place, Orlando 32810. 3 bed/1 bath block home. A private lender short sale deal. The lender makes quick decisions on these. We have 3 more just like it available right now. $91,500.
5. 6881 Moorhen Circle, Orlando 32810. 3 bed/2 bath/2-car garage. This was a great REO home that we sold to an investor. It had some title issues which caused the closing to drag out a little, but in the end this investor got a heck of deal. Just $95,000.
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(Copyright © 2009. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold - Your full service and investor friendly Realtor ® in Orlando and Central Florida.
407-389-7318 / 1-877-389-7318 www.SDRhouses.com www.WeBuyHousesFlorida.com
We sell foreclosure, short sale, and bank owned REO house home throughout Central Florida, metro Orlando, and the Space Coast. We sell and list Central Florida real estate and Orlando real estate. Free list of foreclosure and short sale houses available. Our firm also provides flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Florida including Orlando, Altamonte Springs, Apopka, Kissimmee, Sanford, Lake Mary, and Deltona.
Short sales and double closings - a controversial subject to sale the least. Many Realtors have never even heard of this type of transaction while many real estate investors have done dozens of these transactions successfully. There are even some very highly respected real estate "gurus" out there teaching how to do these. Just do a quick Google search and you will find several people selling courses and trainings on how to make giant profits by doing these type of transactions.
Basically the short sale double closing concept comes in 2 forms. Both transactions involve a homeowner being upside down with negative equity in their home and the homeowner no longer being able to afford the payments. During the many months that it takes to negotiate a short sale with the owner's lender, the investor finds a buyer willing to pay more for the house than the investor is paying. Then the investor collects the spread at closing.
(1) The first form of this transaction involves a double closing (a/k/a simultaneous closing a/k/a back to back closing). Homeowner "A" owes $200,000 on their house. Investor "B" signs a contract to purchase the house for $130,000. Prior to the short sale being approved and the deal closed, the Investor "B" finds a Buyer "C" who is willing to buy the home for $150,000 and signs a purchase & sale contract with "C". At closing, "A" sells to "B" for $130K and then a short time later (typically the same day), "B" sells to "C" for $150K. "C" ends up owning the home and "B" walks away with the spread of $20K minus some costs.
(2) The second form of this transaction involves an option agreement. Same scenario and numbers as above except instead of a contract to purchase the house, Investor "B" signs an option to purchase (instead of a purchase & sale contract) for $130K. Then Investor "B" finds a Buyer "C" willing to pay the $150K. "B" either agrees to assign his option agreement to "C" or agrees to release his option for a fee. At closing, "A" sells directly to "C" for $130K but a fee is paid to "B" for the option assignment / option release. Again "C" gets the home and "B" gets the spread.
Some Investors "B" actually go so far as to get a deed from the Homeowner "A" and record it. Often titling the property into a land trust with a name similar to the previous homeowner but with the Investor "B" as the trustee controlling the property. An example ... owner is "John Brown" who deeds the property into "Brown Family Trust dated x-x-2009, Short Sale Investor LLC as trustee."
Now to many Realtors and most laypeople, this is extremely confusing. You may even want to re-read the examples above. But for so many investors, they know this stuff backwards and forwards. Like I said, check out all the courses and boot camps available via the internet.
The Good -
There is nothing inherently wrong with making a profit, even a very large one on a real estate transaction. This happens all the time. A homeowner has to sell cheap because of a distressed situation - foreclosure, divorce, re-location, hurricane or fire or termite damage, probate, etc. An investor buys a great deal because they are willing to buy the house in as-is condition without a financing contingency and close in a matter of days or at most a few weeks. And if the investor can find a buyer prior to closing who is willing to pay a little more, then good for them. Until recently most of these deals did not involve a short sale, so the time from contract to actual closing is often under 30 days. However it seems like probably 1/3 of the deals out there anymore are short sales, so they need to be dealt with.
In fact on the second short sale deal I ever completed (back in 2001 before short sales were a household topic), I did this exact same scenario. I wasn't quite as creative though. I simply assigned my contract for an extra $5,000 and my assignment fee was right on the HUD-1 statement for everyone to see. Seller deeded the property to Buyer and I got my $5K for negotiating the short sale and getting the deal completed.
In another non-short sale deal that I did last year, I bought a house for just $25,000, closed on it using a line of credit, and 3 days later re-sold it to another investor for $40,000. A nice profit for only 3 days holding time. I did have to double close on this property, so the original owner was unaware of my end buyer and so my end buyer was not aware of the full amount of profit that I made. Didn't matter, there is nothing inherently wrong, illegal, or unethical about buying low and selling high.
In fact, there is an absolute need out there for these type of transactions. Sure some investors doing this can be portrayed as vultures (and I will elaborate on that in Parts 2 and 3). However, I can't tell you how many times I have seen Realtors listing short sale properties who were completely clueless on what they were doing. If you don't have an offer on the property, then the bank typically will not even talk numbers to you. And how many of us have seen a retail buyer offer to purchase a property and then 3 months later, they have disappeared and the seller has to go and find yet another buyer (who will probably offer even less).
With an investor deal, THE INVESTOR IS THE BUYER so the negotiations get started almost immediately. And obviously the investor is in the deal to make a profit, so you cannot begrudge them to expect getting a paycheck out of the transaction. After all this is still America.
I will say though that ever since short sales became commonplace in the market starting about 2007, that I have removed myself from the double closing / option closing aspect of these transactions for various reasons that I will elaborate on in Part 2 and especially Part 3 of this article.
Next time I will discuss the Bad (Part 2) and the Ugly (Part 3) of these short sale double closing transactions. Stuff to look out for and stuff to stay far away from. Until then ... make some offers.
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(Copyright © 2009. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold - Your full service and investor friendly Realtor ® in Orlando and Central Florida.
407-389-7318 / 1-877-389-7318 www.SDRhouses.com www.WeBuyHousesFlorida.com
We sell foreclosure, short sale, and bank owned REO house home throughout Central Florida, metro Orlando, and the Space Coast. We sell and list Central Florida real estate and Orlando real estate. Free list of foreclosure and short sale houses available. Our firm also provides flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Florida including Orlando, Altamonte Springs, Apopka, Kissimmee, Sanford, Lake Mary, and Deltona.
If you live in unincorporated Seminole County Florida, you better pay attention to this. Seminole County government has decided that now is the right time to add to your property taxes another $70.10 for a standard residential home and nearly $100 per acre for rural properties. OUCH!
I got to speak for a few minutes with Fiscal Services at Seminole County and was explained that this new tax is a result of NPDES permits (water and drainage stuff) under the federal Clean Water Act from some 13 years ago. I'm not quite sure why it took the county this long to finally start dealing with this law. Go figure. Nevertheless now the county is trying to impose this new tax on all property owners throughout unincorporated Seminole County.
What bothers me the most about this is that if you plan on taxing me or increasing fees, then I as a taxpayer should be receiving a direct benefit. That's what non-ad valorem assessments are for. Your property is being charged for a direct benefit like trash pickup, street lighting, retention ponds, etc.
This particular assessment is much more general in nature. According to the mailed notice the assessment is for (1) stormwater runoff, (2) nutrient load reduction, (3) administration -- whatever those mean??? To me that is wrong and questionably not permitted by state law especially if the county has no immediate plan to make improvements in the neighborhood surrounding your property. Some of my rental properties don't have sewer lines, storm sewer, curb cuts, drainage ditches, or retention ponds and yet I and thousands of other homeowners are supposed to pay extra money for maybe something in the future???
I do realize that these federal mandates continue to raise the cost of living for everybody and the people that they hurt the most are the poor and middle class homeowners and small business owners. The exact people that many in Washington claim they are looking to protect and not raise taxes on. Don't you believe these politicians and bureaucrats one bit. Their over-regulation causes new taxes just like this one.
Regardless though the public is welcome to make their voices known at a hearing in Sanford on September 9, 2009 at 6:00p.m. at the Seminole County Services Building located at 1101 East First Street Room 1028, Sanford, FL 32771.
The Fiscal Services department will be taking written objections through September 8. Additionally you can contact your local Seminole County Commissioner and voice your opinion to them as well.
More information on this proposed storm water assessment tax:
Orlando Sentinel article Seminole County government website
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(Copyright © 2009. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold - Your full service and investor friendly Realtor ® in Orlando and Central Florida.
407-389-7318 / 1-877-389-7318 www.SDRhouses.com www.WeBuyHousesFlorida.com
We sell foreclosure, short sale, and bank owned REO house home throughout Central Florida, metro Orlando, and the Space Coast. We sell and list Central Florida real estate and Orlando real estate. Free list of foreclosure and short sale houses available. Our firm also provides flat fee MLS listings, For Sale By Owner, and menu-based servicesin most parts of Florida including Orlando, Altamonte Springs, Apopka, Kissimmee, Sanford, Lake Mary, and Deltona.
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Full service and investor-friendly Realtor - Sand Dollar Realty Group. Serving Central Florida / metro Orlando for rentals, foreclosures, short sales, REO, wholesaling, creative finance & flat fee MLS
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