Home › Forums › General › EHTrust/EHT Topics and Creative Real Estate Financing › Short Sale Flips- the best way
January 12, 2009 at 10:32 am #27787
When using the Option method, you need to sell your Option Contract or Assign it for a fee prior to an End Buyer taking title. You cannot get your Option paid off from the End Buyer’s loan.
Sure you can. In fact, that’s exactly how it’s done. I process short sales for short sale investors, who purchase a property with an Option Contract for $X, negotiate with the SS lender for $X and sell it to an end buyer with a new loan for $Y. The short sale investor typically uses flash funding for 1% (available all over the Internet) of the negotiated Option Contract price. The new buyer comes in with his own new loan. Short sale investor pockets the difference between X and Y.
Easy peasy.January 12, 2009 at 3:57 pm #27788
First of all who are you quoting here? Second of all I agree with you SoCalGal. I have all the paperwork for the transaction that you mentioned. I know two “flash funding” sources that can wire cash into escrow with 48 hours. There are lots of Short sales out there in the Real Estate economy. The problem is you have to know what you are doing when it comes to all the “hoops” you have to jump through when getting these done. If your BPO comes in too high your deal is dead. If the bank doesn’t like your offer for any reason your deal is dead. If the property is not listed on the MLS correctly and for the right amount of time your deal is dead. If the end buyer’s lender has a seasoning issue your deal is dead. I would love to do these “A-B-C” deals they are very simple in concept but in application very hard.January 12, 2009 at 9:00 pm #27789
The items needed for a short sale are pretty straightforward and don’t vary much lender to lender.
– Authorization to Release Information
– Purchase Agreement and/or Option Contract
– Homeowner’s Hardship Letter
– Homeowner’s Financial Information (bank statements, paycheck stubs, tax returns
– Proposed HUD-1 Settlement Statement
If the loan you seek to short is FHA, Fannie or Freddie, there’s a formula they use to arrive at the minimum dollar amount they’ll accept, and it’s based on the lender’s BPO. That’s why there’s only a 20% or so acceptance rate for FHA/Agency short sales. In other words, you’ll process 78 short sales with no acceptable result to get 22 that will fly.
If you’re shorting a private label MBS (mortgage backed security), you’ll have a MUCH BETTER closing ratio and more significant discounts. Therefore, it’s beneficial for the short sale investor to determine, before s/he even engages the homeowner in the short sale process, who the investor is that you hope will take it in the shorts (no pun intended).
The first step is to determine what the loan limits were when the loan was originated. That will tell you the likelihood of the loan being an Agency loan or private label MBS.
The second step is to determine if the property is saleable for a profit after factoring in the formula used by the Agencies to arrive at an approvable short sale offer.
Two situations I wouldn’t even bother with:
1. Properties with two loans at two different Agency lenders
2. Properties where the likelihood of successful loan modification is high (unless, of course, you don’t give a fig about the homeowner and are seeking only to realize a profit).
All institutional lenders (FHA, Fannie, Freddie) will have seasoning issues and a land trust won’t resolve them.January 12, 2009 at 9:57 pm #27790
I heard you can influence the lender’s BPO. I think the key on these is to get the internal BPO as low as possible. They are going to require you to list the property on the MLS as well and make every effort to sell conventionally for maximum value. That is a paradox since you cannot list a property that has already been put under contract as far as I know without violating MLS rules.
Bottom line is are these worth finding, signing and flipping?
PS: I care about the homeowner if they can get a loan mod then that is the first option I would point out to them.January 12, 2009 at 10:32 pm #27791
… seasoning issues and a land trust won’t resolve them.
… because … ?January 12, 2009 at 11:08 pm #27792
… seasoning issues and a land trust won’t resolve them.
… because … ?
Seller transfers Title to Trustee and then Transfers Title to end buyer. So you have two deeds. I would presume the time between the first deed and second deed needs to be 90 days. I think HUD calls it the anti-flipping rule. They don’t like people making a profit unless they jump through some hoops first. At least that is my understanding of why the land trust does not solve the seasoning obstacle.January 12, 2009 at 11:36 pm #27793
I would presume
My purpose is to challenge assumptions, or as Bill calls it, “cognitive rigidity.”
Flips done the way that they have been traditionally done have seasoning problems. That doesn’t necessarily mean that everything else that achieves the same end result have the same problems.
It’s always possible I’m wrong, and if so I hope to be corrected by those who are doing.January 13, 2009 at 12:20 am #27794
Seller transfers Title to Trustee and then Transfers Title to end buyer. So you have two deeds.
Tranfer of your deed to your own Revocable Living Trust does not create a seasoning issue, that includes an EHTrust. It is considered as transferring from yourself to yourself for estate, tax and financial planning purposes. As long as you remain “A” beneficiary.
That is the beauty of using the EHTrust. A Seller can put it “in trust” one day and sell it from the trust the next with no seasoning issues. Of course not all lenders and title companies are fully aware it this but we inform them when and if necessary. I’ve only had one Title Company and No Lenders ask about it. The Title Companies attorney only wanted to see the trust to make sure it was valid and that the Owner was in fact the beneficiary of the trust.
I know, I know, according to someone out there in Guru Land, Title Companies and Lenders are refusing to close properties “in trust”. Well sorry, but this is not now nor has ever been my experience. Perhaps it is because I know what the hell I’m doing and only use a Legal and “VALID” set of documetation.
Have you seen some of the crap that these so-called Gurus and Investors try to pass off as Trusts?
Regardless of who’s documentation you are using, you can still do it unlawful and illegal. Even I could use the NARS Documentation to rip sellers, buyers and lenders off. Of course I would have to alter the documents and violate the integrity of the process of NARS documentation.
Without exception, those you see “getting in trouble” using Land Trusts are NOT using the full NARS Documents or Process.
The last time I attempted using “an Option” to close a Short Sale the Bank told me flat out they wouldn’t close it if it meant I was going to make more than $5000 on the transaction. I also know that isn’t true for most lenders but the fact that anyone knows how much I’m making in the transaction is why I use the protection and privacy of a legal and valid process of documentation and there’s only one.January 13, 2009 at 10:55 am #27795
Lenders’ underwriters have very little if any power to interpret documents other than those blessed by FHA/Fannie/Freddie. They’re simply not going to bother sending a trust document to their legal department to get an OK. They’re not going to risk a loan “buy back” issued by Fannie (or Freddie). That’s why very few lenders lend to trusts or allow trusts to satisfy sellers’ title seasoning or down payment requirements. There is currently no get-around for FHA’s 90 day seasoning rule, although many interested parties are now lobbying FHA to change its rules.
Having said that, does this mean there’s not a single solitary lender in America that will go to all the trouble (interpretive/legal) to approve a borrower utilizing a trust? I would say, “Not if they sell to FHA, Fannie or Freddie.” Otherwise, apparently Scott and other NARS personnel know who those exceptional FHA/Fannie/Freddie-defying lenders are. Perhaps they would post those lenders’ names and contact phone numbers. For example, Aurora Loan Services used to grant loans to trusts but they imploded a long time ago.
To completely circumvent the potential liability in running afoul of Fannie’s rules regarding trusts, most lenders require the property to be removed from the trust, the loan funded, and the property returned to the trust. Here’s the link to Fannie’s rules regarding trusts.
Click on 2007 Selling Guide
Click on Part X Underwriting Guideline
Click on Part VII: Mortgage Eligibility
VII, Chapter 1: Conventional Mortgages (01/31/06)
VII, 101: Eligible Borrowers (11/27/02)
VII, 101: Eligible Borrowers (11/27/02)
VII, 101.03: Guarantors or Co-signers (06/30/02)
VII, 101.06: Inter Vivos Revocable Trusts (07/31/03)
Here’s the pertinent portion:
An inter vivos revocable trust is a trust that (1) an individual creates during his or her lifetime, (2) becomes effective during its creator’s lifetime, and (3) can be changed or canceled by its creator at any time, for any reason, during that individual’s lifetime. We will accept an inter vivos revocable trust as an eligible borrower for a conventional first mortgage that is secured by a one-family principal residence, a second home, or investment property, as long as the eligibility criteria discussed in this Section are satisfied. (See Part IV, Section 501, for information about our documentation requirements for mortgages to inter vivos revocable trust borrowers.)
A lender is responsible for determining whether, under the laws of the states in which it does business, it can originate mortgages to validly created inter vivos revocable trusts that meet the terms and conditions we specify. Although there may be differences from one state to another in laws governing or affecting inter vivos revocable trusts, including the rights of beneficiaries under the trust, we expect a lender that chooses to originate mortgages to inter vivos revocable trust borrowers to meet the requirements we have established. Minor variances based on individual state law will be acceptable as long as, under relevant state law, our rights (as the creditor) are fully protected (thus ensuring that full title to the property would be vested in us should we ever have to initiate foreclosure proceedings) and title insurers are willing to provide full title insurance coverage (without exceptions for the trust or the trustees) for inter vivos revocable trusts in that state.
By delivering a mortgage that has an inter vivos revocable trust as the borrower, a lender warrants that both the trust and the mortgage satisfy our eligibility criteria and documentation requirements. A lender must review the mortgage documentation, applicable state law, and the trust documents that the title insurance company required to make its determination on the title insurance coverage (or must have taken such other steps as it deems necessary) to ensure that it can make the warranties we require. If the security property is located in California, we believe that our rights as a creditor will be fully protected under California law if the trust and the mortgage satisfy our eligibility criteria and documentation requirements. Because of possible variations in state law, we require a lender to make an additional warranty if the security property is located elsewhere. If the security property is located in a state other than California, a lender also warrants that holding title to the property in the trust does not in any way diminish our rights as a creditor, including the right to have full title to the property vested in us should foreclosure proceedings have to be initiated to cure a default under the terms of the mortgage. The lender must retain in the individual mortgage file a copy of any trust documents that the title insurance company required in making its determination on the title insurance coverage.
A. Eligibility criteria for the trust. We require that the inter vivos revocable trust be established by a natural person. It may be established solely by one individual or jointly by more than one individual. An inter vivos revocable trust will be considered an eligible borrower if it meets the following eligibility requirements:
The trust must be established by a written document during the lifetime of the individual establishing the trust, to be effective during his or her lifetime.
The trust must be one in which the individual establishing the trust has reserved to himself or herself the right to revoke the trust during his or her lifetime.
The primary beneficiary of the trust must be the individual establishing the trust. If the trust is established jointly by more than one individual, there may be more than one primary beneficiary as long as the income or assets of at least one of the individuals establishing the trust will be used to qualify for the mortgage. For owner-occupied properties, at least one individual establishing the trust must occupy the security property and sign the mortgage instruments.
The trust document must name one or more trustees to hold legal title to, and manage, the property that has been placed in the trust. The trustees must include either the individual establishing the trust (or at least one of the individuals, if there are two or more) or an institutional trustee that customarily performs trust functions in (and is authorized to act as trustee under the laws of) the relevant state.
The trustee(s) must have the power to mortgage the security property for the purpose of securing a loan to the party (or parties) who are the “borrower(s)” under the mortgage or deed of trust note.
B. Eligibility criteria for the mortgage. A conventional first mortgage that has an inter vivos revocable trust as the borrower must satisfy the following eligibility criteria.
The security property may be a one-family principal residence, second home, or investment property;
Title to the security property may be vested solely in the trustee(s) of the inter vivos revocable trust, jointly in the trustee(s) of the inter vivos revocable trust and in the name(s) of the individual borrower(s), or in the trustee(s) of more than one inter vivos revocable trust;
The title insurance policy must ensure full title protection to us and must state that title to the security property is vested in the trustee(s) of the inter vivos revocable trust. It must not list any exceptions with respect to the trustee(s) holding title to the security property or to the trust; and
The mortgage must be underwritten as if the individual establishing the trust (or at least one of the individuals, if there are two or more) were the borrower (or a co-borrower, if there are additional individuals whose income or assets will be used to qualify for the mortgage).
As you can readily see, the above is perceived by the majority of lenders and title companies as ripe for error. To them, trusts are more trouble than they’re worth, so the vast majority of lenders/title companies just say no to trusts–especially since the no brainer get-around is to simply take the property out of the trust, fund the loan, and return the property to the trust, which takes one document and costs about $100. The consequence of tripping up–Fannie demanding that the lender buy the loan back–is just too expensive. These days, especially, if the lender doesn’t do everything precisely by the book, Fannie/Freddie will make a lender buy back a loan faster than you can say “default.”
Fannie Mae and Freddie Mac want lenders to repurchase $1 billion to $10 billion in loans that violated their so-called representation and warranty agreements.
“Violation of reps and warranties” is a HUGE deal to every institutional lender in America. Will the typical lender risk a buy back for a single loan? No. Nothing will put them out of business faster.January 13, 2009 at 4:06 pm #27796
Post all you want but I’m closing deals with full disclosure and blessings of the lenders.January 13, 2009 at 4:50 pm #27797
I saw the posting of the FHA and Fannie Mae guidelines regarding trusts and I think you are confusing seasoning with these institution’s requirements for Lending to a borrower who is going to take title in the trust.
THERE IS NO SEASONING ISSUE WHERE A HOMEOWNER TRANSFERS TITLE TO A LAND TRUST AND RETAINS 100% BENEFICIAL OWNERSHIP OF THAT TRUST. It is considered a mere change of identity and does not reset the seasoning clock.January 13, 2009 at 5:41 pm #27798
alan dale grossMember
Blessed is the Attorney that can get off the ground with a Short Runway.
Praise, Jesus, a Non-Narsonian with the perspicuity to handle Two Entire Schools of Thought.
A Rare Bread.
And, yet, folks there is some reason that so many others don’t ‘get it’, or ‘take to it’.
It’s not that it doesn’t work, or that it’s not legal, it’s just the unknown axiom in their equation.
And, by taking the “Make Offers”, vs the “Look at me and my Gig” approach will allow for the Buyers’ and Sellers’ motivation to overshadow their “Stump the Investor” tendancies.”
You’ve been given a gift that may need to remain hidden ( private and prepritory, not Null and Void Table-Top Doc ‘secret’ Fish-Wrap.)
When an individual needs surgery, do they have to enroll in Medical School ?
The Band-aid Government and Financial Institutions have just allowed their Debt Mentality Cancers to fester.
Bring the Cure Home to the People.
You’ve got it, right ?
Thanks, Scott, as always, and Kathleen !, dude ! 8)January 14, 2009 at 9:10 pm #27799
Post all you want but I’m closing deals with full disclosure and blessings of the lenders.
Who are these lenders?January 14, 2009 at 9:13 pm #27800
THERE IS NO SEASONING ISSUE WHERE A HOMEOWNER TRANSFERS TITLE TO A LAND TRUST AND RETAINS 100% BENEFICIAL OWNERSHIP OF THAT TRUST. It is considered a mere change of identity and does not reset the seasoning clock.
Kathleen, when’s the last time you did a deal where you created a land trust and had no seasoning issues?
Title seasoning–however it’s accomplished–is a real and persistent obstacle these days. Several posters on this board claim that it’s not, yet they won’t name a single lender with whom they’ve had the experience of “no problema!”
Hmmm…January 15, 2009 at 12:23 am #27801
Part of the problem is that you’re making false assumptions, such as beneficiaries being on title. Go back to basics.
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