Short Sales: FHA Seasoning Requirement Ending?
A lot of people are making a big deal of this whole FHA regulation 24 CFR 203.37a (b)(2) FHA Anti-Flipping rule and how it’s going to expire December 31st 2011. Who really cares? Most investors don’t realize the one common denominator here, and that is first of all trying to find a bank or mortgage broker that will even lend to an end buyer on a short sale purchase from an investor that hasn’t had seasoning for at least 90 days or more.
Same day quick closings or same day transactions will barely exist moving into 2012. Trying to find a title company and a lender for your buyer is pretty near close to impossible. I’m not trying to be all johnny rain cloud to short sale investors, but since the foreclosure law is so new, and most states are coming down hard on investors for doing same day transactions it’s becoming more of stretch to make this happen properly without somebody saying you didn’t disclose this or that not.
Most states are trying to impose that majority of short sale investors are “flopping” these transactions. For instance, the state of Indiana states the following on flopping: “Flopping involves intentionally misrepresenting the value of a property in order to “flip it” illegally by avoiding or failing to make required disclosures and/or knowingly submitting falsified or fraudulent documents and/or affidavits.”
Moving forward into 2012 with short sales in general, I wouldn’t try to “avoid” anything that is within the grey area, and in order to do so you’ll need to find a money partner, private lender, hard money lender or a long-term transactional funder that will allow you to hold the actual deed allowing you to become “owner of record” for the 90 day period (my personal recommendation would allow prepossession to your buyer and collect rent while your the true “owner of record” in order to soften the blow a transactional lender will charge for the hold period). There isn’t a way around this. I wouldn’t advise using any kind of a “trust” as that’s unfortunately within the grey area, and additionally with trusts most banks cannot sell and package loans that have recently been put into a trust on the secondary market leaving them (the bank) holding the paper which they do NOT want to do and will not do.
Be creative in a good way if short sales are your niche and your passion. Don’t get discouraged! Since government has stepped in to try and help out homeowners with a solution facing foreclosure, we as a nation have seen a total of EIGHT total programs fail and leave homeowners without a positive outlook on their future. With this being the case, there will be a huge opportunity to purchase short sales as an investor (a projected 12 million homes will be in default early 2012), and all (including the homeowner being able to walk away) involved will be winners of the transaction. I honestly believe the consumer (i.e. the homeowner) in this situation needs to be looked after and not the bank. The consumers are not receiving government bailouts, the big ole bank(s) are receiving those while they continue to have piles of foreclosure rise and shadow inventory that nobody seems to mention in the media rise to all time highs within our US history!
In ending… I leave with this… ALWAYS DISCLOSE, DISCLOSE, DISCLOSE!
Breaking News!, Foreclosure Information | Jason Lucchesi December 20, 2011
11 Comments to “Short Sales: FHA Seasoning Requirement Ending?”
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By GABRIEL FORERO, December 20, 2011 @ 5:25 pm
YOU HIT THE NAIL ON THE HEAD…DISCLOSE, DISCLOSE, DISCLOSE. SHORT SALES CAN BE TRICKY BUT THEY ARE DOABLE. I HAVE LEARNED THAT NO MATTER WHAT LAW COMES OUT, THERE IS ALWAYS A LOOPHOLE AND PEOPLE CAN STILL MAKE DEALS HAPPEN. I THINK IF AN INVESTOR CAN PAY LESS FOR A DISTRESSED PROPERTY AND FIX IT UP (BRINGING ITS VALUE UP) AND THEN CAN FIND A BUYER TO PAY A HIGHER PRICE THEN I DON’T SEE AN ISSUE WITH THAT. LET’S KEEP HELPING DISTRESSED PROPERTY OWNERS AND FORGET THE DUMB LAWS MADE BY THOSE THAT ARE TRYING TO KEEP US DOWN.
THANK YOU,
GABRIEL
http://WWW.WEBUYASHBURNHOUSES.COM
CUT YOUR MORTGAGE IN HALF 703-653-0339
By Ilda Borges, December 20, 2011 @ 5:41 pm
Hi Jason :
Do you know any other creative way that we could continue Flipping short sale deals without holding property for 90 days ? If any ideas let me know, because I can’t get involved if it is not legal. Short Sale is my niche, I am a linced real estate in New Jersey working with a lot of short sales, but seems that things is getting difficult for next year.
Thanks,
Ilda
By Vicki, December 20, 2011 @ 5:54 pm
The government giveth and the government taketh away.
Free market place is constantly thrown hurdles
abstacles and interference from…the government
who “wants to help”
We have to keep seeking solutions, in spite of such
“grandiose government assistance”
The answer lies within each one of us!
By Jason Lucchesi, December 20, 2011 @ 5:58 pm
Ilda, to answer your question yes it is possible. The only thing I would say is find a title company that has an underwriter that allows same day transactions, and then you’ll need to find a lender for your end buyers to use that is okay with you buying and selling same day. As long as everything is disclosed properly within your state you should be fine ethically and legally. Since I’m not attorney though I’d double check on any laws you have within your state. It’s always a good thing to make sure your operating according to state law.
By Lee Shaw, December 20, 2011 @ 6:04 pm
I have flipped a few short sales and I have hid nothing from the bank and in the first place it is not my responsibility to do due dilegence for them. They get a BPO and know what the house is worth. It is just worth taking my offer now for cash and not have to worry about forecloseure. I have come right out and told the bank that I would be immeditatly selling the house to a cash investor. Do they want cash now from me or not? They have a choise it is to their advantage to get this house of off their books. They know I am going to make a profit. I deserve it I worked for it I put the deal together I worked with the homeowner, the bank , the investor. I have a lot of time and expense tied up in the deal I should get paid for it. Isn’t that what we call capitalism?
lee@okrsu.com
By Jason Lucchesi, December 20, 2011 @ 6:08 pm
Lee, great comment! I believe we still live in a capitalist country and we should be able to do this. I disclose everything too, but sometimes the disclosure may not be enough. I’m still trying to figure out what disclosures are actually needed as I disclose my intention on three separate documents for what I’m doing and what I plan on doing.
By Steve Dorsett, December 20, 2011 @ 6:39 pm
It is an interesting time. Fannie and Freddie disagree on Short Sales – one says “illegal” one has extended its no flip acceptance. The issue is much larger than presented, it is about allowing the bailed out bank latitude to make their own rules (as well as Fannies, even though they admit it is on “opinion” not fact of law) as it relates to short sales and supposed “flips. What is ignored is that “flips” on short sales actually provide more capital back to the bank than an REO by about 18% average (increase) of the current market value.
For the time being the banks have the “authority” to make their own rules, even if they do not serve their shareholders or capital requirement adequately or to their best interest. Regardless, the short sale letter is the “gospel” for the time being. We will be seeing change on this in the near future due to a ground swell in DC on this issue. Please visit and sign up for the free updates at http://www.distressedpropertycoalition.com/. The work they are doing is absolutely going to better the real estate market as well as the investors opportunities. (By opportunities i do mean ethical investors abiding by the law and rules set forth by the banks.)
We are closing these transaction daily in Florida and nationally for investors that know the market. Is it 90 days? depends on the lender and same day tranx with a C lender are VERY rare. Disclose – many do not have an issue with the “flip” if disclosed properly but they will want to see the investor on title, we do that same day (within 30 minutes) in jurisdictions that are “online”. That said next day and even some same day tranx are possible.
One more thing – it is imperative that your are operating in the confines of the laws of you jurisdiction. They maybe “dumb” but they are the “law nonetheless and must be adhered to. Gray areas can e discussed, illegal activity should not be tolerated, period. Temporarily – Freddie is a lost cause with no real CEO guidance, Fannie on the other hand actually seems to understand the market much better.
For better or worse, it has become a state by state, deal by deal issue on flips. Not only is it a “bank” issue but an underwriting issue from the title insurance side. All that said we are making headway in DC on these issues. Thanks Jason, see you soon my friend.
By Debbie Ferrari, December 20, 2011 @ 7:28 pm
Jason,
Thank you for this discussion! I can’t disagree with anything said here, but does anyone know WHY this restriction was put on? Most of my “end buyers” are getting a loan, and that seems to be where the hang up is. Even though they will be getting an appraisal on the property and they have a contingency that they won’t pay more than the appraised price, WHY would the lender care how much or how long the Seller has owned the property. I don’t see anyone gaining anything in this scenario and everyone loses! You have a Seller that can’t sell, a buyer that can’t buy, and a lender that can’t make a loan, not to mention 2 agents who aren’t getting paid. Who is being “protected” with this law?
By Mark, December 20, 2011 @ 9:35 pm
Imagine if you would, finding the car you’ve been looking for and lo’ and behold it is priced MUCH lower than it should be, even though it doesn’t need much repair work at all. After owning it for a month, someone approaches you and says, “I’ve been looking for this car with all of these features!” They offer you WAY more than you paid for the car, and you decide to sell it to them, making a NICE profit that will go towards another car just like it. As you go to transfer title, the ORIGINAL owner blocks that transfer of title and that you shouldn’t be allowed to make a profit…. None of us would stand for that, so why is it allowed in purchasing a different asset? Once the first transaction is completed and all agreements have been met, that SHOULD be the end of any interest the original owner had in the asset. Yet it is allowed in purchasing a short sale. Ludicrous! The two methods of avoiding this that come to mind when trying to obtain a short sale is to buy it under an LLC and then sell the LLC to the purchasing property, or to buy the note and do a loan mod for the party that defaulted on the asset, which is what the bank/mortgage company should be doing in the first place. I am stunned that the very institution that brought on this economic meltdown is allowed to continually make up the rules as it sees fit…..
By Alejandrina, December 20, 2011 @ 9:55 pm
Hey Jason, Great content. So glad that the restriction is being removed. I’m an investor as well. This will make it so much easier to wholesale properties again. Thanks for sharing.
Have a great evening.
B,rgds
Alejandrina
By Samuel, December 21, 2011 @ 8:59 pm
Jason, thanks for the information. Great content.