It is not your position to determine whether the client is or is not allowed to do this...
I would take the sale, and leave it up to the bank to determine if the client is or is not qualified.
If the buyer sounds qualified, I'd take the listing... the worst that can happen is the short sale is not approved.
1. Full Debt Forgiveness: doubtful as your client still has money, and a job, or a decent chunk of liquid capital to buy their next home
2. Partial Debt Forgiveness w/ Money Due at Closing: common approach to short selling when true hardship is not justified, but the client can show considerable loss in value over a short period
3. Partial Debt Forgiveness w/ a Promissory Note: bank absorbs some of the loss and lessee is left with a loan to pay down
4. Short Sale Denied
This is still a negotiation with the Lessor (s). There is no way to predict which will happen as many of these loans were re-wrapped and pooled for investors. So not only do you have 1 or 2 Lien Holders, but you might also have an investor behind your clients loan. In addition, your success will depend on how much needs to be forgiven and who the lender (s) are.
Now let's look at your clients purchase. In a normal sell to buy situation, your client buying a home may have to make their deal contingent on the sale of their home. Here's where it gets really fuzzy. A short sale contingency is something that depending on your Board of Realtor's ethical guidelines is likely to have to be disclosed to the listing agent and the seller of the home your client now wants to purchase. Most Listing Agents and home owners are likely to hesitate with this type of contingency as it dances with the line a bit and is a high risk of failure. Thus, they are taking time off the market and might lose value for something that is beyond the normal level of risk. In addition, timing the purchase of this A to B transaction is a small window as the short sale will hit your clients credit report within 1-3 months. If your closing on the B property doesn't occur within this window and credit is pulled right after the short sale closes, there is a good chance that it could fail.
This type of transaction management is incredibly stressful and not for the faint of heart.
Now, let's look at your own reputation and license. Ask yourself....are you willing to take on this risk and the risk of License suspension or worse?
There are many times we are approached with new ways of making money that flirt with the line. While it is your own business decision, you still have to be fair and honest and do what is in the best interest of all including your client.
Again, the lenders make the call to approve the short sale, you make the decision on what business you take especially where questions of ethics are involved
I hope this helps answer a few questions.
Knowing you are going to lose house number 1 and buying house number 2 while your credit is still good shows a clarity of mind lacking in many folks these days.
The ability to think is frightening to the holders of all this worthless mortgage paper because these instruments are merely a house of cards that will not withstand the slight breeze of honest scrutiny by thinking individuals
After 3 decades in real estate I have made the observation that when a loan is taken out to purchase a home the security insrument is a much larger document than the promissory note. If default on each and every loan were not a very real possibility in each and every case then this would not be true.
Lenders would do well to begin following the laws themselves rather than perpetuate the myth that they are benevolent organizations that want to help the borrower.
What legal principle makes it a crime to decide to default on a loan after the loan has been made?
If this were the case then each and every foreclosure would amount to fraud.
Wake up people, the real fraud here is the banking industry's routine use of MERS to take peoples homes away and the transfert of millions of dollars in bailout funds paid as bonuses to banking executives of failed corporations.
For how much business there is available that is not in the "possible fraud" or "let's see what happens" areas, I would not touch this one.
Good for you in asking, and I would much rather spend my time with properties that won't have this type of cloud looming around it.
I know that Bankrutcy is a "legal " viable option: I know deed-in-lieu is a "legal" viable option". I know foreclsoure is a "legal" viable option.
Where in the stutues is STRATEGIC DEFAULT a "legal" viable option. I believe the term "fiduciary responsibility" might put your license and your career in jeopardy when you operate in the murky areas of "the banks are doing it, why can't I"
David Cooper 702-499-7037
As William's warning revealed, 'Don't drink the cool-aid' of deception the banks are promoting and bribing the leaders of our country into agreement. Strategic default is a viable option and is no less fraudulent that the practice of the banks that are at the very conception of this crisis. Strategic default is the last opportunity of the homeowner to influence the economic viability of their family to the tune of 100's of thousands of dollars. Most wage earners can't make such change through a lifetime of working. To many have capitulated to the idea that only Joe Lunchbox taxpayer is required to act ethically, while the Bank of America's, Chase's, Wells Forgo's can continue making the law of ethics up as they go. It's a tough decision and I'll support Joe in his motive to make such difficult decisions.
Have the owner/sellers financial circumstances changed since they were qualfied for and purchased the second property? If the answer to this is yes there would not be a problem for me.
Is they owner/seller just trying to do a buy and bail? If this is the case I wouldn't touch it.
The FBI is running Operation Stolen Dreams to prosecute people that intentionally defraud lenders. Here is a link to their site.
HUD is running Operation Malicious Mortgage here is a link to the latest press release.
Good luck and it depends on the circumstance.
Good Luck....that's a tuff one!
If you take the listing, be up-front and absolutely clear with the seller that you are going to tell the bank (disclose) that the seller bought another house while intending to default on this one since you know that is the scenario. The seller committed "fraud-for-housing" when they did what they did.
You did not commit fraud unless you were their agent on the new house and knew what they were doing / intending to do.
If it were me, I would NOT take the listing. This will be full of scrutiny and you may find yourself in front of a jury defending your actions - No Thank You !
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END Transactions in our Brokerage. There is NO benefit to the Seller or Buyer and only benefits the Agent. Also, NEVER use your RE Agent / Broker as your Lender or vice versa. Also, be careful when using Real Estate Broker-owned Escrow and Title Companies - they can be loads of trouble.
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