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Voices Member,  in

I've always heard that if it sounds too good to be true it usually is. Tell me what you think.

Asked by Voices Member, Fri May 15, 2009

I have a short sale listing (4 contracts have fallen through – impatient buyers). I was researching other options when I came across an investor (online) who claims that he will buy the property (at a reasonable discount). He employees “investigators” who negotiate directly with the loss mitigation department of most banks, thus allowing him to get the lender approval within weeks instead of months.

Once the property is closed he relists it at market value. He makes his money on the spread. I would get the listing the 2nd time around as well. For my client who continues to fall deeper in debt and trauma, a shortened process definitely looks good. What am I missing here?? What questions do I need to be asking? What red flags do I need to look for? Your comments here will be appreciated. Hopefully we'll all learn.

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17
Read everything closely. There's nothing wrong with this except that the bank may not approve the sales price. However, once the bank has gone through the process and provided a counter offer with the price that they will take, then it should be easier to slide another buyer in without starting the process over. So, I think it is a win either way. Don't let your client pay any money to him and I don't think I'd allow him to negotiate directly with the lender. He, or you as his agent, need to be the one representing him in negotiating with the bank. My opinion - but ask your client it is his call.

Do you have experience with short sales? It doesn't sound like it, honestly (sorry - don't mean anything bad by that, but I read some intimidation in your words). Don't be afraid - common sense will get you through. The investor doesn't have any special pull - and if he does, for example, have some strategy or tool or contact, then you will benefit more by making him go through you for the negotiating.

You may or may not get the next listing - don't count on it. Usually these guys are agents themselves and don't hire anyone. Do not get caught up in the conflict of interest of looking for future benefits. You have one client - represent him, He needs you. The investor can handle himself.
2 votes Thank Flag Link Fri May 15, 2009
Seems to me there is a disconnect between some of the responses (all insightful and well thought out) and your fact pattern. You state that the investor is willing to purchase the property and close, and THEN remarket. The option contracts touted by investors nowadays have same day closings with the end buyer. If the investor is really willing to take market and seasoning risk, more power to him. These no longer become your concern.

Having negotiated a number of short sales myself (currently 100% success rate...!), I am suspicious of direct contacts with banks, as negotiators are assigned on a per deal basis. It is true that one develops a network over time of helpful managers and so on, but the same internal process is followed in each case.

There are firms (like ours) that specialize in short sale negotiating and remove the hassle from realtors whose skill set lies in marketing and finding sellers/buyers, but it is not hard to do it if you have the patience and time. Like anything else, if you farm this out to increase your efficiency, specialize in what you enjoy or provide better quality service to your client, you pay for the service.

Hope this helps. My two cents.

Brian Gormley
Attorney, Broker
Cornerstone Properties and Financial Services LLC
443.739.7993
1 vote Thank Flag Link Wed May 27, 2009
Marilyn,

This is becoming more common place. It was made popular from "Short Sale Riches" - which claims to investors that it's an automatic system to become a millionaire.

The theory is sound. Afterall, one of the hardest parts of the short sale is getting a long lasting offer and heck, the investor negotiates it. PLUS! They want to pay you twice the commission probably!!!

However, having worked on both ends of these deals here's the problem, the investor offers are far too low, the banks move too slow, you still have to find an end buyer, the process is LENGTHENED, not shortened, and if the bank's BPO comes in too high you have an investor that is staying put and you can't sell it out to the end buyer.

Bottomline - it's not in the best interest of your client UNLESS they are a few days away from foreclosure.

Other problems occur when an investor just heard of this option contract process and tries to do this. I get calls all the time now.

MY NUMBER ONE QUESTION IS, HOW MANY HAVE YOU CLOSED?

In Georgia, this process is extremely difficult due to title seasoning issues, which I could get into via email if you want. Some states allow equitable interest from option contracts and some don't.

What's the surefire system to do short sales? Hire a closing coordinator or ex-loan officer to do the negotiations for you, pay them at closing if the bank won't pay their fee.
1 vote Thank Flag Link Wed May 27, 2009
Joshua Jarvis, Real Estate Pro in Duluth, GA
MVP'08
Contact
NEVER, EVER work with scam artist investors. That is, if you value keeping your license. He is one of those option contract loosers. They are a dime a dozen.

Investagators who work directly with the loss mitigation departments??? After reading that, you have no business at all working short sales. If you are not mitigating them yourself, or have somebody in your office doing them, WHO are you representing???
1 vote Thank Flag Link Tue May 26, 2009
You have to be very careful, short sales as well as foreclosures are supposed to be arms length transactions and NOT TO BE FLIPPED which is essentially what this "investor" is doing. If all parties are aware that he is putting back on the market then you should be clear as far as disclosure, but do not believe that the 3rd party lender would agree if they were aware home was being FLIPPED. Currently are in a transaction where this "trust" is selling the property (realtor has agreement with bank) but is trying to resell it before they have to close on it with their agreement with bank. When we questions, agent has mysteriously stopped answering our calls and emails???? You are absolutely right - when it sounds too good to be true it usually is. As in the boom market there are always those out there looking to line their pockets at someone elses expense. Don't let it be yours - we are professionals and work too hard to get involved with these types of "schemes" that put our licenses at risk.
0 votes Thank Flag Link Thu May 28, 2009
Wow, Marilyn. This question has prompted a lot of responses on a wide range of angles - from extreme to fair. I'd like to offer you a different take on the subject...

As you already know, one of the most critical aspects of working with buyer is the BUYER CONSULTATION. This is your first line of defense against finding yourself with situations like the one you described: "4 contracts have fallen through – impatient buyers". For this to work, you must set the stage, systematize protocols or models and follow them to the "t". The moment you don't do the consultation and properly set expectations for buying real estate in this market and for selecting the qualified buyers you want (operative word: "want" - not "must"), to work with, it is the moment you've set yourself for the dissapointments that come later. If I may, buy and read Millionaire Real Estate Agent. It is full of models to follow. Actually, if you approach one of our local offices, ask the Team Leader for a copy. Tell them I sent you from Miami Beach. Often, a sincere smile is all you need for the asking.

The other point I'd like to mention is EDUCATION. It is obvious by your designations that you're a professional in the business who values her education and ensures to offer her clients the most advanced industry knowledge this way. Since Short Sales and REOs are probably here to stay for a while and will likely represent a great bulk of the sales we see over the next few years (they amount to about 60% of all sales in my county - imagine trying to work this business pursuing only the only 40% that is not selling), it is imperative to "dominate" this market segment. For this, I would stongly recommend to visit http://www.CDPE.com and pursue this certification. There are well over 2000 CDPEs nationwide now and growing. The creators are Realtors and teach on the matter to Realtors - and have their license and that of their broker at heart. Not only will getting certified give you the knowledge and tools you need to properly present offers, service listings and help smooth out any distress transaction, but it will help ensure your business explodes in the near future. Just think how many of your colleagues bad-mouth distress property sales and avoid them like the plague, only because they don't understand them when in fact, they should be embracing them.

Finally, investors are a breed apart. They are not to be avoided, but to be understood. Their business criteria is much different than that of regular buyers and sellers. Having said that, there are probably way too many would-be investors who, though well meaning, will likely get themselves in trouble and even drag you along if you don't properly understand the techniques they want to use. Too many of these would-be investors are recent graduates of a weekend course (or even a correspondance course), taught by less than professional people. This does not mean you should avoid them, but you should definitely understand them and learn to figure out who's for real and who's a rookie who could get you in serious trouble. For this, I'd recommend you visit http://www.NationalREIA.com and find a Real Estate Investor Association/Club in your area. Start attending meetings, learn their lingo and psyche and integrate them slowly into your business. They could be the source of many small purchases and, done right, they could let you list properties as they sell them and even teach you the ropes if you ever want to engage in real estate investing.

There's a lot more I'd like to say but...I believe I've rambled enough. Bottom line, remember: Luck is when preparation meets opportunity. Happy selling...
0 votes Thank Flag Link Wed May 27, 2009
Short Sales are done by litigators for the owner and the bank. A quit claim deed is done transferring ownership to the investor so that he can sell it a market price.

FHA is not allowing these type of transactions without a minimal 90 day seasoning.

I get alot of questions as to how much the investor bought the property for. The real issue is how much is the new buyer willing to pay for the property (market value). If the new buyer is getting a good deal than what ever the investor bought it at is irrelevant in my opinion.

What are your thoughts?
0 votes Thank Flag Link Wed May 27, 2009
Marilyn,
You are not missing anything. The banks are working closely with the cash buyers to get them off their books. Also, the if the investor is striving to be unfront with the bank by letting them know what their intentions are they
respect their honesty.
There's nothing wrong with teaming up with a skilled negotiating team who will make sure everyone gets there fair share and wants to develope a long term business relationship with you. Keep in mind that the home owner will also be saved of long suffering as a result of foreclosure.
Bottom line is honesty...Read the contracts that everything taking place in the transaction is clear and upfront.
0 votes Thank Flag Link Wed May 27, 2009
The "investors" I've come across offering strange ideas have usually turned out to be scams. Like the investor who called me recently regarding one of my short sale listings, who said, "I will do an AITD to assume your seller's mortg. then find someone to do a lease option on the place, I know home prices will come back up & we'll make a profit later" --- The problem with this is, the seller would have remained liable for the loan & the underlying note's 'due on sale clause'. I have this property listed for $119K & this "investor" was willing to assume a $260K note balance? That's just stupid. Basically he would just be taking the would be Lease Option person's "down payment", keeping that (maybe $10K), then he could just walk away without ever sending in the mortg. payment! Leaving my seller on the hook & ending up having to do a short sale again in the near future. Watch out for this one!

ok I know the above doesn't quite have to do with your situation.

I was approached by an investor with this type of "scam" a year ago, he wanted the homeowner to basically Sign the deed over to him, then he would negotiate with the bank for a price, hopefully a bit lower than what an avg. buyer in the area would still pay for the home. Once he gets that number from the bank, he would turn around & "sell" the property to the new buyer for a higher amount & keep the difference.

** I don't think any bank would go along with this, if all the cards were laid out on the table. All the cards laid out meaning: Although the bank is in agreement with the investor for say $200K, they wouldn't let the sale go through knowing that there was a buyer willing to pay $250K. **The bank would never approve a Final HUD stating that some investor is making $50K on the deal when the bank is taking such a HUGE loss.

** The only way the investor can make this $50K, is to HIDE it from being on the Final HUD by doing some kind of Double Escrow, which for YOU the REaltor is FRAUDULENT, Unethical & probably just plainly Illegal.

Tell this investor: NO Thanks, I am an Ethical Realtor & I do not participate in Fraudulent activities.

**Feel free to contact me, should you need any tips or have any questions about getting your short sale to close quickly.

emilyknell1@yahoo.com
http://www.shortsalemysocalhome.com
Main Street Realtors
Serving Southern California & Las Vegas
0 votes Thank Flag Link Wed May 27, 2009
"Read everything (the agreement) carefully". I'll support that.
Also include your title officer in the review. Some of these ideas don't actually include taking title and therefore the title companies won't insure them.
0 votes Thank Flag Link Wed May 27, 2009
Don't forget to look into any tax ramifications for the seller by taking a lower price than maybe they could get.

By the way FHA has extended the restriction on anti flipping rules so you don't have to wait past 90 days to resell.
0 votes Thank Flag Link Wed May 27, 2009
Your "gut" is good and you are wise to ask. If you are an agent this is not something you want to "touch" for a myriad of reasons. Recall in real estae school "net listings" which are illigal in VA. Your question is pretty much what that LOOKS like and could cause you to be the one people suspect in the event of a complaint. These short sale people often use the agent as the middle man, it is still a net listing to the seller. In answer to your question, if they ask for a power of atty RUN. There are reputable agent doing them and it is said that there are some reputable ones out there. They dont do anything you couldnt do, it is just time consuming. Of course if the investor could sell it for more could the seller not? Think of it that way. It just takes longer, remember, if they want a power of atty RUN. What is the difference between you selling it low and then re seling it? Very fragile.
0 votes Thank Flag Link Wed May 27, 2009
marilyn, usually they want to record a lien against the property. I would find a good attorney to deal with the short sale.
0 votes Thank Flag Link Wed May 27, 2009
Marilyn,
I just heard of a similar "offer" from an investor in Southern California. In his approach, he will make an offer (saying that banks will accept an offer up to 20% less than their appraisal comes in at), and write the offer so he has the right to assign the contract. That way, you don't have to close twice, or get caught up with the 90-day FHA rule. It sounded plausible. The benefit to your seller-client is that they don't have to watch 4 offers fall by the wayside, and drag out the process. I haven't done the research yet, but I am intrigued. I have 5 short sale listings right now, all under standard contract, but I see the benefit to my sellers, and to myself, working with an investor in this manner. I'm going to look more closely at this option.
Good luck to you!
Grace
Web Reference: http://www.SoCalGrace.com
0 votes Thank Flag Link Tue May 26, 2009
I see no downside, save presumably now trying to get the bank to accept even "less" (the spread this investor is looking to have). Now when you list it the second time however, remember, that home is considered a "flip" for at least 90 days, and maybe as long as 180 days before FHA, Fannie, or Freddie will allow financing on it. You can get around these restrictions by verifying actual monies spent in improving the property, or sometimes just a second apprasail. There are very few cash buyers out there, and FHA, Fannie, and Freddie of course are really going over every file submitted with a fine tooth comb. Hope this helps, best wishes, Jim.
0 votes Thank Flag Link Sun May 17, 2009
Dear Marilyn,

Our lender is the President of the Mortgage Brokers Association for Virginia. He would be an excellent source for your question
Web Reference: http://www.nvexit.info
0 votes Thank Flag Link Sat May 16, 2009
I know you want to help your client in any way you can but both of you should stay away. Follow your instinct which seems to be what you are doing by posting your concerns here. And, please don't fall for the carrot that is being placed there to tempt you -- the opportunity to relist.
0 votes Thank Flag Link Fri May 15, 2009
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