We have been concerned about this "practice" of SHORT SALE FLIPS by investors for some time. It just doesn't pass the smell test for us and we have wondered why the banks and the Florida Real Estate Commission have allowed the practice to continue for so long. Perhaps they are just now getting wise to the practice and will do something about it.
The problem, as we see it, is that nobody benefits other than the investor and his real estate agent. The bank (mortgagee) and the home seller (mortgagor) get the short end of the stick and we simply cannot imagine why either party would agree to this arrangement if they were fully aware of what is transpiring.
We have even noticed that many of these "short sale flips" are not being advertised other than being listed in MLS and via the investor and agent's personal websites. Many do not have yard signs, many are not entered into MLS in a timely manner and many of the agents do not respond to calls from other agents who wish to show the listings to prospective buyers.
The only reason we can imagine for all of this is so that the investor can keep a low profile and the agent can benefit from both the listing and selling side of the transaction. There may be other reasons but we cannot imagine what they might be and when we have attempted to get answers from agents who engage in this practice they become angry and hang up on us...
As I said, none of it passes the smell test for us!
Let the consumer beware!
Our thanks to Richard Zaretsky, Florida Real Estate Attorney, for allowing us to repost this entry from his blog.
The short sale flip apparently is alive and well for some investors - and it is causing havoc with title insurance underwriters. Now the title insurance underwriters are making their case simply by declaring that they won't insure such transactions.
This decision is not surprising. As pointed out in SHORT SALE FLIP - QUESTIONABLE METHODS, some investors have seen the reluctance amongst knowledgeable (and ethical?) title insurance agencies to question and usually refrain from being involved in such transactions. The result was the new "twist" of using one title closing agent (and underwriter) for the initial sale and another title closing agent (and underwriter) for the higher sale.
These transactions are also being examined by the shorted lenders - but the current safeguard of having the parties sign affidavits and "disclosures" is seriously not going to stop any investor that sees dollars at the end of the transaction.
Attorney Title Insurance Fund (in Florida) just today released an Alert and directive to its agents and it is reproduced below. They are not the first nor will they be the last to take this position.
FUND ALERT: SHORT SALE PROGRAMS
The Fund has become aware of several "short sale programs" advertised on the internet and elsewhere that promise to make the investor lots of money with little or no work by purchasing and selling property through short sales. The programs involve the investor entering into options or similar contracts with the homeowners for the exclusive right to purchase their property for a period of time. The investor negotiates a short sale with the lender, convincing the lender that the price they are offering is the market value of the property. The investor then finds a buyer for the property at a much higher price. Once the buyer is lined up, the investor buys the property from the seller, pays off the seller's mortgage at the short sale rate, and simultaneously sells the property to the buyer at the higher price, pocketing the difference. In most cases the original lender is not told that the buyer is flipping the property on the same day for thousands more than the lender has been told is the market value of the property.
In the cases we have seen, the investor has not put any of his own money into the transaction, and uses the new lender's money to fund the entire deal.
A variation of this program involves the investor having the seller convey the property into a "trust" with the investor as "trustee".
The Fund has made a business decision not to insure these types of transactions.
Before you insure any kind of transaction involving a short payoff to the existing lender, or a simultaneous closing, make sure that the following requirements have been met:
•1. There are no violations of any restrictions listed in the short sale payoff letter or closing instructions.
•2. There have been no misrepresentations as to the value or ownership of the property to the existing lender, the new lender, or the purchaser.
•3. All disbursements must be made exactly as stated on the HUD-1 settlement statement, and only to parties involved in this specific transaction.
•4. Each half of the simultaneous closing must be kept separate and stand on its own. The sale from A to B must be fully funded and disbursed with money coming from and going to all appropriate parties. The sale from B to C must also stand on its own. The money from C's lender must not be used to fund any portion of the A to B transaction.
If the circumstances of your transaction do not meet the above requirements, you must contact a Fund underwriting attorney for approval prior to insuring the transaction.
Attorneys' Title Insurance Fund, Inc. 6545 Corporate Centre Blvd., Orlando, FL 32822
1-800-336-3863 www.thefund.com
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Timothy H. Fennell, P.A.
Susan A. Fennell, P.A.
Broker Associates / Property Managers
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