Short Sale Flips & Land Trusts
“IF YOU ARE A LAND TRUST SHORT SALE INVESTOR . . . YOU HAVE A BULLSEYE ON YOUR BACK AND YOUR WALLET!” ––JEFF WATSON, Esq.
When most investors start a short sale they initially think about how they will discount the debt and then buy the property. Of course the next step is to rehab the property and sell it for a profit. Buy-Fix-Sell- CASH PROFIT CHECK. Easy enough.
Problem with short sales is this. Most short sale investors do not have the money to buy, then fix, then sell. They just don’t have the resources. Also some discounts are not BIG enough to allow the investor to buy, fix then sell for a profit. We don’t want those deals to go to waste.
SO WHAT’S THE SOLUTION?
QUICK-TURN them for a profit. Buy and sell in the same day.
Some of you know this and your first thought is to assign the short sale contract. HUGE PROBLEM! KEEP READING!
Another thought is to quick-turn it through a simultaneous purchase and sale. HUGE PROBLEM! KEEP READING!
HERE ARE THE MAJOR ISSUES with flipping short sales that the “GURU’s” AREN’T TELLING YOU.
Short sales cannot be assigned. The lenders ALL put that restriction right into their approval letters ––the buyer cannot be substituted. Short sales cannot be assigned.
Seasoning problems. If you are doing a double close you run into seasoning problems with the end buyer getting a loan/financing to close. Most short sales are bought by an end buyer who is going to get financing from a mortgage company/bank. Well, all those lenders have seasoning requirements. When you buy and sell quickly you create a seasoning problem.
To satisfy the seasoning requirements LAND TRUSTS have been heavily used by short sale investors. Seems like a good solution on the surface . . . except that there are some untidy loose ends.
Here’s one . . . let’s not forget the small issue of using money from the end buyer’s lender on the second transactions to pay for the first transaction between the investor and the bank.
Can you say fraud?
Over the past several years I’ve worked with so many investors who said that this wasn’t an issue . . . well, if it’s not an issue, then why don’t you mention on your next deal that the money your buyer is getting from their lender is going to be used on a transaction that their lender knows nothing about –– how do you think that end lender will respond?
Don’t take my word for it . . . test it. If you find a lender that doesn’t care that you’re using their money for a separate transaction that they haven’t approved, then go for it.
And how about how investors manipulate the beneficial interest to gain the profits from the transaction . . . no gray are there, huh?
My other favorite is that, “My title company doesn’t have an issue with this.” Ask them about their E&O insurance and if it covers these type of transactions.
I found plenty of title companies that said they could do my land trust deals . . . until I found one that works closely with the Cleveland Branch of the FBI.
Finally, someone that would give me some straight honest answers instead of looking to profit from my lack of knowledge.
To be fair, those of you in Michigan are stuck using land trusts for a variety of reasons . . . Michigan laws are different.
For the rest of us, time to get out of the gray area of the land trust and begin doing transactions that are transparent.
"Every foreclosure situation is going to face either a 1099 or a Deficiency Judgment."
Really? Even in situations when there is equity in the property, and there are surplus proceeds following foreclosure sale?
In the matter of preforeclosure short sales, there are exemptions for tax exposure resulting from debt forgiveness.
The new law (from 2007) warrants an understanding.[ Edited by TheShortSalePro on Date 04/12/2008 ]