Will This Strategy Work For Financing My Short Sale Purchase?
I am working on a SS right now. Once I get it approved, can I do the following:
1. Get SS approved by lender. They said that their standard time frame is to give 60 days from date of approval to close the purchase.
2. Have seller deed property to me me
3. Get payoff quote from lender
4. Go to my new lender, bring in new financing (they don't have ANY seasoning issues), and do a cash out refi on the property.
Will this work, or will the bank that I'm paying off short know that I've taken title to it before the sale of the property?
Each mortgagee asked to consider a short sale proposal may have different approval letters. Generally, the approval letter will dictate how, when, and with whom the transaction may close.
Many short sale approval letters prohibit the mortgagor from the presale transfer of any interest to a third party. Even if you obtain a deed but do not record the deed, it still smacks of concealment, and concealment with respect to a HUD1. The fact that 'people do it all the time' doesn't make it right. If the transfer is discovered, it could nullify the short sale approval.
The approval letter will be the payoff quote.
You should ask the mortgagee for a non-binding, sample 'short sale approval' and closing instructions letter that would be used for the specific loan being shorted
The fact that you have a ready, willing, and able lender to make a loan is great.
Show the sample to the loan broker, and the title closing agency, and have a serious discussion with the loan broker, and his/her favorite title agency to see if your particular transaction could work.
Here is a red flag. When a lender is asked to accept less than it is due, it wants to realize the maximum net recovery possible. If you show up at closing with a new mortgage loan in an amount greater than what you are paying.... the original mortgagee will know that somebody in the position to loan money has information that allows them to think the property is worth a whole lot more then they do.
On one hand you are telling the original lender that the property isn't worth a whole lot, but on the other hand you are telling the new lender that is it worth enough to justify making the new loan.
That throws up a red flag.
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Short Sale Practitioners can't predict, or guarantee results... but can take steps to insure the likelihood for success....
[ Edited by TheShortSalePro on Date 04/28/2004 ]
Perhaps this is an option:
1. Obtain mortgage for sale from a lender with no pre-payment penalty. 1% pre-pay may be acceptable if it falls within your guidelines.
2. Close deal.
3. Immediately refi property w/ cashout through lender with no seasoning requirements.
NOTE: Your costs will be higher, with two closings. Be sure to make sure the added costs are within your budget.
Also, it is wise to use the same LO for both transactions. It is likely that any money the LO makes from the bank on the first transaction will be recalled, due to the quick payoff. So, your LO will be doing the first one for free.
I don't know if this will work with short sale, but I've done it with divorce payoffs, where one spouse cashout-refis at a high interest rate to pay off other spouse, then refis again into rate&term to get a better rate.
So long as the LO knows how to minimize costs from first loan, and maximize profits on second loan, he should be willing to do this.
OR, it is possible that your no-seasoning LO can add a HELOC with a simultaneous close. 2 HUD-1 doc's, everybody's happy.