using an LLC to purchase a short sale as a loophole to get around the 90 day flip rule

[John Patrick Lantin]

Hi Guys! Just like what I have in the subject line, I currently have an offer through a realtor for a property in short sale. The bank released an addendum that states we cannot re-sell the property within 90 days at the close of escrow. As a wholesaler, I am planning to assign the purchase contract to my rehabber/cash buyer. So my questions are:

1.) Would assigning the contract violate the bank's 90 day no re-sell rule?

2.) I have read somewhere that you can purchase through your LLC and "sell" the LLC to the buyer. Can I sell the LLC to the buyer before I even close with the assignment fee built in the LLC sale?

Thanks in advance for all the help! :)

[Joe Villeneuve]

It's not fraud. The owner of the property is the LLC. The members of the LLC don't own the property, they own the LLC that owns the property. The members asset is the LLC...the LLC's asset is the property. When you sell the LLC you are accomplishing the same thing as assigning the house, but since the ownership of the house never changed hands, there is no fraud. This isn't all that new anymore.

The seller of the LLC is not making money on the sale of the property...only on the sale of the LLC. Now, you will have a hard time getting financing to buy the LLC (I can get it for certain areas), but that has nothing to do with what you are doing. It has everything to do with finding a lender that will fund a purchase of a business (the LLC).

For example: An LLC offers, and is accepted, $50k for a house. Before closing, the existing member(s) of the LLC sells the LLC for $5k (at this point, the only thing the LLC owns is the right to buy the LLC for the agreed upon price), then the LLC closes on the house for $50k. The PA was between the LLC and the seller...and that's what happened.

...and @Richard C. is correct. This doesn't work with a short sale. It works great with HUD, Private sellers, most banks and FMA.

There is one potential obstacle that we have encountered about 10% of the time with an REO. The bank wants the person that signed (can fog a mirror) the PA to sign at closing. They are still signing for the LLC, not personally, but the Bank wants to make sure it is the same Buyer, so they want the same "representative" of that LLC to sign. The solution is to add the new LLC owner on before closing, then just remove the old owner after. We've NEVER had a problem doing it...at times right at the same closing table.

Joe Villeneuve
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