Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
So I've read that we need to put a contingency in our offer to the short-sale lender. This contingency will say something along the lines of "this contract is valid if, and only if, the investor (buyer) is able to find an end-buyer for the property."
That way, we can get out of the contract if the end-buyer can't close the transaction.
Is this accurate?
Assuming it is....what is the rejection rate of these offers? How likely is it that the short-sale lender will accept this type of offer?
The A-B transaction will be funded by a transactional lender.
The end-buyer needs to be approved for a conventional loan first, of course. So is it a good idea to include their loan approval and/or credit report with the A-B offer, showing the short-sale lender that there is a serious end-buyer who is qualified? Will that help get the offer accepted?
And damn, am I the only one who likes creating threads in this forum??
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
Lets reword that contingency to keep the meaning, but make it a little more apparent what's happening: "This offer only valid if I can find someone who will pay me 5% more than I'm paying you. Sorry, I know you're taking it in the shorts on this sale, but I will only buy if I can make my cut."
What do you think. Will the bank accept that?
If you're going to make an offer on a short sale you better be able to close. I'm not concerned about the bank, they will look out for their interests. But you get a homeowner on the hook in a deal like this, and you need to close. If you can't find a buyer, find the money and buy it yourself.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
Lets reword that contingency to keep the meaning, but make it a little more apparent what's happening: "This offer only valid if I can find someone who will pay me 5% more than I'm paying you. Sorry, I know you're taking it in the shorts on this sale, but I will only buy if I can make my cut."
What do you think. Will the bank accept that?
If you're going to make an offer on a short sale you better be able to close. I'm not concerned about the bank, they will look out for their interests. But you get a homeowner on the hook in a deal like this, and you need to close. If you can't find a buyer, find the money and buy it yourself.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
While Jon's answer was a bit on the comical side, it was also accurate. You CAN NOT assign REO's or short sales and that clause you mentioned is an attempt to do so, just in other words. The banks are not stupid (at least not as far as that clause is concerned) so if you make offers on a short sale and intend on re-selling to an end buyer, you had better find another way to do so. That clause just wont work.
More importantly, Who instructed you to use such a clause?
Specialist · Riverside, CA · Member since 2008 · 382 posts · 72 votes
17y
WOW, that offer would end up in the circular file. A very experiences agent I know (1000+ shorts in 30+ years) writes a preliminary offer for every listing. She checks the comps and submits an offer from Joe Buyer at a realistic value to get the process rolling. The bank then approves the sale, orders the appraisal, and counters the offer. She then lists it in the MLS for the banks APPROVED counter offer price. After she finds a new willing and able buyer she resubmits the new offer (same terms) and informs the bank that the old buyer has moved on. It now only take 2 weeks to get an approval and the buyer closes with very few bumps in the road.
So...in the event that you actually get a short sale approved at an investor price, you better have a buyer and he better be paying you outside of escrow. A double escrow on a short sale is a great way to waste a lot of your time.
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
17y
Originally posted by nationwidepi:
While Jon's answer was a bit on the comical side, it was also accurate. You CAN NOT assign REO's or short sales and that clause you mentioned is an attempt to do so, just in other words. The banks are not stupid (at least not as far as that clause is concerned) so if you make offers on a short sale and intend on re-selling to an end buyer, you had better find another way to do so. That clause just wont work.
More importantly, Who instructed you to use such a clause?
I'm 99% sure that I read advice on BP somewhere. This is the place where I've been doing all my research and learning, so it couldn't of been anywhere else.
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
17y
Originally posted by Stephen McKee:
WOW, that offer would end up in the circular file. A very experiences agent I know (1000+ shorts in 30+ years) writes a preliminary offer for every listing. She checks the comps and submits an offer from Joe Buyer at a realistic value to get the process rolling. The bank then approves the sale, orders the appraisal, and counters the offer. She then lists it in the MLS for the banks APPROVED counter offer price. After she finds a new willing and able buyer she resubmits the new offer (same terms) and informs the bank that the old buyer has moved on. It now only take 2 weeks to get an approval and the buyer closes with very few bumps in the road.
So...in the event that you actually get a short sale approved at an investor price, you better have a buyer and he better be paying you outside of escrow. A double escrow on a short sale is a great way to waste a lot of your time.
This is a back-to-back closing, not a double closing. Well from what I understand, a double-close involves the C buyers funding closing both transactions. And a back-to-back involves each party providing their own funding (this is where the transactional funding is used for the 'B' party).
Altus, OK · Member since 2008 · 2k+ posts · 690 votes
17y
Yeah use that clause and I guarantee the bank will laugh in your face,throw your file in the trash and tell you to get out and never bother them again.
Banks are anal these days not investor friendly they only care about themselves and no one else.
Specialist · Riverside, CA · Member since 2008 · 382 posts · 72 votes
17y
You can double close but I wouldn't tell the seller about it. I used to use a double close on my options but it is damn near impossible in California now. I have not been able to find an escrow company that will do it for almost 2 years.
If you are looking for a way out of a contract just put an interest rate restriction in the contract. It's apart of most standard real estate forms and it guarantees you get your deposit back all the way up to the last day.
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
17y
^ I can't put an interest rate restriction in my A-B contract because that is supposed to be a cash offer (funded by transactional lender).
I think this is the way I'm going to try it. I'm going to have the end buyer put up the deposit for the A-B transaction, In actuality, they are putting the money as a deposit for the B-C contract....but I will use their funds for the A-B contract. That way, if I need to forfeit my deposit because I want out of the contract (because my end buyer can't close), it's the end buyer's loss.
And actually now that I think about it, I thought it was Justin who gave me that advice about the end-buyer contingency in the B-C contract.
Also, I've spoke with about 4 title companies in my area, and none of them are willing to do a back-to-back close.
Real Estate Investor · Murrieta, CA · Member since 2009 · 34 posts · 1 vote
17y
I am a little confused about having to use transactional funding. I hear some people say you don't have to and others say you do. Which is it? Are some investors just savvy enough to find title companies that will do the simultaneous close without transactional funding or are they just fortunate? This appears to be one of my biggest challenges getting started. There are REO's and Short Sales to be had by the droves where I live, but if I have to use transactional funding it will kill the profit potential. Suggestions??
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
17y
HMann - I told you that your transactional lender will not lend you money unless you have an B-C contract in place. I never told you anything about placing a contingency in your A-B contract that says I can walk away if I cannot find a B-C buyer.
Brett - If the 2% transactional funding fee is killing your profit margin, then its not a good deal.
Specialist · Riverside, CA · Member since 2008 · 382 posts · 72 votes
17y
No, you didn't misunderstand them. The insurance commissioner is coming down hard on title companies doing double closings. It's not a understanding issue its a liability issue. The restrictions are so tight on double closings because of agent secret profit RESPA issues. Also, the California insurance commissioner is auditing the crap out of title and escrow companies that allow a double close. To much liability to risk the transaction. Lock up the contract and sign a non circumvention clause. Make them pay you outside of escrow and if they don't pay you, stop working with them.
Remember, deposit checks are cashed when escrow opens and escrow should not be open until the contract is approved by the seller. Short sales and REO's are taking for ever to accept offers. Write the offer in one of your buyers names and then tell the agent that the buyer has moved on if they are not interested because the bank took so long to respond. Then tell them you want to substitute another partner for the same offer because you have multiple partners. Any substitution can be made before the contracts are fully executed. Just make sure the contract price meets all your buyers needs.
If you don't have several buyers in place you may want to set those up first and ask what their criteria is.
Real Estate Investor · Ocala, FL · Member since 2008 · 742 posts · 463 votes
17y
Just a few items on this thread to discuss.
1) Always be prepared to purchase the property. Even if you have yet to find an end buyer. This does a couple of things. It builds your creditability with ALL parties involved. And most important of all, it will force you to analyze all of your transactions more carefully.
2) If you are looking for a title company, follow these simple steps. Look for a title company that uses 1st American as the underwriter. Set up a meeting with the management. Fully explain what your intentions are. Ask for their advice to see if they have a better way or even for them to offer to assist in getting the deals closed.
Centennial, CO · Member since 2009 · 758 posts · 251 votes
16y
I would not suggest providing your end buyers credit report etc to the bank. You want your right to sell the property identified in your contract, but bringing the end buyer into the A-B side of the transaction may just confuse things with the bank. Also, do not provide "C" buyer information without specific consent to do so. The authorization they give relates to sharing their information only with necessary parties and only relevant to financing their transaction. Look for smaller to mid- sized title companies and make sure they understand that you are seperately funding your purchase. I have seen title companies unclear of terminology and differences between "simultaneous closings" (the old way using "C" funds to close your purchase) and "back-to-back closings" - seperate stand alone transactions.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
It appears that there are several misunderstandings or misinterpretations of teh definitions of things here, so in an effort to clear things up, here it goes:
A double closing or back to back closing is where your A to B transaction and your B to C transaction are stand alone transactions and wet funds are brought to close each of them. In other words, they each are stand alone transactions, but they happen within the same day or next day of each other.
A simultaneous close is when you use your C buyers funds to close your A to B transaction and then the B to C closes. This is called using dry funds and it is not illegal per se' but most title companies these days will not allow them as they can not insure title. This is a directive that comes down from their corporate offices and has come about due to all the fraud and illegal transactions by crooks that have taken place.
For those of us who disclose to all parties (somewhere in this thread somebody suggested to another that they should not disclose something to the selling bank which is TERRIBLE advice, always disclose!) and who operate in a profesional, legal, and ethical manner, there is nothing wrong with using double closing as your exit strategy. This can be accomplished by using a transactional funding source. Just make sure you have all your ducks in a row and enough spread in your deal for the costs of funding and two escrow fees. If you do not have this room, then you better have your own cash to close the A to B or more likely, you didn't negotiate a good enough deal to begin with as Justin pointed out in one of his responses.