"Flipping a short sale is illegal"

[Carl Schmitt]

I'm sure all the "flippers" out there read the subject and said, "That's not true!". I would say it all depends. The reason I'm writing this is because as I was speaking with a "short sale expert", she informed me that "flipping a short sale is illegal." Of course my response was that it can be done illegally, and it can also be done legally. She insisted that profiting from a short sale was illegal, period. After telling me all of this, she then said that you MUST be in default in order to do a short sale. As I've learned from this site, that's not the case.
Last, before I had to walk away, she said that it was "impossible" to do a short sale on a second home/ income property. I've also learned that this was not true.
I suppose the moral to my story is to not listen to someone because they say they're an "expert".
Anyone that has a comment, I want to hear what others are thinking.

[Dan Koch]

Carl,

This really angers me when I hear people say that it is illegal to make money off of a short sale. As long as you close, take title, and then in a separate transaction sell it to your end buyer it is perfectly legal.

After you close the A-B side of the deal and take title you become owner of record. I would say to her, if I am buying the property does it matter what I do with it.

If I want to sit on the house for 30 years, bulldoze the house tomorrow, or turn around and sell it 24hrs later it is my right to do that because I now own the house.

Now as investors we do have to play by the state, federal, mls, and other guidliness stipulated by the payoff demand approval letter. However, for this lady to say that it is illegal to make money on a short sale just tells me that she does not have her finger on the pulse of real estate rules and regulations in her area.

It usually helps if the homeowner is in default, because the banks are more apt to move when they are not being paid, however if you know that a homeowner is current and will go into default in the next month, you can still start getting things going with the lender.

Finally, it is the lenders decision to entertain the idea of a short sale on a residence that is not primary and usually there is no problem doing this. Now, getting a full and complete satisfaction of all debt obligation owed by the homeowner is tuff to obtain on a house that is not a primary residence.

However, most of the time these homeowners who have multiple properties are sharp, wealthy individuals who have retained councel and advise from their CPA's and they understand that they will probably have to pay some sort of difficency judgement and will be issued a promissary note. But in this case they are just happy that the bank entertained a short sale in the first place and in many instances will pay the judgement and with the help of a savvy CPA write the debt off.