Anti-Flip Clause

[Ayo F.]

So I have read in many places and discussed with many attorneys about the 30 - 90 day anti - flip requirement for short sale acceptance.

However, has anyone ever bothered to question the banks legality for requiring this?

Can a seller or anyone tell you what to do with what you "own?"The bank does not own the property. They only approve that the seller sell the property for less than what is owed. That's all.

Its like me buying a Mercedes Benz and the dealer telling me that I cannot drive it for 90 days or I cannot resell it to a willing buyer!

Who gave the banks the power to dictate what you can do with a property that you own?

The only reason I haven't done it is that I haven't found a title company that will close such deals.

By the way, its not a fraud unless you used deceptive means in getting the lower price.

However, if the bank accepts a price and I find someone a week later who is willing to pay considerably more for whatever reason, then thats fraud? Just cos they lost some money.

I'm so happy for the foreclosure settlement deal. They can defraud everyone (the whole mortgage crisis, predatory lending, stated incomes to qualify people for loans, robo -signing, mortgage back security frauds e.t.c) and it all good as long as they are making money?

I say it is not legal for the bank to tell anyone what they can do with their property or how much they can sell if for.....

It would be nice to have some discussion around this by anyone ......

[Monica Breckenridge]

In my posting earlier I meant to say that the banks consider these transactions as fraud, not Illegal. But only if they have you sign a form like the GMAC anti flip affidavit. In my state, Colorado, it is illegal to re-sell a short sale under 14 days because we have the Colorado Foreclosure Protection Act to abide by. There is nothing wrong with double closing a short sale as long as you do it right, not violating any state laws, or a banks deed restrictions. I used to do the double closings before my state changed the law and before the banks gave out the deed restrictions. However I just changed my exit strategy since it seemed to be a dying strategy in my state anyway.

[Ayo F.]

I work for one of the big 3 banks and in as much as I know that we have to abide by the rules of the banks, it still doesn't make it right for the banks to impose a deed restriction on a sale. If I am buying a property, I should own it and whatever I decide to do with it should be no ones business.

The banks do all these things and get away with it, but the common street investor cannot? Banks wholesale money ALL day long. They even invest in overnight trades where they make unfathomable returns within 12 hours!

A classic example is banks saying that we cannot do a leaseback to the homeowners but now, they have suddenly realized that a foreclosure to rental program saves them loads of money on the long run. So they will begin to allow homeowners to rent the houses they used to own.....Isn't this the value investors like us wanted to provide distressed sellers?

Bottom line is the banks only care about themselves.....if they are loosing money then no one else should make money off them.

We have guys that build all these decision models that lets the bank know if foreclosing or doing a short sale minimizes their loss....sometimes, a bpo value is useless.....getting way less than FMV now could make sense if it will take them 6-12 months to get it or if they have to spend all the money to foreclose....(every time a bank moves the foreclosure date, it costs them money)....so if a small bank is motivated enough to sell way below FMV for other reasons, and I in turn wholesale the deal, that's illegal?

Since when has wholesaling turned into an illegal activity. Every industry has wholesalers....the bananas we eat passes through series of wholesalers before it gets into the stores....

It is only fraud when a bank makes a decision based on wrong information provided by agents, appraisal, buyer or sellers....

However, the notion that flipping a short sale at an "artificially inflated price" is just one way their legal armies are using to frustrate the common investor.

By the way, there is nothing called an artificially inflated price in a free market ....buyers and sellers are free to negotiate any price they want and as long as a buyer is willing to pay what i'm asking, because he feels i'm providing him value for the service of getting him a good deal, then there is nothing artificial in that....

Where were all these restrictions when they were mass producing these bad mortgages and re-packaging them to be sold on wall street and exported all over the world? Of course, the absence of these restrictions increased their bottom line back then

[Monica Breckenridge]

Lol, ayo I love to hear you vent. It is so true. I couldn't agree with you more. It seems like the bank only wants them to make a profit and nobody else. There have been so many homeowners I would have loved to lease back the property to but couldn't because of the banks stipulations. Now they have implemented their own leaseback program. The banks just don't like taking a loss on the house just to keep the sellers in the house. But if they take a loss and keep the sellers in the house it's ok because now they are going to re-coop their money. They do have too much power and control. It sucks. I used to get worked up like you do about this issue but I've had to just learn to accept. I do however voice my opinion whenever possible to help us investors out. A bunch of us voiced our opinion with bill bronchick and my attorney in Colorado about the new law change. We need more investors to fight to prevent these stupid laws that ultimately affect things worse.

[J Scott]

Originally posted by Ayo F.:

?..in as much as I know that we have to abide by the rules of the banks, it still doesn't make it right for the banks to impose a deed restriction on a sale....
The banks do all these things and get away with it, but the common street investor cannot?

Ayo -

In a previous post, you ranted about how important it was to maintain our capitalist economic system, and in this post, you rant about how it's unfair that private businesses are making rules about how they sell (and how you resell) their products.

Which is it? Do you want a free market, where sellers of goods have unilateral control over their sale of their goods (and you have the right not to buy those goods if you don't like their rules), or do you want a system where we can tell private business what restrictions they are allowed to impose (and not impose) on the sale of their commodities?

You can't have it both ways?

Btw, in response to your last sentence above about "the common street investor" not being able to impose these resale restrictions, why do you say that? You can impose any deed restrictions you'd like on the sale of your properties (assuming they don't break other laws like Fair Housing), including resale restrictions. You can use the exact same contracts/addenda as the banks do, if you'd like.

[Ayo F.]

@J Scott: Let me ask you this? Who owns the house that is being sold and bought? Bank or homeowner? So my question is when a bank releases a lien it has on a piece of property, should it still have the right to impose how you use that property?

If I understand a short sale correctly, the lien holder agrees to release their lien (all rights to the property) for less than what they are owed....is that right?

So they don't own any product here. The product that is being bought and sold is owned by the homeowner not the bank.

So what do you mean by the bank having the right to do whatever it wants with its product?

The product is a loan that was sold and is then secured by the property. They own that loan product not the property. So if they decide to release their lien on that property (for any reason), that should be a business decision for them. What we then decide to do with the property, in my own opinion should be none of their business.

It would be nice to see some attorney generals sued the banks for these clauses...let's see how the courts will rule

[Cheryl C.]

Ayo,

If the bank agrees to accept less than they are owed (short sale), they have the right to dictate the terms of the sale; including imposing restrictions on resale. While I believe some of this language would fail if tested in court, I do fully agree that restrictions can be imposed.

No one is forcing you to buy a short. You can try to negotiate the rstrictions away as Michael suggested or buy at the courthouse, etc.

I think that this "shot gun" approach by the banks is too broad, but if I agree to it by signing the "affidavit" or addendum or whatever - then I am bound by it. The GMAC language is horrible and likely unenforceable but I'm not about to risk an indictment for bank fraud over a mere 90 days.

[Jackie Patterson]

Originally posted by Ayo F.:

Who owns the house that is being sold and bought? Bank or homeowner? So my question is when a bank releases a lien it has on a piece of property, should it still have the right to impose how you use that property?

If I understand a short sale correctly, the lien holder agrees to release their lien (all rights to the property) for less than what they are owed....is that right?

So they don't own any product here. The product that is being bought and sold is owned by the homeowner not the bank.

A lender agrees to accept an amount less than owed (short sale) by issuing an approval letter. That letter will have several conditions which must be agreed to before the property can be transferred in a closing. These conditions often include arm's length affidavits that must be signed by all parties. There are no surprises. If you sign the affidavit and agree to the terms, then you have to abide by them. In many cases, these affidavits are signed and submitted with the purchase agreement, so no one should be surprised at the restriction.

That being said, those conditions are not included in every approval letter, and can be sometimes be negotiated out if you know how.

The second issue I see while reading this thread is the FHA 90 day no flip policy. As J Scott noted this was waived in 2010 and has been extended into 2012. However, some lenders have imposed their own underwriting restrictions, so you may have to guide your buyer to a lender that allows it.

[J Scott]

The bank is dictating the terms under which they will release their lien. I personally believe they have the right to define any terms they wish, as they are being asked to renegotiate a contract, and they have no obligation whatsoever to do that.

Do you believe the homeowners and the buyers should be allowed to dictate (or restrict) the terms of the contract renegotiation? Should the homeowners and buyers essentially say, "Mr. Bank --Not only are we asking you to allow us to renegotiate our contract at your expense, but we're only going to allow you to renegotiate using certain terms and restrictions. You may do us this favor of renegotiation only under specific rules and conditions. Thank you for helping us."

You know, in many cases, the bank also stipulates that the sellers aren't allowed to walk away from the sale with any cash...would you argue that the bank is being unfair to the homeowners by restricting their ability to make money off the renegotiation?

When is the bank allowed to impose their restrictions and when is it inappropriate? Sounds like it is primarily inappropriate only when it inconveniences you.

Btw, I hope this doesn't come off as obnoxious...that's not my intent. I see your perspective, but I disagree with it, and that's the best analogy I can think of to demonstrate my point. Again, I'm not just trying to rude.

[Monica Breckenridge]

I agree with J. The bank doesn't have to sell the house if they don't want to and they can make any terms they wish. I know it stinks, but that is the way it is.

Michael Quarles, I'm just curious how you are still doing the short sale flips? It seems like every bank we deal with asks for these addendum, affidavits, and anti flip waivers to be signed. Even my local banks are having us sign these. Are you negotiating with the bank to not sign these forms?

I just had a bank, Chase who gave us a preliminary short sale approval, but didn't give us final short sale until we submitted a final HUD. When the bank submitted approval to sell they then sent over the arms length affidavit. I don't know why they do that. That arms length should be signed well before closing. What if an investor was planning on reselling the property right away and they had just gotten that document at closing. That would have messed the whole system up.

[Ayo F.]

Yes I would be interested in how Michael gets these clauses taken out.
To think the bank doesn't need to sell is really erroneous. They HAVE to sell else, they will continue to lose money on the loans. Banks are in the business of making money not sitting on bad debts. I guess, they get away with it because we allow them to when we investors/buyers continue to buy with ridiculous restrictions.

Anyways, I do abide by the terms and I have flipped some that did not have the restrictions. I just don't think banks should be regulating the real estate industry by imposing restrictions.

FHA was wise enough to realize that imposing such restrictions does more harm to the economy than good. Else why would FHA temporarily suspend such restrictions?

[Michael Quarles]

For me the key has been to buy shorts which have too many issues for the lender. I always buy directly from the seller and never through an agent. The seller never has agency and I always manage the transaction

The stronger the situation the easier the negotiation. Maybe it's because I say no.

[Monica Breckenridge]

Michael Quarles I do the same thing as you. Buy directly from the seller and don't deal with listed properties. The houses I target are in pretty bad condition as well. I still get the banks in these situations demanding that we sign these forms. So are you just flat out saying no? Interesting! My exit strategy is different though, so I always sign and honestly have never tried to say no I won't sign. I like to buy my shorts as rentals or fix and flips. But I occasionally will get a deal I would just like to wholesale instead. I like seeing how different investors are doing these transactions.

[Michael Quarles]

I'm a flipper. Selling on the day I buy on most cases. You buy and hold people I admire I just have too much ADD I guess. And I never wholesale.

[Ayo F.]

@ Michael Quarles: You said that the seller never has any agency and you always manage the transaction. Please, my question to you is this; what do then do when the bank requires that the property be listed and marketed by a real estate agent? Lots of banks require that now.

Thanks!

[Monica Breckenridge]

Michael Quarles Cool. That used to by my only focus. I was always afraid of rentals, but I'm actually loving them now. I love them a lot more than fix and flips. Less headache. I also move my short sale homeowners into my rentals. I find a different house for them to rent. But their hardship must have been temporary. I'm finding really god luck renting to them. They don't give me a hard time, they always pay, and they love me for saving their house and renting to them a new home. They are my best renters. Well cool, I'm glad somebody is still profiting from the short sale flips. It's just not that workable in my market anymore. I know the higher the property the more profit you get. But we just don't have high properties in my area. I prefer to invest where I live because then I have full control and I can evaluate the deal. I've thought of doing it in other states, but it just wasn't for me.

[Michael Quarles]

Ayo. You're still thinking as a LM would. By the way I always list the property on the mls. Which is how I sell the things. Also I'm a California Broker.

[Monica Breckenridge]

Ayo F. we get most of our short sale deals to go through as FSBO. There are very few banks that care. Bank of America is one. Still haven't figured out how to get around them if they are in equator. They want the MLS sheet in there and they always reject our FSBO form. If the bank does require it to be listed a realtor gets involved as a transaction broker. He will list the property and mark it UC since it's already UC with me to purchase. In my state we have a short sale addendum and in my addendum it states whether the seller has the option to cancel the contract or not for higher offers. The seller and I always agree that we stick to my offer first before opening it back up to others. If I just can't pay what the bank is asking the transaction broker will change his relationship to work for the seller and find a new offer.

[Ayo F.]

@Michael Quarles: I'm not sure I understand how you can be the listing agent and also be the buyer at the same time or I'm I getting you wrong?

For example, I just flipped a Chase deal 2 weeks ago where I negotiated the deal myself. However, on a deal i'm currently working on, the loss mitigation manager told me only on Friday that I cannot negotiate the deal as the seller already hired an agent to list and sell it for them (even thou I do have auth to release info to me). I was told that they would only speak to the agent and negotiate directly with the listing agent. Btw, the agent is one I always use to list properties for homeowners

Also, I was told that I could not represent the seller and be the buyer at the same time...

@Monica Breckenridge: I do what you do. I list the properties with an investor friendly agent just to satisfy the listing criterion and if the deal doesn't work out, the agent end up selling it to whoever is interested at the price the bank is asking

[Monica Breckenridge]

Ayo F. I think what Micheal is doing is listing the property as the seller. Since he is Under Contract with the seller he has equitable interest in the property and can therefore now try to sell the property to get an end buyer. However when he submits the listing agreement to the bank it would have the wrong seller name. So maybe I'm wrong and Micheal is doing something different.

Ayo your correct that you can't represent the seller and be the buyer. Although I have gotten away with calling the bank before to try to negotiate and they don't notice I'm the buyer. They don't consider this arms length. What I do is I have somebody else negotiate the short sale for me that is arms length. I don't ever call the bank.

[Michael Quarles]

The buyer and the seller is a land trust. I have only once had a bank notice that the listing agreement was signed by the trust. I've had on several occasions been ask for the trust areement which I gladly supply. It always indicates who the benes are and they're never the borrower.

Keep in mind I'm very upfront with the lenders. I think twice I've been turned down for either being the buyer or my trust document twice. Both times they sold for less then my offer. Go figure.

[Ayo F.]

Michael Quarles: So what I think you re saying is that the seller as described on the listing agreement is not the Homeowner, but a trust that you own or whose beneficiary you are. Am I thinking right? Also, the buyer is also a trust that is owned by you, hence what you are really saying is that, you are both the seller and the buyer, is that correct?

[Michael Quarles]

Yes

[Vito B.]

Regarding Fannie-Mae 90 day anti-flipping deed restrictions, has anyone utilized this method as a workaround and does anyone (lawyers input would be welcome) have a point-of-view about this type of a maneuver?

"Another strategy not mentioned in the video is to make offers in the name of a corporation or LLC and then sell the entity to your buyer, prior? to the closing date. Then your buyer, as the new owner of the entity goes to the closing and buys the property. This requires you have expendable entities at the ready."

[J Scott]

Vito -

I haven't done it personally, but there's no reason it wouldn't work. Just make sure that you have the proper corporate documentation in place in order to easily (and properly) sell your interest in the entity.

Remember though, when making cash offers, the REO seller will require a proof of funds in the name of the purchaser -- or a pre-qualification letter in the name of the purchase -- so you'll either need to have cash in a bank account owned by the company or a pre-qual letter from a lender in the name of the company.

These could be sticking points if you plan to wholesale the deal and don't have cash to actually close...

[Maryann L.]

Michael Quarles - Michael are you setting up the trust and putting yourself as beneficiary BEFORE you enter into a contract with the homeowner? We explored the trust method and my lawyer couldn't get beyond the "transfer" language in the arms length transaction forms.