All Forum Posts by: Denise Evans

You probably don't need an attorney. Reverse mortgage short sales are very simple. The lender really needs only an MLS listing, copy of contract, proof of ability to close, and an estimated settlement sheet. No borrower financial information is required. Whoever will do the closing can provide the estimated closing statement. Then the lender orders an appraisal. @Wayne Brooks is right, the offer will need to be 95% of appraised value to be approved. You can contest the appraisal successfully, though.

Good advice, @John Verduzco. We always do three scenarios--best case, worst case, most likely case.  Just the exercise helps refine your forecasting skills, over time.

Plus, revisit this EVERY year, in case you need to make decisions to sell or refinance. Learn the early warning signs of a bubble.  There are many well-reasoned articles on the Internet about this. When the last bubble collapsed, experts who studied the data could see clearly it was coming. They couldn't time the market and predict exactly when, but it was a "for sure." Don't be in the same boat as all the consumers and amateur invests who used the Greater Fool Theory of investing.

As a CPA, short sales are in your wheel house!  It's just a matter of:

1. Filling out the paperwork properly so that the borrower qualifies. Generally that means a recognized hardship, insufficient liquid assets to bring cash to the closing table (generally, 3 months of living expenses is allowed and not demanded) and insufficient anticipated cash flow to service the mortgage.  Borrower does not have to be in current default to qualify.
2. Bank calculations showing they are not substantially worse off with a short sale scenario than a foreclosure scenario. Foreclosure scenario is a secret algorithm that takes anticipated sales price after foreclosure (based on short sale department ordered appraisal) less holding costs, foreclosure expenses and sales costs, discounted to present value.  Discount rate is usually 12 to 12.5 percent. Holding period and costs depend on market place. Appraisal depends on your ability to manage that process. I've posted about that before. Look for my posts.
3. Follow up and good communication skills.
4. If the short sale scenario is better than, equal to, or not significantly less than a foreclosure scenario, the short sale is approved. You can google "bank short sale algorithms" (not in quotes) and get advice that is pretty close to their calculations. Plus there are some federal regulations and FHA instructions that will get you pretty close. "Significantly less" is rather fluid, but I've found that a 5% to 7% haircut on a short sale scenario vs a foreclosure scenario (according to my own horseback calculations) gets approved.

To expand on @Josh Anderson, if you deny housing to somebody based on information you received from a 3rd party, you must provide the applicant with an Adverse Action Letter that tells them the source of the information that caused your denial, and contact information for the source.   This is required under federal law, the Fair Credit Reporting Act. The goal is so that if the information is incorrect, the applicant can go to the source and get it corrected. The advantage is they don't argue with you about accuracy, they argue with the person who told you.

You can google Adverse Action Letter Tenant and find lots of examples.

The owners probably did a deed in lieu of foreclosure.  It helps preserve the owner's credit score, which rehabilitates fairly quickly after serious default, less so after serious default and then a foreclosure.  Do you have a title opinion?

Usually, you can get a short sale pre-approval price for an FHA insured home. The price will be 95% of the bank appraisal for offers in the first 30 days, 90% for offers in the next 30 days, and 85% for offers received more than 60 days after approval.

You can also get short sale pre-approval for some other types of loans. Call the servicing company and ask them if that option is available for your loan.

The sale has to be cash, unless your lender is a local or regional bank that still owns the loan in its own portfolio.

Usually, you can get a short sale pre-approval price for an FHA insured home. The price will be 95% of the bank appraisal for offers in the first 30 days, 90% for offers in the next 30 days, and 85% for offers received more than 60 days after approval.

You can also get short sale pre-approval for some other types of loans.  Call the servicing company and ask them if that option is available for your loan.

The sale has to be cash, unless your lender is a local or regional bank that still owns the loan in its own portfolio.

If you have a business plan that says you will flip properties until you build up enough cash to invest and hold, and if you in fact do that, then the IRS will consider you an investor, not a flipper.  BEWARE, though, you can't just write a business plan and expect the IRS to take your word for it. You must actually save most of the profits from your flip, and you must have some other source of income with which to pay your normal living expenses.

If you meet those requirements, you can take advantage of section 1031.

Investors get the benefit of Section 1031, depreciation deductions, long term capital gains tax treatments, and favorable tax treatment for seller financed sales.

Flippers are called "dealers" by the IRS. Dealers are like WalMart. They buy and sell an inventory of products. For WalMart it is groceries, soft goods and household goods. For dealers it is real estate.

Dealers do not get any of the investor tax benefits described above.   They must pay ordinary income tax rates on profits and must also pay self employment taxes.  But, dealers get to deduct mileage and other expenses, can use Section 179 to write off 100% of the cost of full bed trucks in the year of acquisition and up to $25,000 of the cost of other vehicles, can use Section 179 to write off the cost of computers and other business equipment entirely in the year purchased, and generally can take a lot of business expense deductions. Investors are pretty much limited to expenses related to the real estate itself, such as taxes, repairs, insurance, legal & accounting, property management fees, etc.

All of that is said for educational purposes and is not tax advice.  It is intended to give you a head start for a meaningful discussion with your tax professional.

Wholesaling a short sale is not illegal. Some banks have requirements that make it difficult or impossible, but that is not the same thing as illegal. The rules are lender specific. Such rules are things like making the buyer sign an affidavit saying he will not sell the property for at least 90 days. Or, requiring a buyer give proof of funds before approving a short sale. Or, saying only the person on the short sale approval letter can close and get their name on the deed, otherwise the bank will not release their lien.

Sorry, auto correct. I meant "along the lines of" not "all the lines of"