All Forum Posts by: Ted Akers

@Jeff Fairchild

Transactional funding (or other funding) has become required for short sales, as closing agents no longer consider using "C's" funds to close on those purchases.  The concerns of title underwriters that @Account Closed mentioned have also resulted in most title companies not being willing to close other types of transactions with the end-buyers funds. REO's have also increasingly been approved with restrictions on assignments. While there still may be situations where a closing agent will allow use of "C's" funds those old days have been disappearing over the past 2-3 years. While there are situations where the use of end buyers funds are still allowed, transactional funding has been becoming a more relevant tool for more types of transactions. As mentioned, it also has the benefit of not having to disclose your profit margin to the end-buyer. Fees are more typically a bit below 2.0% and at times when needed are a reasonable cost of doing business. Good Luck.

Hello @James A.,

The bank holding the mortgage will require that a realtor present the short sale offer to them.  Short sales 1-3 years ago could be very profitable because the banks were more willing to take deeper discounts.  Today it is more of a challenge to get enough of a discount to make a flip work.  That said though, deep discounts are difficult to find in most markets from most sources, and I would pursue it because you have a willing client at the table.

If you do not have a very good short sale realtor I would try to contract with the homeowner then find a short sale realtor. You want to find a very experienced short sale realtor that is on board with your concept of buying and reselling. Remember, you are bringing the deal to them. Many are so focused on the current as-is market value. You want one on your side that is focused on how to justify a fairly deep discount understanding that this is a distressed asset - not your cleaned up, repaired, ready of immediate occupancy type of property typically listed on the MLS. You want a very experienced one because the process, and especially the price negotiation, can be time consuming and at times frustrating, with the bank taking months to approve the short sale. However, your seller will be able to stay in the property while the short sale is underway, unless or until the bank decides to foreclose.

@Greg H.

Thank you for the clarification regarding Texas.  I am funding one this week in Houston that is requiring one day of separation; and have spoke to or worked with maybe a half dozen over time that all wanted 1-5 days separation, most all citing Department of Insurance oversight.  So, that goes to what their comfort level is in their definition of separation.  I do not mean to hijack this thread, but can you recommend a Texas title company that will allow same-day transactions for future use?  

Thanks,

@Greg Olson,

This may be more of a state issue, and more states are starting to weigh in on the issue of wholesaling.  Are you referring to a Minnesota property?  Over the past couple of years most title companies have stopped doing double closings, either due to requirements of their underwriters or in some cases state regulatory agencies.  In both cases they are wanting two distinct and separately funded transactions (a "back-to-back" closing) to clearly avoid the use of the end-buyers funds being used to pay the original seller.  For instance, in Texas the State Department of Insurance requires separation of the two transactions (one day is adequate).  I have not heard of a ten day requirement in any state I have funded in.  That may be the comfort level of that particular title company when they consider what is adequate separation between the deals.  If it is not a state issue you can likely find one that will allow a shorter time period between closings (such as one day, or two, or three). The concern of title companies (especially in the case of distressed homeowners and for short sales) is whether an argument can later be made that a legal closing took place if you did not bring your own funds, or transactional funding, or other borrowed funds.

If your purchase is a short sale it will be near impossible to find a title company that will allow use of the end-buyers funds to close on the initial purchase. If your end buyer is not a cash buyer and is using a mortgage that is an entirely different deal. It will require separation of the transactions, as mortgage companies will almost never accomplish a same day funding of a flip. Some separation is possible (such as 10 days, or maybe a bit longer) if it is an FHA mortgage being used by the buyer. If it is a conventional mortgage being used most lenders will require at least 90 days after you go in title.

Neither FHA nor conventional lenders for your end buyer will allow an assignment of your purchase contract. Thus, if you do not have a cash buyer you will need to go on title. With you going on title conventional lenders for your buyer will typically require you to be in title for 90 days ("title seasoning") before they would fund your buyer. FHA lenders however, do not require title seasoning; but will require you to be in title before executing a purchase contract with you buyer so that does preclude same-day transactional funding.

@Kenneth LeBeau,

In most counties (except several California counties) title can submit both Deeds to be recorded in the priority they indicate to the recorder (your purchase first and your resale right behind it).

You can always execute documents before an actual legal closing and transfer of title takes place.  The second closing docs are executed and held in "escrow" by the title company, subject to instructions from the transactional funder.  Title knows from instructions from the transactional funder that the second set of docs has to be executed and held in escrow until recording of the first Deed for your purchase, and then the second Deed is recorded.  It is not until the Deed is recorded that either transaction is legally "closed".   I hope this helps.

@Adam Schneider

You have it down well.  I give you credit for requiring an non-refundable deposit and for wanting the end-buyers funds in escrow the day before.  Most transactional funders will require you to close both transactions with the same closing attorney.  You will want to schedule your end buyer to sign their closing documents ahead of time also (the same day as your purchase is fine), as transactional funders will want to know that they have both funds in escrow and executed documents before authorizing disbursement of the transactional funds for your purchase.  Good luck - sounds like a strong deal.

@Richard Prescott,

Georgia closes only with attorneys, and I have not come across one that will allow use of the end-buyers funds; so your thinking about using transactional funding is appropriate.  The transactional funder authorizes disbursement of their funds once the end buyer funds are in escrow with the same closing attorney.  They then close and record your purchase and immediately after close and record the Deed on your sale to the end buyer.  Fees for the funder and your profit are then disbursed from the second (your sale) transaction.

Because your purchase is being handled by the banks chosen closing agent I suggest you contact them soon regarding your desire to resale same-day.  Approach them with "I am going to resell this property and would like to give you that business also".  Be aware that some bank appointed closing agents will not want to do both transactions because their primary interest is in the relationship they have with the selling bank.  I have found that most in Georgia will do both closings.  If they will not you can possibly do a split escrow with the second transaction happening with a different closing attorney.  Most transactional funders will not allow this (the split escrow) but it is possible to accomplish.

It is possible to wholesale a short sale and has been done frequently, but the banks are less forgiving now and it is tougher to get material discounts.  The bank will require a realtor to submit the short sale package/application to them, so you will need one involved.  Do not use the first realtor that you may know - get one well experienced in short sales.  The banks approval will preclude assignments so you will have to double close and the approval will likely have at least a 30 day holding period requirement, which does make it more challenging to obtain transactional funding.

 
Florida does still have a lot of foreclosures which does make a short sale more possible compared to other areas of the country.

Hello @Donald Taite,

You probably want to get a mold remediation bid (or 2-3 of them) very early in the process because prices for remediation from company to company can vary drastically; and they need to be factored into your purchase price, along with the rest of the rehab costs. You want a firm handle on both rehab and remediation costs because your target buyer is a rehabber. You need to allow for both of those costs, the rehabbers carrying costs and profit, and your profit when setting that purchase price. Transactional funding can be used to provide a POF and to double close if the seller will not allow an assignment or if you have a larger profit margin and do not wish to disclose your purchase price to the end buyer.