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New law

In a short sale transaction the homeowner is not allowed to make a profit. With the price point set below what is owed on the mortgage, this makes sense. The fact that the homeowner cannot sell for a profit is probably one of the main reasons the house is being sold short.

Selling a short sale can be difficult due to the fact that the bank may not exactly "rush" the short sale approval. And even if they do move fairly quickly on the approval of a short, the closing timeframe will still take a while. Sometimes the bank does not even approve a short sale. A majority of potential buyers do not want to wait for something that may not even materialize. They will look at non-short homes.

Basically, a home in short sale is a distressed property, at least to my way of thinking. In most cases, the homeowner is behind on payments, and needs to get out fairly quickly. When a homeowner gets behind on payments, the condition of the home is usually not at a high level.

Enter the investor. These are the folks who are not afraid to take a risk and wait out the bank. They will make an offer, if approved, buy the place, and then fix it up for a quick sale. Even though they buy it at a distressed sale price, they will usually sell it at a nice retail price after it has been spruced up.

The homeowner gets out of their burden. The bank is rid of the carrying costs. The home gets fixed up. The retail price for the area goes up, and the potential buyer does not wait for a short to get approved.

Fannie Mae lobbied hard for a new law that will go into effect on Jan. 1st. Buying a short sale and then selling it at a higher price will become illegal. That ought to help our slow markets.

Any input? Am I offbase?

Comment balloon 10 commentsKevin Robinson • October 21 2009 08:53AM

Comments

Kevin:  I believe that is for a period of 90 days .... correct?  Buying and flipping within 90 days and buying and flipping at the closing table is prohibited ... that is how I understand the new law. It will be interesting and it "should" allow opportunity for first time home buyers to fairly compete in the market and actually buy a home before an investor snags it.

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) over 9 years ago

Kevin - can you please post a reference to the new guidelines.

Posted by Mike Saunders (Lanier Partners) over 9 years ago

I think you are mistaken  - There is no such "law". It is likely just a Fannie Mae backed loan requirement.

You can certainly buy and sell as quickly as you wish. I think you are referring to "title seasoning". Some loans - FHA for example, will not back a loan unless the current owner has held title for at least 90 days.

This makes it harder to sell a property you have bought within the last 90 days, however certainly not illegal.

Posted by Minna Reid, Associate Broker (Florida Homes Realty & Mortgage) over 9 years ago

I think Minna is correct although it seems that I've heard some rumblings of some changes to the title seasoning requirement.  I'll have to look into it a little further.

 

Posted by Angie Francis, StepStone is Real Estate without Limits! (StepStone Realty LLC) over 9 years ago

I know Countrywide / BofA already has a 30 day moratorium on this.  If this new law goes into effect, I would estimate that 25% of the short sale closings would vaporize. 

Do you have a reference for this proposal?

Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) over 9 years ago

I am looking up the refernce right now. I read it very late last night and was too lazy to bookmark it. Give me a minute on this.

Posted by Kevin Robinson, Fractional Developer over 9 years ago

Sounds like Washington with their "reform" fever.  Do whatever you want, but whatever you do, you can't make money.  It wouldn't surprise me if Minna was right though and it is just title seasoning.

Posted by Daniel Sundberg (Crystal Springs Real Estate) over 9 years ago

I beleive it. In my experience the banks drag their feet and then hem and haw and foreclose anyway. Short sales have been a nightmare for me. Actually I take that back BOA has been a nightmare.-Dinah Lee

Posted by Dinah Lee Griffey, Managing Broker Windermere Peninsula Properties (Windermere Peninsula Properties) over 9 years ago

J have not been able to find what I read. I read it late at night. Maybe I was dreaming.

Posted by Kevin Robinson, Fractional Developer over 9 years ago

Kevin,

I don't know of any law that prohibits the flipping of property.  There is the 90 day guideline for FHA, but that's nothing new. 

The issue is short sale flips with a simultaneous/concurrent close.  I'm all for those being illegal.  Rarely does an investor in those transactions do anything to improve the property. 

It also ends up putting sellers in jeopardy if the investor can't procure a buyer.  If they do find a buyer, the seller loses out even more on any deficiency or tax consequences with the extra spread the investor pockets.

Transactions like this are a lose-lose for the seller and lender.

That's not what I would really call and investor, it's more or less the "get rich quick" scheme all the gurus are preaching right now.  You're playing with fire if that's the type of investing you're doing and I wouldn't want to take on a team of bank attorneys.

Posted by Brian Brumpton, Boise Idaho Real Estate (Keller Williams Boise) over 9 years ago

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