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Three Vital Short Sale Disclosures

Short sales are now possibly the most relevant type of real estate investing opportunity. And they will be for a long time.

After Citibank’s collapse that was announced this week, taking government bailout money to the tune of at least $7,000,000,000 with it into the abyss, it is obvious that the so called “shadow inventory” crisis is far from over.

Shadow inventory consists of the homes that are behind in payment and in some stage of foreclosure, but not neccessarily bank owned yet. So this inventory is the meat and potatoes for short sales.

Even though most banks are trying to pretend the problem is small, and they don’t need investor to help them out, nothing could be further from reality. Short sales save the banks from taking even more properties back through foreclosure.

Every successful short sale saves the bank, and saves the neighborhood, because short sales usually sell for more than bank owned listings. Once you realize the true size of this opportunity, the main question is “How?” – How can you set yourself up do to short sales the right way, and protect yourself from problems down the line?

Here are the three main areas of disclosures that you have to put in place with the cooperation of agents, escrow and title companies – everyone on your short sale team has to be on the same page with these.

1. Disclose to the seller and short sale lender(s) that you are an investor buying the property with the intention of reselling it (possibly immediately) for a profit. Implement right in your purchase contract addendum that the short sale lender(s) will not impose any restrictions on the time frame that you have to hold the property before you will re-sell it.

2. Disclose to the buyer and buyer’s lender that the transaction is depending on a successful short sale with the existing financing, and that you (the seller) has just purchased the property prior to the closing with your buyer.

3. Disclose both sides of the transaction to the agents who are involved and make sure that no agent is in a position to violate their fiduciary duties to their clients. If an agent is involved who represents the seller, that agent should not represent either you or the end buyer. The seller’s agent has a fiduciary duty to the seller, but not to the seller’s lender(s). No agent should share in the profit from the spread between the two transactions.

These areas of disclosures are what I have deemed vital for my own short sale business. I am not an attorney or tax advisor, or licensed real estate professional, so take this advice for what it is – my own personal experience and opinion only. If you are looking for short sale information, check out Home Seller Assist. John  Alexander has just introduced a “HSA Club” that gives you access at a very low price.

Here is one more word of caution: Be careful when you use home study materials that are not specifically designed and tested in the state where you operate! I have personally contacted some people who were featured as testimonials for one of the big nationwide short sale “gurus”. I wanted to see if that investor who is operating in my state was still doing well, and confirm that that short sale system is actually working in my state.

It turned out that the investor was operating a very successful short sale business, but based on paperwork that was quite different from the materials provided in the course.

Please leave your questions or comments below and engage in the conversation here! Particularly, if you are in California and are looking to get involved in short sales, or discover a better way to get your short sales closed, I want to hear from you! We will be opening up a few opportunity spots in our “Syndicated Short Sales System” very soon.


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Category: short sale

Comments (14)

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  1. Thank you for always adding value to the Real Estate community. If I need to find out what’s going on “RIGHT NOW” in today’s Real Estate market I know I can always depend on you.

  2. Lee says:

    did I miss something? I know Citi is having trouble, but I have not seen a report they have collapsed? Their stok took a tumble, but no collapse that I can find in the news? What have I missed?

    • admin says:

      @Lee Uhmm.. sorry – this post was supposed to have been post dated for about a week :) , no seriously, I saw something about it, but can’t find the resource. I’ll keep looking and update this post accordingly…

      Cheers,
      Thomas

      PS: Check this out: 9 Banks Failed End of October

  3. Anne says:

    Hi Thomas! Everything you say is true about disclosures AND about using the appropriate paperwork for your state, and for the situation. For example, as you know, in California it’s important to be in compliance with Civil Code 1695 if the seller has received an N.O.D. and/or if the home is the seller’s primary residence. One of my pet peeves is investors who are not using appropriate disclosure and are not in compliance with the laws governing “foreclosure consultants’ (which is not what one should be if one is a buyer is short sales!). I hear horror stories from my escrow agents about investors who are either ignorant or unethical or both (a winning combination!) and how these people are trying to avoid disclosing. The idea is to disclose as much as possible! When investors don’t use appropriate disclosures and paperwork, it makes all of us look bad in the eyes of the banks and the title companies. I would encourage your readers to get as much education as possible from reputable sources, and treat your real estate agents, sellers, escrow and title agents, and bank mitigators with respect! Thanks!

    • admin says:

      @Anne Hi Anne: Great to hear from you! Excellent comment and input. The main thing is to keep everything above board and still get the deals done. It’s about numbers, attitude, respect and knowing that investors are absolutely NEEDED to work through the little pile of rubble that the banks have… :)

      Cheers,
      Thomas

  4. Victor says:

    Thomas,
    I am always in favor of complete disclosure. Since the Bank of America’s 30 day restriction is fairly new, I have not put anything in my contract to disallow such a restriction. My experience with this is that the bank does not pay any attention to such disclosure in the contract and they will do what ever they want anyways. Has this worked for you?
    Victor

    • admin says:

      @Victor Thanks for your comment! 30-day restrictions are being thrown out by our title companies. The bank either accepts our “no restriction” policy or we move on and the bank takes the bigger loss. There are enough deals to go around. We don’t waste time with lenders that want more properties.

      Cheers,
      Thomas

  5. BOBBY DEFRANCE says:

    HELLO THOMAS,IT SO LIKE THERE MAY A WAY TO GET MY FOOT IN THE DOOR,PLEASE CONTACT ME ON JUST HOW I CAN GET AN APPROVE LETTER ON ONE OF THESE DEALS. THANKS, BOBBY

  6. John says:

    You have no mention of how to sell or how to sell the home to.Once the bank excepts the offer they want prof of funds and a 30 day close .Can you supply an investor to buy the homes ?

    • admin says:

      @john thanks for your question! In our “Syndicated Short Sales” system we are the investor buyers. OUr agents find end buyers who can be owner occupied or buy and hold investors. They typically get a new loan.

      You can get funding and approval letters also at http://ShortsaleTransactionFunding.com

      Cheers,
      Thomas

  7. Thomas, thanks again on a timely and important topic regarding disclosure. Realtors and agents should be very familiar with disclosing everything during a transactions. However, we non-licensed investors need to learn about disclosure.
    .-= Loretta Steele´s last blog ..Initial Postcard Results =-.

  8. Zenia says:

    I’m interested in the 90-day funding. Are you making use of this already?

    • admin says:

      @Zenia: thanks for your comment!

      I’m not a fan of the “90-day funding” that is done as an equity split. I’ve outlined my reasons in another blog post. I think that hard money or private money is better for any deals that require an actual hold time. Other than that, there are plenty of deals that can be done as instant flips.

      Cheers,
      Thomas

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