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.
