I’m some what new to REI and have done a lot of reading and research. I’m just about ready to jump in and have the makings of A-B B-C deal with cash buyer lined up for a short-sale I’m negotiating. Now I’m worried I have read info. about short-sale fraud and flips Fannie and Freddie cracking down on investors. I’m not trying to break the law just make a buck. Can someone let me know if it is safe to proceed on deals like this or should I be working on another strategy.
Thanks for any help.
DB
No one can guarantee what could be considered fraud or not. Some agencies have been saying certain things are fraud but they have never been court-tested. Who knows who they might choose to charge.
The common assumption that many investors are working under today is that as long as the seller, seller’s lender, and end buyer are aware that you are an investor who intends to immediately resell for a profit, then you are ok.
Others believe that you must go further. Some say, your expected profit must be divulged. Some believe you should not market the property to C buyers (or at least accept an offer) until after you close the A-B.
I believe you should disclose as much as you feel you can and NEVER make a false statement to the financial institution. That is a clear felony.
No one really knows for sure how to be 100% safe. It is a gamble each person has to make.
It’s unfortuante but it’s kind of the “eye of the beholder”. Every state is different, every county is different, and any person you talk to might have a different idea.
The key to protecting yourself is disclosure. You need to let everyone involved in a transaction know what is going on. That way they can never say you decieved or mislead them.
Here is my latest Short Sale Agreement which deals with some of these issues. Maybe this will help. As for AB BC the key is your title company or closing company. Find one and work the deals the way they need to be insurable. Most occasions their strictness will keep one from fraud as long as you’re forthcoming with the closing company.
Purchase Agreement and Deposit Receipt
DATED ______
PARTIES: ________, as Seller, mailing address _____________ and __________ Land Trust, as Buyer, mailing address is _________ and telephone number is ____________ hereby agree that the Seller shall sell and Buyer shall buy the following legally described property.
DESCRIBED AS: ________________. Legal Description: See Exhibit “A” attached.
TERMS/PURCHASE PRICE $ __________. Deposit(s) to be held in escrow by Company of buyer’s choice prior to the close of escrow in the amount of $100.00. In the event that the buyer needs to adjust the purchase price, either as an increase or reduction, said adjustment may be authorized at the sole option of the buyer.
CLOSING DATE: This transaction shall be closed and the deed and other closing papers delivered in 120 or sooner days following the date of final acceptance. THE BUYER SHALL HAVE, AT THE SOLE OPTION OF THE BUYER, THE OPTION TO EXTEND THE CLOSING DATE FOR UP TO 365 DAYS.
OCCUPANCY: Exclusive irrevocable occupancy shall be delivered to Buyer, Buyers Assignees, or Buyers Agents at 5:00 PM on the date this agreement is signed by seller, unless a rescission period is granted to the seller. In the event that a rescission period is granted to seller exclusive irrevocable occupancy shall be granted to the Buyer, Buyers Assignees or Buyers Agents on the date following the last day of the rescission period.
INSPECTION OF PROPERTY: Buyer shall have until the close of escrow to complete all Buyer investigations of the property, approve all disclosures, and other applicable information, which buyer receives from seller and/or persons hired to inspect property on behalf of Buyer; and approve all matters affecting the property, including but not limited to, the marketability of the property, the elevation, grade, and topography of the Property and to conduct engineering and soil boring tests as the Buyer deems necessary in order to determine the usability of the Property. Buyer may in Buyers sole and absolute discretion, give notice of termination of this Agreement at any time prior to the expiration of the inspection period, and upon such termination, all deposits held in escrow shall be returned to Buyer.
COSTS: Buyer shall pay for Title Insurance, Escrow Fees, and County and/or City Transfer Taxes.
NON-AGENCY RELATIONSHIP: A principal with buyer may be a Department of Real Estate Licensee. An Agency relationship between Buyer and Seller does not exist. Seller should seek advice from their legal counsel prior to agreeing to the terms of this contract.
TIME FOR ACCEPTANCE AND EFFECTIVE DATE: If this offer is not executed by both of the parties hereto on or before 9/5/2010 the aforesaid deposit(s) shall be, at the option of the Buyer, returned to him and this offer shall thereafter be null and void. The date of the Contract shall be the date when the last one of the Seller and Buyer has signed this offer.
TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Typewritten or handwritten provisions inserted herein or attached hereto as Addenda shall control all printed provisions in conflict therewith.
PRORATION OF TAXES: Taxes for the year of the closing shall be prorated to the date of closing. If the closing shall occur before the tax rate is fixed for the then current year, the apportionment of taxes shall be upon the basis of the tax rate of the preceding year applied to the latest assessed valuation. Subsequent to the closing, when the tax rate is fixed for the year in which the closing occurs, Seller and Buyer agree to adjust the prorating of taxes and, if necessary, to refund or pay, as the case may be, an amount necessary to effect such adjustments. This provision shall survive closing.
ESCROW: Any escrow agent receiving funds is authorized and agrees by acceptance thereof to promptly deposit and to hold same in escrow and to disburse same subject to clearance thereof in accordance with terms and conditions of the Contract. Failure of clearance of funds shall not excuse performance by the Buyer.
ATTORNEY FEES AND COSTS: In connection with any litigation including appellate proceedings arising out of this Contract, the prevailing party shall be entitled to recover reasonable attorney’s fees and costs.
MARKETING / RESELL: Seller authorizes Buyer to market property during escrow for Buyers benefit. Marketing is defined as, but not limited to, placing the property for sale in the Real Estate Multiple Listing Service (MLS), advertising in the newspaper or other periodical, and placing a for sale sign on the property. Seller authorizes the Buyer to enter into a sales agreement to resell the property during this escrow period. Seller is aware that Buyer intends on reselling the property for a HUGE PROFIT. All profits made by Buyer during this transaction relating to the reselling of the property are the sole interest of and solely owned by the Buyer.
MEMORANDUM OF CONTRACT RECORDABLE, PERSONS BOUND AND NOTICE: Buyer may cause to be recorded, at Buyer’s option and expense, in the public records of the county in which the property is located, an executed Memorandum of the Contract as attached hereto. This Contract shall bind and inure to the benefit of the Parties hereto and their successors in interest. Whenever the context permits, singular shall include plural and one gender shall include all. Notice given by or to the attorney for either party shall be as effective as if given by or to said party.
MEETING OF THE MINDS ACKNOWLEDGMENT: Seller(s) have thoroughly and completely reviewed the purchase and sale agreement and Seller(s) understand completely all terms and conditions contained therein. Seller(s) further acknowledge that I am not confused or uncertain about any aspect of the purchase and sale agreement and that Seller(s) have sufficient experience in real estate transacting to be able to sign the agreement with absolute confidence in Seller(s) ability to comprehend all matters related to it and to the sale of the property. Seller(s) further understand and agree that Seller(s) have been given sufficient time to read through this contract and have also been given the opportunity to seek advice from Seller(s) legal counsel prior to agreeing to the terms of this contract. The buyer, their representatives, or Seller(s) current situation has not forced Seller(s) into signing this contract.
DOES THIS FORECLOSURE NOTICE APPLY?: Yes
NOTICE REQUIRED BY CALIFORNIA LAW. UNTIL YOUR RIGHT TO CANCEL THIS CONTRACT HAS ENDED, THE BUYER OR ANYONE WORKING FOR THE BUYER CANNOT ASK YOU TO SIGN OR HAVE YOU SIGN ANY DEED OR ANY OTHER DOCUMENT WHICH TRANSFERS OWNERSHIP. YOU MAY CANCEL THIS CONTRACT FOR THE SALE OF YOUR HOUSE WITHOUT ANY PENALTY OR OBLIGATION AT ANY TIME BEFORE _______. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT.
INDEMNIFICATION: The borrower shall indemnify, defend and hold harmless the negotiator and/or buyer and all persons or assigns, regardless of responsibility, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury to any person, or damage to any real or personal property to any person, including the borrower and said financial institution, for (i) any items resulting from the information furnished by the borrower, or (ii) those relating to the financial information, or ability or inability to pay for or continue to support the debt of which the negotiator and/or buyer is attempting to negotiate a short sale on the property by the negotiator and/or buyer, or any person in the negotiators and/or buyers firm, or the performance or exercise of any of the duties, powers or authorities granted to the negotiator and/or buyer by the borrower.
___________________________ Seller ______________ Date
___________________________ Seller ______________ Date
___________________________ Buyer ______________ Date