First American Title...Notifying Shorted Lenders of Flips

First American Title has mandated their closers advise lenders whose mortgages are being shorted that the buyer (me) is reselling the home at a higher price; when a simultaneous closing is taking place due the potential fraud involved due to “lack of disclosure”.

Obviously I won’t be closing any more deals there. I do, however, wish to ensure that I’m not doing anything improper in the following structured transaction:

Seller Contacts me to buy home
Home Value is $150k
Loans On Home Total $145 and are ARMS (80/20)
Owner is 1 month behind
-I’m writing offer at $110k, charging upfront $1000 for short sale processing and submitting to lender for approval
-Special Provision of contract obligates Seller to allow me to market home FOR SALE while Short Sale is being processed.

  • By time lender comes back accepting offer (or countering requsting a $120k payoff for example) I have procured $140k offer…close simultaneously…everyone goes home happy.

I feel stupid even asking this question, but what potential impropriety is taking place above for a Corporate Title Company to feel obligated to disclose to Shorted lender that I’m reselling home at $140k?

In my mind this is just bread and butter simultaneous closing, leveraging of my option…or has something happened over the past year that is placing legal scrutiny on this transaction I’m not aware of?

What you are doing is a common process that several other short sale investors use. I think the issue is that First American sees that you are convincing a lender to take a loss because the home is only worth 120K (per your example) yet you turn around and sell it for 140K the same day.

That being said, you aren’t doing anything that other investors aren’t doing so you are fine.

First American has decided to not allow it, so you just need to work with another title company that does. What I think gets lost is the time and patience it takes to work on a short sale, find a buyer, etc. There is value that you are providing, First American doesn’t seem to see any and they have made a decision not to allow it.