Example Scenario -
Owner owes 400k on a house.
Negotiated down to $340k via SS
Found new buyer for $360k.
$360k - $340k = $20k profit margin
How do you get that profit margin without double closing?
unless you are buying the home outright yourself - you may not be able to accept a profit - it depends on your state -
if you are not a licensed agent you cannot accept a commission on a short sale transaction
if you are not purchasing the home yourself and you bring in a buyer, you may accept a consultation fee from that buyer - it may be included on the hud as a consultation fee - however i have had trouble bringing in buyers willing to pay this fee - i simply charge the seller a small document preparation fee and that is all i receive for the transaction
if you can buy the home yourself - that is what i would suggest you do
otherwise a 20k profit on this deal (correct me if i am wrong anyone, i can’t do this in az) is not possible - you would need to sell to your buyer at 340k
The only way I see is if you’re a realtor and you could get the lender to agree to a 6% commission.
If you don’t have a realtor license, I think’s is a great idea to get one if you plan to do short sales.
This can’t be the only way. Most lenders don’t give a full 6%, because they require that the realtor commission be reduced down to 2-3%.
Being a realtor defeats the purpose of profiting from short sales. I’m not interested in getting my realtor commission. I’m interested in getting a chunk of that profit margin that’s created when a short sale is done. Isn’t that what every short sale investor pursues?
There are a number of ways to receive your $20k.
I assume you have the trust and cooperation of the seller…
Place a mechanics lien on the property…will show up on the HUD…you get paid…
Place a mechanics lien on the property...will show up on the HUD...you get paid...
petecntwk - I have a few questions on how this would work.
1)What are the steps?
And what amount or percentage has worked for the lien amount (I’m sure it’s whatever you what to profit, somewhere like 10% of the purchase price)??
2)Do you just record the lien with your LLC and get the approval in YOUR end buyer’s name? If so, at what point do you place the lien on the property?
3)How do you record the lien?
4)How do you approach the lender in the 1st place? Do you send the purchase contract in your personal name and then have them change the approval later to your end buyer?
I also have no idea how to place a mechanic’s lien…
whats the problem with a double close?
attorneys are best- if you can find one- try local re club.
But otherwise, try putting fee on buyers side hud and ask title company what to call it.
make sure you use a title company who deals with investors
I’ll keep that in mind, although I’d be surprised if a Title company allows me to add a fee and also tells me what to call it. Worth a try though.
The problem with a double close is having $3-400k+ cash available. I wish I lived out in the west where I hear people buy homes for $100k. That won’t even get me a studio apartment.
oh trust me those title companys are around. YOu need to go to local re club and find one who works with investors. then just brain storm. all they do is pick a side of the hud to put fees on. the one who might have a problem is bank. what you need to also try is a blind hud, its where the seller has his side only and buyer has his side only… title companys do that too
Be careful with mechanic liens - they could potentially get you in trouble. In some states it is against the law and considered fraud.
You cannot take such a large profit from a short sale unless you are the buyer. If you bring in a buyer and they agree to a fee, you can charget it to the buyer on the hud as a consulting fee however you are limited. You need to talk to a good escrow officer or attorney (depending on your state) and find out the laws. You are going to get bitten if you don’t do your research.
A “chain of title” (which is a search certified by the closing attorney/Agent) will most likely reveal the truth behind the lien. Also the lien may appear “fishy” if its recorded after the notice of default or LP.
Can’t you find a hard money guy to help you close?
Honestly, the market today and the laws today have changed greatly from the 80’s and 90’s when most of the short sale info you find was written. Double closes, mechanic liens, ETC. are not only not possible anymore, but often very illegal. For example: in the past it was possible and legal, though considered in the Grey, one could purchase a home using someone else’s loan money, then resell it to that someone. This of course is a double close.
Today completing a double close like that is very illegal pretty much everywhere. Now a days you would need to purchase the home with your own money then resell to the end buyer. The problem with this is that most people don’t have the cash to purchase the property to resell.
Before I had the cash to purchase the property I would use a company called New Horizon Home Funding, or something along those lines. They were a private company (basically a HML) that would put up the money for me to purchase in return for a percentage of the profit on the short sale. The downfall is that they are very expensive, about 50% to 75% of the profit depending on the risk, and that they perform very intense due diligence.
Bottom line, if you don’t have the money to play then you’ll have to break the law to do it. And nobody wants to do that. :anon Otherwise you need a money partner of some type be it a private individual or a company like New Horizon.
Good point about the laws changing. I have also heard the mechanic lien recorded right before close- illegal and obvious. But the double close, If you have an attorney do the double close- Can you be held responsible? He is the one who did the closing- He is the RE attorney…
This is usually called a simultaneous close, not a double. Double usually implies buying/selling on the same day, not how the money flows through the deal.
Do you have a source showing simultaneous (or as you call double) closings are illegal??? News to me, but I’d be very interested in taking a look at your source.
http://www.answers.com/topic/simultaneous
- Happening, existing, or done at the same time.
http://www.answers.com/topic/double-closing
A double closing is the simultaneous purchase and sale of a real estate property involving three parties: the original seller, an investor (middleman), and the final buyer.
You were saying?? :doh
Conducting a double close is not illegal. What makes it illegal are certain factors that pertain to the closing most often seen in short sale deals because it used to be common practice, but today there are laws in place that limit those practices.
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“The Ohio real estate law states that no person, partnership, L.L.P., association, corporation, or L.L.C.can act as a real estate broker or real estate salesperson, or advertise or assume to act as such, without first being licensed.”
To save from typing the legal description of a Broker I’ll sum it up:
A Broker:
- Sells
- Exchanges
- Purchases
- Rents or Leases
- Lists
- Auctions
- Options
- Offers, attempts, or agrees to perform or negotiate one of these activities.
- Advertises or holds self out as engaging in any of these activities.
"Exceptions to Being Licensed: A real estate license is not required of those who perform any of the acts generally included in the definition of a real estate broker if the action is performed:
- With reference to real estate owned by a person, partnership , L.L.P., association, corporation, or L.L.C., or acquired on his own account in the regular course of, or as an incident to, the management to the property. ( In other words: Property owners selling their own property or regular salaried employees of an owner in transaction with the owner’s own property.)
- As receiver or trustee in bankruptcy, as guardian, executor, administrator, trustee, assignee, commissioner, under authority or appointment of any court, or as a public officer, or as executor, trustee, or other bona fide fiduciary under any trust agreement, deed or trust, will, or other instrument creating a similar fiduciary obligation. (in other words: Court appointed Fiduciaries)
- As public officer while performing official duties.
- As an attorney at law in the performing official duties. ( this is a Grey area)
- As the sale of manufactured or mobile homes that do not include real estate."
When a negotiator conducting a short sale attempts to purchase the property at the discounted rate using the end buyers funding, never having any of their own money invested in the deal, it is an act of fraud. Generally the negotiator conducting a short sale is not a broker so it also breaks a law (in Ohio) that stipulates who can “practice” real estate transactions. ( ← Source: Hondros College Real Estate Classes & HUD Inspector General Cleveland, OH field office on Euclid Ave) Generally speaking it is never disclosed to the lender or even to the end buyer that this is happening. The reason it was done this way is obviously so the negotiator can get paid by taking the difference between their negotiated price and their sale price. Each state may be different on how they view this, but in Ohio no title company (not including the less scrupulous ones) will not take part in a “double close” when they resemble the situation I explained above, because they can have their license revoked by the state and possibly face criminal charges. The legal aspect is the failure of disclosures that are required by law. Often if a negotiator’s profit is disclosed it causes problems because nobody wants the middle man to get paid as much as we sometimes do. So they try to hide it, thus taking part in fraud.
My understanding is that it depends on the lenders involved as to who will press charges. If it is a government backed loan such as VA or HUD then it would be the HUD Inspector Generals office and the FBI in conjunction with State agencies that will be investigating, arresting, and filing the charges. If it is not a government backed loan then it would be the local authorities where the lender files the charges.
In the past two years I have spoke with the task force that is heading up the investigations and prosecution of real estate crooks and con artists because of my knowledge and association with some of the companies and people they are investigating. Mind you my involvement was as a victim and my representation of other victims in which I worked with after and during their encounters with the crooks. This task force consisted of the HUD IG, the FBI, and local officials ranging from City Mayors to state law enforcement. Because of their efforts hundreds of the predatory lenders / mortgage companies, title companies, and individuals taking advantage of and stealing from others have been shut down and / or arrested and charged. Again, this is all in Ohio.
*** Finger Cramp *** :bigthumbup
Is this applicable in CA as well? I dont understand how so many people are claiming to be doing shortsales if there is no legal way to make money from it. I also dont understand why everyone has such a hard time allowing someone to profit from this process. The way I see it, everyone involved benefits from a short sale. The HO in foreclosure gets to bascially start clean after they messed up and bought a home they couldnt technically afford (I understand loan officers were not disclosing the full info, I was at one time a loan officer as well, but the terms are disclosed fully in the HUD so the HO should have read and understood the loan fully before they signed, but thats another story)and the person who buys the property is (usually) getting a huge discount on the real estate itself. Why would someone go through the hassle of completing a short sale just to turn around and sell it for next to no profit??? Nothing in life is free and as long as the HO in foreclosure is aware of the short sale process and understands that it will be resold I really dont see how this should be a problem. I think the people out there buying the homes for an already discounted amount thanks to someones hard work and negotiating skills and then complaining about that person wanting a cut is just being greedy. Just my opinion though. :bs
My thoughts exactly, which is why I started this post to see what the responses would be. And we haven’t really received solid answers…yet.
a broker by definition is a person that buys and sells for others. I don’t see how you can say that if i contract to buy and close the first deal the lender still has say so. Once the lender gets their money they are out of the equation.
Flipping is illegal because of mortgage fraud and fake appraisals, not double closing. Fraud is when a party was mislead. The lenders know you are buying the property below market to make a profit, if they were so concerned they would be a deed restricition on the property.
My opinion only because i have double closed short sales successfully.
Simultaneous closes are no more illegal than petting your dog. They happen hundreds if not thousands of times day. Just need to find the right title company and/or attorney.