Short Sales Done Right

When you are doing short sales or planning to do it, you must take note of these key terms: inflated appraisal, seller solicitation, appraiser independence, owner of record, and contract for sale and purchase. Additionally, you may need to know about buying a property at the distressed price and selling it at the arm's length value, concealing the second transaction from the lender approving the short sale, and the red flags for improper property flip transactions. When you have to sell something, you never get to sell it for as much as it's really worth.

Here are the basic requirements when working on short sales:

1. The first requirement is that there's not violation of any restrictions listed in the short sale payoff letter or closing instructions, which means that you follow the terms of the short sale approval letter.

2. Second there have been no misrepresentations as to the value or ownership of the property to the existing lender, the new lender or the purchaser.

3. All disbursements must be made exactly as stated on the HUD1.

4. The sale from A to B must be fully funded and disbursed with money coming from and going to all of the appropriate parties. The sale from B to C must also stand on its own. The money from C's lender must not be used to fund any portion of the A to B transaction.

5. The investor buyer right to sell for a profit is appropriately disclosed in the purchase contract.

6. The sixth requirement is the short sale lender must be an institutional lender.

You've got to be consistent and careful as the same company that tries to buy a property or the same person that is buying it on the short sale needs to be the same person that is selling it to the end buyer. It's the intention of the buyer to procure a third party purchaser at a price greater than this purchase price as a condition precedent to exercising this option since the buyer intends to promptly resell the property for a profit. Don't get an identity crisis. The common pitfall is the investor's identity crisis. Think it through and keep track of everything you've got to do as you're doing these transactions.

The likelihood of fraud or misrepresentation increases when the lender is not able to confirm that the property seller in a purchase money transaction is the owner of record based upon publically available information. If you disclose what you're doing then it can't be fraud.

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