I received a potentially dangerous phone call on one of my short-sale listings. Let me give you the overview.
A Realtor called and said he was representing a "professional short-sale buyer" who purchases short-sales in great neighborhoods, negotiates the short-sale with the lender and has a 89% success rate. Always curious, I asked how this proposition works.
- The professional short-sale buyer has his own attorney-drafted purchase agreement
- The seller must put the property in a Living Trust and, within that trust, authorize the buyer to negotiate with the lender(s) on the seller's behalf.
- The seller has 45 days to back out for any reason. After 45 days, the seller must provide a notarized commitment to proceed.
Every filament of my brain screamed, "DANGER!" I told the agent that I would specifically advise my seller AGAINST taking an offer with any such arrangement. He was quite surprised and again reiterated that his buyer had a 89% success rate negotiating short-sales. I explained that negotiating the price of the short-sale is only a small part of the overall negotiation and a buyer would not be as careful to represent the seller's best interests in the non-price concerns.
(Please note, my concerns should not reflect negatively on the selling agent who approached me with the idea. He is doing his job which is to identify properties on behalf of his client, the "professional short-sale buyer".).
- The use of the non-CAR (California Association of Realtors) contract absolutely requires my seller to hire an attorney for contract review.
- Any transaction that requires a seller to make alterations to title should also be carefully reviewed by a real-estate attorney.
- Changes to title could void the current Title policy and moving a property to a Trust is considered a change in ownership. Few Realtors and sellers know to ask if there are any specific riders necessary to maintain the title policy when moving the property to a Trust.
- The C.A.R. Short Sale Addendum clearly states that the seller is not obligated to accept the Lender's short-sale terms. (There are some short-sale approvals that are so onerous that the seller is financially better letting the home go to foreclosure).
- Some lenders add previously undisclosed conditions of short-sale approval to the closing package.
- There is no guarantee that the full terms of the lender approval will be received within the 45 day period.
The buyer has a vested interest in getting the property for the lowest possible price which will result in a higher potential tax liability for the seller. Additionally, the buyer has absolutely no vested interest in protecting the seller from potential recourse (a judgement or collection) after closing.
Use Extreme Caution!
Wendy Cutrufelli
Broker Associate
925.917.1135
The positions on this site are my own and don't necessarily represent Alain Pinel Realtors' positions, strategies or opinions.
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Thanks Wendy,
that is scarey. You sure do know your stuff.
Wendy, I got one of these a couple months ago. I use Letters of Direction on estates and short sales and that minimizes the "professional buyer".
Wow! Never heard of a professional short sale buyer! Definitely has a bad smell to me. Good thing you're on the ball!
Wendy,
This just smacks as a scheme! Your instincts were right on.
In Washington the seller pays an excise tax to the state upon a sale of a property, and right now there is a question as to is the seller still obligated to pay excise tax on the difference between what was owed and what the property sold for!!! So many people, even agents really do not understand a short sale, people are "waiting" until homes become short sales?? Perhaps the public thinks that every listing is teetering on the edge of becoming a short sale, we need some education here!!!
Thanks!
As short sales become more prevalent...there are likely to be interesting kinds of buyers....we do both residential and commercial short sales...I am surprised that the agent was surprised...unless this buyer is also a flipper or a multi gazillionaire...how many could he have purchased with this 89 % success rate and kept his own debt to income ratio in tact....keeping your antenna up and nose down is a must for those of us who choose short sales as an area of expertise.
Angelia: Scary is right! Even more scary is the fact that it sounds like several of the buyer's offers have been accepted. I can only hope they consulted an attorney before proceeding!
Wendy,
Your clients are very lucky to have you protecting them.
Transfering property to a living trust can be used to hide alienation. It's not illegal to breaking your mortgage contract by alienation of the property (Such as selling subject to.) but hidding it is illegal and is being prosquted. Using the trust to decive the lender on a short sale applaction could also be seen as conspiercy!
Keep up the good work.
Bill
Barb: I post the detailed Short-Sale Offer Instructions on our MLS. If you are willing to share, I would love to know what your Letters of Direction include.
We had a quasi offer like this last year from an agent, and we advised the sellers not to consider for the same reason you mentioned.
Karen: Bad smell is right!
Cathy and Gary: Must admit to shock that WA would require excise tax on the loan instead of market value!
Sally and David: I am fairly certain you hit the nail on the head. Now that lending guidelines have changed to limit the number of "investor" financed properties to four (4), the buyer must have significant personal assets - or has a group of investors. In any case, it doesn't take a rocket scientist to figure out that the lowest possible price is their goal.
Bill: I didn't even THINK of that! Very, very good point!
Jim: Thanks for the reinforcement. I would never want to lose an offer for my client but my fiduciary responsibility is to protect the seller's best interests. Glad your "take" on the situation was the same as mine.