…to those who don’t understand them, or aren’t up on the new regulations and options banks change on a day to day basis.
It’s almost as if the banks are asking, “How can we make these more complex for investors?”
We all rejoiced when we thought the banks were finally getting it back in January, when FHA lifted the 90-day seasoning rule. INVESTORS were facilitating and getting short sales DONE, allowing first time buyers and others to get in the game. WE dealt with the banks, WE worked with the distressed homeowner, and WE either rehabbed it or saw it through to the closing, where a new buyer would no longer be scared off by long wait times and dealing with bureaucratic negotiations.
The problem is, banks still set their own rules – this was just hopeful encouragement to the banks to allow investors to come into the game.
If you are rehabbing, many of the “new” seasoning rules won’t affect you, as you’re holding the property anyway while you’re rehabbing and reselling. But for the wholesalers out there, looking to do a back-to-back closing, you need to make sure you are knowledgeable of the new hold times the banks are approving – both non-FHA and FHA loans alike – and if using a transactional private lender, that THEY are aware as well. (Many will NOT fund deals that span over a 48 hour period.)
We are finding that many lenders are now requiring a minimum 30 day seasoning window, some still are at a 90-day window. You need to find an end buyer, understand that you will actually take title to the property and pay out one or three month’s holding costs, and then resell…making sure the end buyer’s lender is OK on their end with title seasoning, as well. (This is why it’s best to set up a team around you, with negotiators, closing attorneys (or title companies) that understand the changing day to day in the short sale world, and loan originators who UTILIZE these investor-friendly short sale attorneys (for your end buyers).
But how are these seasoning rules enforced, you ask? That’s a good question. Some banks are actually putting the restriction right on the deed, at the closing. With these, a closing attorney for the “C” buyer pretty much won’t touch it until after the seasoning period is over. For others, they are not YET putting them on the deed (I just completed a few BofA short sales), where the approval required a 30 day seasoning; but as it was not on the deed, it’s your call (as the investor) to determine the risk if you resell before the hold time is over.
Other new challenges in the short sale world, are substantiating profit. If your end buyer is FHA, were you aware you cannot make over 20% profit on your deal, if you’re doing a “quick flip”? For a $400K deal, that’s fine (I’d take $80K on a wholesale deal any day). But let’s say your negotiator was SO good, they got a $100K house down to a $60K purchase price… you cannot flip it for more than a $12K profit. Figure in real estate commissions (if any), closing fees, attorneys fees, and title insurance, and you’re stuck with a tiny amount of money for the work you put in.
Let’s say you decide to take on a rehab. Buy at $80K, put in $20K in rehab, and resell for $150K (ARV would be around $165K). Nice profit for an easy rehab… but make sure you keep an itemized list, detail by detail, of everything that was done to that property. You can bet that the closing lender will want to see why it’s being resold for such a high value. Banks are becoming MUCH more strict with their values, for obvious reasons, and will be until they all go through another real estate boom, make billions of dollars, and start making bad loans again. (Oh yes, it WILL happen.) You should also include a letter of how you were able to obtain it (as a short sale) at such a low price… again, here’s where you show them the value you, as an investor, are bringing to the table (worked with homeowner, worked with the loss mit department to mitigate their costs of a foreclosure, enabled an end buyer to NOT have to go through that process, etc).
Another challenge is the ability to even WORK a short sale within a certain time period, with certain lenders. Ocwen, as of this writing, won’t even consider a short sale if you’re within 14 days of the foreclosure auction. Always DISCLOSE everything to the homeowners, NEVER guarantee results, and let them know you’ll do all you can to answer their questions & help make the process go as smoothly and “stress-free” as possible. THAT is your job. To create the win-win-win.
All in all, the short sale business is changing DAILY. The best lesson to learn, is to make sure you have your team in place that is up on the quickly changing rules, and to market appropriately for the homeowners you actually can work with.
And if all else fails, send your lead to Nick, and he’ll pay you a referral when it closes. YEAH, baby! See? Sometimes it can be all about the green.
Be Smart, and Take Action. Happy Investing.