Replies to This Discussion

Permalink Reply by Smitty on February 7, 2011 at 12:54pm

That is their right as a lender.  You disclosed and they have a right not to accept that language in the contract however, it still remains interesting that your contract is with the SELLER not the lender, but again, they have every right to deny it soley on the flip language.

I'm not sure you can do anything however, I would go back to the original offers you had that WERE APPROVED and ask them if there was a change in their guidelines as it was previously approved with the disclosure language.  Other than that, I'm not sure you can do anything. 

I might ask them to define for you how long you would need to hold title for them to ok the sale.  Ask them if you put a 30 day hold in the contract if they will approve it.  I would also ask them to define for you what their definition of a "flip" is as if you do your research it seems to vary by lender. 

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Permalink Reply by Daniel Harless on February 7, 2011 at 1:59pm

They did say that they did not want to see an investor buy and flip for profit when they are taking a huge lose. They stated that the only way get get a short sale that would leave such a deficiency approved would be if the buyer is the one moving in to the property. We are considering going A-C. If we do, we want to make sure we can get enough seller concessions to cover our Notice of Option and mitigation fees. Equitable Interest. Any thoughts on what the HUD should look like?

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Permalink Reply by Smitty on February 7, 2011 at 2:10pm

Well, I guess my question is why would they approve it at a loss before but not now?

Are you doing a straight flip or buying rehabbing and flipping?  I'm not sure there is much you can do here.  I would go A-C and maybe ask the buyer's for a loss mitigation fee if you were negotiating this whole time.  If the lender really is doing a big discount as you say, it shouldn't be a problem.  If it is, you have to do the right thing and just step out and take the loss.  Not every short sale is a winner.

 

The investors I work with know when to walk and get the new buyer in so that the property doesn't foreclose.   I've done straight flips for them and rehab flips and we haven't had a lender say they wouldn't sell to an investor wanting to flip, so this is a first.  Seems a bit discriminatory to me, but it certainly is their right if they don't want to take that loss. 

 

So are you saying they think the price is ok, but just that they don't want it flipped?  I guess that's what I'm trying to figure out.

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Permalink Reply by Daniel Harless on February 8, 2011 at 5:00am

We were trying to do an A-B B-C transaction but for some reason the bank decided that they were not going to let someone profit from there lose. Earlier on they approved the same scenerio but higher net to them. Our C Buyer walked. We went back to the bank and made lower offer because of the market value dropping. They were considering our offer because it was after all 90% BPO value. They were going to go after the homeowner for a deficiency though. The bank said that this would only get approved if we went A-C. Yes, they have that right but my question is can they legally agree to an A-B B-C onetime and them not agree a few months later? Is there a way around this?

Smitty said:

Well, I guess my question is why would they approve it at a loss before but not now?

Are you doing a straight flip or buying rehabbing and flipping?  I'm not sure there is much you can do here.  I would go A-C and maybe ask the buyer's for a loss mitigation fee if you were negotiating this whole time.  If the lender really is doing a big discount as you say, it shouldn't be a problem.  If it is, you have to do the right thing and just step out and take the loss.  Not every short sale is a winner.

 

The investors I work with know when to walk and get the new buyer in so that the property doesn't foreclose.   I've done straight flips for them and rehab flips and we haven't had a lender say they wouldn't sell to an investor wanting to flip, so this is a first.  Seems a bit discriminatory to me, but it certainly is their right if they don't want to take that loss. 

 

So are you saying they think the price is ok, but just that they don't want it flipped?  I guess that's what I'm trying to figure out.

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Permalink Reply by Smitty on February 8, 2011 at 5:52am

I can't answer if it's legal.  I'm not a lawyer.  It seems based on what you said that if they were to NET more they would approve it.  Can you increase your offer and still make the sale work?  I understand the market dropped, but you hopefully proved that point and maybe gave them another appraisal.   If they are looking at the original BPO and expecting 90% of that price, then the market dropped, another BPO or appraisal should be completed for you to substantiate your offer.  You really can't just make a lower offer and expect them to accept it.  FLIPPING should work for everyone involved, including the lender.  They are trying to get the highest amount possible, and you are trying to buy it for the lowest amount possible.  I get that, but somewhere if you can, you should try to meet in the middle.  I would also offer to pay for an appraisal and let THEM HIRE the appraiser.  They could be skeptical of someone you may have hired.

 

I do find it interesting that they seemed to allow it before and then not, so that makes me think it's not so much the FLIP that is bothering them but the NET, otherwise they would have said no from the beginning.  So in my opinion you should be offering to pay for an appraisal and let the lender hire the person of their choice.  It's the NET that's bothering them.  Ask them what they would need to NET in order to proceed with the sale.  Money is going to talk and usually with a higher priced home you have a greater ability to make a larger profit.  See if NETing the lender more $$ will work for them. 

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Permalink Reply by Daniel Harless on February 8, 2011 at 7:05am

SunTrust did an appraisal. It came in at $780,000. I verbally asked the mitigator if we brought their net up could we proceed. She said that the investor would not approve because of the FLIP. The deal must not include a Notice of Option or any party involved getting paid other than SunTrust. Go figure!

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Permalink Reply by Smitty on February 8, 2011 at 11:16am

Well, the only things you can do are potentially go to the investor to verify and then if that's truly the case you'll need to back out.  Not ever flip is a winner and you have to know when to step out. 

 

I certainly don't think it will hurt to approach the investor and just verify.  Many times the investor is surprised to find out what the servicer is doing, but honestly if the investor doesn't like the flip verbiage, you best start on your back up plan.  I think you should go in with your HIGHEST offer and go direct to the lender if possible and see what they say.  If it's a no go, go to plan B and I hope you have one.

Daniel Harless said:

SunTrust did an appraisal. It came in at $780,000. I verbally asked the mitigator if we brought their net up could we proceed. She said that the investor would not approve because of the FLIP. The deal must not include a Notice of Option or any party involved getting paid other than SunTrust. Go figure!

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Permalink Reply by Jeff Payne on February 9, 2011 at 5:07am

OK, I know I came into this late.... just to catch up. You placed an offer on a property as an investor and plan to do a simutaneous closing....transfer the property from the seller to you to the end buyer basically in the form of a simultaneous closing.  Just to play devils advocate, since the buyer is going to pay you more than you are paying Suntrust, why would Suntrust allow it?  In their eyes, the property is worth more than what you are paying for it since the buyer is paying you more than what you are paying the seller.  Why would Suntrust approve it this way when there is a ready, willing and able buyer that is willing to pay more, most likely FMV....  Please don't read this as me taking Suntrust's side, just trying to see the whole picture :)

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Permalink Reply by Smitty on February 9, 2011 at 6:20am

Hi Jeff,

 

I've worked with investors that do these types of transactions.  Usually lenders will take a % of the BPO value.  So, someone that can clear the liens and encumbrances as a purchaser will be buying the property between 10-20% off the BPO price, so on a higher value home the spread is easily there.  Take a home where the BPO came back at $400,000.  The lender may take anywhere between $320,000-$360,000 for an offer (this ALL depends on the lender, circumstances, PMI, etc.)  It must be all calculated well before an offer is placed.  So let's take $360,000 and then the investor finds a buyer who will pay the market value for the property once the liens and encumbrances are clear, they take out all their costs and could walk away with a $15,000 profit give or take.

 

Now the above is a typical scenario, but lenders DON'T have to accept the flip language in their contract if they don't like it.  Each lender is different.  Each investor has different guidelines.  Each property should be HIGHLY scrutinized by an investor before they even make an offer. 

Dan is doing a notice of option, which I haven't seen done in a while.  The investors I work with actually take title to the property.  The argument can be made once they take title they SHOULD be able to do what they want with it, but we all know that's not the case.  Disclosure is the bottom line and lenders don't have to accept flip verbiage in contracts...I haven't seen a denial soley on the language so my feeling is they don't like the "option" on the property and that if his offer was closer to the BPO price, they would accept.  It obviously doesn't make financial sense for them at this point to accept it.
 

The bottom line is money.  If they are netting what they need, most lenders don't care if you flip.


Jeff Payne said:

OK, I know I came into this late.... just to catch up. You placed an offer on a property as an investor and plan to do a simutaneous closing....transfer the property from the seller to you to the end buyer basically in the form of a simultaneous closing.  Just to play devils advocate, since the buyer is going to pay you more than you are paying Suntrust, why would Suntrust allow it?  In their eyes, the property is worth more than what you are paying for it since the buyer is paying you more than what you are paying the seller.  Why would Suntrust approve it this way when there is a ready, willing and able buyer that is willing to pay more, most likely FMV....  Please don't read this as me taking Suntrust's side, just trying to see the whole picture :)

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Permalink Reply by Jeff Payne on February 9, 2011 at 7:00am

I do understand how it works but if I also know how the lenders think.  If you were a lender and a homeowner asked you to sell to mr B for 200,000 so that Mr B can sell to Mr C for $250,000 on the same day AND release the homeowner of the difference, would you be OK with it?   Just playing devils advocate, you guys know I am on your side !

Hi Jeff,

 

I've worked with investors that do these types of transactions.  Usually lenders will take a % of the BPO value.  So, someone that can clear the liens and encumbrances as a purchaser will be buying the property between 10-20% off the BPO price, so on a higher value home the spread is easily there.  Take a home where the BPO came back at $400,000.  The lender may take anywhere between $320,000-$360,000 for an offer (this ALL depends on the lender, circumstances, PMI, etc.)  It must be all calculated well before an offer is placed.  So let's take $360,000 and then the investor finds a buyer who will pay the market value for the property once the liens and encumbrances are clear, they take out all their costs and could walk away with a $15,000 profit give or take.

 

Now the above is a typical scenario, but lenders DON'T have to accept the flip language in their contract if they don't like it.  Each lender is different.  Each investor has different guidelines.  Each property should be HIGHLY scrutinized by an investor before they even make an offer. 

Dan is doing a notice of option, which I haven't seen done in a while.  The investors I work with actually take title to the property.  The argument can be made once they take title they SHOULD be able to do what they want with it, but we all know that's not the case.  Disclosure is the bottom line and lenders don't have to accept flip verbiage in contracts...I haven't seen a denial soley on the language so my feeling is they don't like the "option" on the property and that if his offer was closer to the BPO price, they would accept.  It obviously doesn't make financial sense for them at this point to accept it.
 

The bottom line is money.  If they are netting what they need, most lenders don't care if you flip.


Jeff Payne said:

OK, I know I came into this late.... just to catch up. You placed an offer on a property as an investor and plan to do a simutaneous closing....transfer the property from the seller to you to the end buyer basically in the form of a simultaneous closing.  Just to play devils advocate, since the buyer is going to pay you more than you are paying Suntrust, why would Suntrust allow it?  In their eyes, the property is worth more than what you are paying for it since the buyer is paying you more than what you are paying the seller.  Why would Suntrust approve it this way when there is a ready, willing and able buyer that is willing to pay more, most likely FMV....  Please don't read this as me taking Suntrust's side, just trying to see the whole picture :)

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Permalink Reply by Smitty on February 9, 2011 at 8:29am

LOL.  I get it.  I like playing devil's advocate too.  I actually agree with you, yes, that would be a tough decision.  I've found if the lender's get what they want for their NET, they don't have issues with flip verbiage though.  There are SO many distressed properties on the market that they are happy to get one non-performing asset off their books. 

Jeff Payne said:

I do understand how it works but if I also know how the lenders think.  If you were a lender and a homeowner asked you to sell to mr B for 200,000 so that Mr B can sell to Mr C for $250,000 on the same day AND release the homeowner of the difference, would you be OK with it?   Just playing devils advocate, you guys know I am on your side !

Hi Jeff,

 

I've worked with investors that do these types of transactions.  Usually lenders will take a % of the BPO value.  So, someone that can clear the liens and encumbrances as a purchaser will be buying the property between 10-20% off the BPO price, so on a higher value home the spread is easily there.  Take a home where the BPO came back at $400,000.  The lender may take anywhere between $320,000-$360,000 for an offer (this ALL depends on the lender, circumstances, PMI, etc.)  It must be all calculated well before an offer is placed.  So let's take $360,000 and then the investor finds a buyer who will pay the market value for the property once the liens and encumbrances are clear, they take out all their costs and could walk away with a $15,000 profit give or take.

 

Now the above is a typical scenario, but lenders DON'T have to accept the flip language in their contract if they don't like it.  Each lender is different.  Each investor has different guidelines.  Each property should be HIGHLY scrutinized by an investor before they even make an offer. 

Dan is doing a notice of option, which I haven't seen done in a while.  The investors I work with actually take title to the property.  The argument can be made once they take title they SHOULD be able to do what they want with it, but we all know that's not the case.  Disclosure is the bottom line and lenders don't have to accept flip verbiage in contracts...I haven't seen a denial soley on the language so my feeling is they don't like the "option" on the property and that if his offer was closer to the BPO price, they would accept.  It obviously doesn't make financial sense for them at this point to accept it.
 

The bottom line is money.  If they are netting what they need, most lenders don't care if you flip.


Jeff Payne said:

OK, I know I came into this late.... just to catch up. You placed an offer on a property as an investor and plan to do a simutaneous closing....transfer the property from the seller to you to the end buyer basically in the form of a simultaneous closing.  Just to play devils advocate, since the buyer is going to pay you more than you are paying Suntrust, why would Suntrust allow it?  In their eyes, the property is worth more than what you are paying for it since the buyer is paying you more than what you are paying the seller.  Why would Suntrust approve it this way when there is a ready, willing and able buyer that is willing to pay more, most likely FMV....  Please don't read this as me taking Suntrust's side, just trying to see the whole picture :)

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Permalink Reply by Daniel Harless on February 10, 2011 at 3:15am

I appreciate everyones input. When we take on a short sale, before any negotiations begin, we have the homeowner sign a Notice of Option and file it with the courthouse. This gives us equitable interest in the property. In the case with SunTrust, it was the verbiage in our Purchase Contract and the fact that their net went way down on the second approval offer. We have decided to go A-C and give SunTrust the kind of transaction they want. We may not profit as much, actually no where near as much but with our equitable interest lien filed we will still receive a fairly good profit.

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