Financing for a Short Sale Property

Ran into an issue this week - wanted to see if anyone else has ran into it and what happened.

Had buyers, we found the home, knew that it was a short sale, made an offer and it was accepted. During the offer to acceptance, we found out that an investment group had successfully negotiated a short sale and that they would be closing on May 19th, 2010. They would be the ones selling the property to us. Thought okay, we got a good price on a good home, works for the buyers. Buyers had been approved for a FHA loan. We found out all the details several days later, when the listing Realtor called the buyer's mortgage company. What happened was that everyone we have talked to has stated that they can not close the loan until 90 days after the investment group has closed. Most all of the lenders said that even though FHA has waived the 90 day rule at this time, it doesn't apply in cases where investors have bought a short sale property. One lender has said that they would close it, but their debt to income ratios are much lower and the buyers didn't qualify.

My question is: with the number of short sales out there, has anyone else ran into an issue where they have the buyer and the property is now owned by an investor. And if so, have you had financing issues and how did you get around it. In our situation, it appears next to impossible. We have been told that we could go conventional with either 10% or 20% (depending which lender), but the buyers don't have that kind of money. Are we now going to end up with a surplus of investor owned homes that they can't sell for 3 months due to financing restrictions.

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  • There is a whole nother subset of 'flipping' rules that don't have a darned thing to do with the FHA. Investor client finished construction, got the CO, had the property over 90 days, did every little thing on the buyers' want list just to have the lender decline the loan a week after the original closing schedule. Their reason? Investor would be making too much money in their opinion - even though they had a perfectly valid appraisal and several identical finished homes had recently sold in the same enclave for about the same price. Some days you can't win for losing. Happy Closings - if you wrestle them down to the table anyway.
  • Steve, let me ask you a question. How can you and your buyer enter into a purchase agreement with people who do not own the property yet? Think about that question for a bit. These investors cannot legally sell a property they do not own! Period!! Only the shady lenders will get involved in these types of deals, so tread carefully.

    Likewise, how can the current home owner enter into an agreement to sale to you if they are already in a contract with this investor?

    Protect yourself and your buyer now and get your broker, attorney and possible law enforcement involved.
  • Here is a link to FHA 90 day rule:
    I believe that the reason you're having trouble is that it's looking like a flip instead of an investor buying a property and making repairs and then selling it. There is nothing in the waiver that talks about the purchase of the property being a short sale. I know in our MLS the listing agent must disclose if it's a different person selling the home than the owner on the deed. If they don't they get a heavty fine. This gives Realtors a heads up. Hope this helps.
  • Its the listing agents that allow themselves to be used by the schemers that are in the most jeopardy. They promise high commissions, easy transactions, and the world...

    You were trying to find a place for your buyer and likely didn't do anything wrong Steve. These guys are EXTEMELY aggressive!! Trust me, I've dealt with literally HUNDREDS of them through our organization! don't get me started, I'm a pretty big advocate for consumers avoiding this kind of stuff...
  • Trust me when I say this is a new one on me. When we looked at the home, we were told it was a short sale and it was back on the market because the buyer walked - then the day we decided to make an offer - we were told that the short sale had been approved and that it was now going to be purchased by the investor group. We didn't find out the financing issues until 5 days later when the listing agent called the buyer's mortgage officer to verify approval. I don't like the whole situation - I spent 7 years on the Ethics and Professional Standards Committee. I have informed the buyers of everything that I know of.

    My question on the blog - referred to investors that purchase short sale property and close on it - what type of financing is available for a buyer wanting to purchase one of those properties - other than traditional conventional.
  • Oh, did I mention that this scam could be a FELONY? Yes, you could go to jail if this in in fact a fraud. And it does not matter if you knew it or not!
  • Run from the "ABC" Short sale flippers. There will be no "surplus of investor owned homes" for TWO reasons. 1.) These scammers do not actually buy the home unless there is a REAL buyer immediately waiting to do a back to back closing to, and 2.) They are NOT real investors. Real investors take real capital risks. These scam artists just use short sale funding for same day flips. They are not "buyers" either for that matter. Scam artist is appropriate.

    Of our nationwide network of agents that we refer thousands of short sale listings to consistently, we require them to sign a VERY strict ethics agreement to avoid these types of deals like the plague.
  • Sounds to me that you might be right in the middle of a short-sale mortgage fraud situation. You need to consult your broker imediately. You may need to contact local or state law enforcement if there is indeed fraud involved.

    There are many, many of these scams going around! Jesse has written several blog on this matter, I would suggest that you read them over ASAP. And as you describe the situation, red flags are jumping out all over the place!
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