How To Avoide Double Dlosing In A Short Sale
Hi All!
A question for experienced Short Sellers:
I have a very motivated seller that is 7 month in arrears and willing to work a Short Sale with me. I am planning to embark on the first step of the process by having the owner sign standard contract to put the property under control.
Since my goal (in the event of successful Short Sale transaction) to flip the property for a profit, what would be the best approach to avoid an issue that I have heard is very common during the double closing and title seasoning?
If I understand correctly it will be very difficult (if not impossible at all) for a potential buyer to get a financing on the property that was sold within last 3 month period.
Would a Land Trust be an answer to this question? If yes, could someone who has the experience with Land Trust Transaction break down the steps of the process for me please?
Are there any other methods exists that can help to avoid showing to the original lender profit that you make after resale?
Thanks in advance!
PerlUser.
Good Question! I read one time at TCI taht you can purchase to property under a business name (LLC) and then sell the LLC to the person. That way the title doesn't change hands as much, causing seasoning problems. You can set up an LLC for under $200 (depending on state). Poke around, or ask atty. I don't know if this helps you, but I gave it my best, others may have better answer. Good Luck!!!!
Sam
The 'contract' would become an asset of the LLC. You wouldn't necessarily have to sell the LLC, but could, instead, welcome a new member into the LLC. After paying a set fee, the new member would be "assigned" the Contract, and proceed as purchaser by providing the requisite mortgage prequalification, etc.
This is an overview. Best to set this up with an attorney, and a CPA. Once you set this up, you can replicate or 'cookie cut' the process.
Seasoning is an issue. In my experience most investors want a clear/clean title. That means the investor needs to take tile before reselling the property and that title needs to be seasoned for about 6 months before it’s not considered a flip. Now, there are non-conforming programs out there but your buyer will pay a premium in terms of interest rates and they need to know that up front. I like the LLC idea and will explore it further…any more feedback here would be appreciated…..
ShortSalePro,
I think I have heard about this technique already. However it leaves several uncertain areas that need to be answered:
1. Should I name myself or my LLC or Corp as a buyer in a contract?
2. How exactly a contract becomes an asset of the LLC?
3. Do I need to have clause “Buyer (LLC name here) and / or Assignee in the contract?
4. What is the amount of the “Set Fee” you mentioning? Is it equal to my expected profit margin?
5. How exactly do you assign the contract to the new member of the LLC without alarming the lender that there is something else going on besides a strait purchase?
I understand that I will need an attorney to create all the legal forms and contracts.
However, it is crucial for me to understand all steps of the process before I approach a seller / buyer and loose my credibility as an experienced investor by not being able to answer all their questions.
Please elaborate with little more detail on the subject.
Thanks,
PerlUser.
You are asking for a comprehensive response... essentially a course in the mechanics of an alternative acquisition technique. Perhaps this will be the subject in ShortSales202, a follow up to A Short Sale Primer.