Flipping Short Sales

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Under water real estate values are the way of life for the foreseeable future. Even those willing to take a loss find a sellers market with very few buyers. Yet, life goes on. People are forced to sell homes due to job transfers, loss of employment, health reasons, or any of an assortment of reasons that come along in day-to-day life.

Thats just the reality of todays market place. It was taken for granted that investors would flip properties when the market was robust. Why wouldnt this be true in a market full of short sales?

The fact is that it is being done regularly by those understanding how the rules have changed and what must be done to make a profit even when the current lender will not be fully repaid.

Flipping short sales is essentially the same for a normal sale as it is for a short sale. The only real change is the amount of disclosure you need to make in order to keep the short sale flip above board and fully ethical.

Start with a full disclosure to the homeowner. Before any purchase option agreement is signed, disclose that you will be reselling the property for a profit. Put this in writing and have them sign it. Follow any state laws that apply. This keeps you out of trouble and avoids even the appearance of fraud on your part.

Disclose the flip to the shorted lender. This is the second place an investor runs the risk of being accused of being unethical in the transaction. Some investors try to hide the fact that the property is being flipped to an end buyer. Most lenders understand the circumstances of todays market. Many will accept a short sale flip rather than deal with an expensive foreclosure where they will net even less than they will through the deal you are offering.

Disclose to any professional in the deal that the property will be resold for a profit. Also, disclose that it is a short sale requiring third party approval from the lender. This applies to anyone legitimately in the deal. The sellers Realtor, the end buyers Realtor, a mortgage broker, an attorney, anyone that will make decisions or representations based on the facts of the deal.

Be sure to fully disclose the short sale requirements to the end buyer. They need to be fully informed that you must obtain the lenders written approval before you can convey title to them.

Where many investors come up short on disclosure is by failing to disclose to the end buyers lender. Yes, disclose your position in the property to the buyers lender.

You dont necessarily need to disclose the amount of your profit to anyone. Being ethical only requires that you disclose that you are an investor in the deal for a profit. As long as the appraisal shows the end buyer is not paying above market price for the property, both the buyer and lender should be fine with the arrangement.

The seller really doesnt care about the selling price because they wont receive a cent from the short sale.

For the sellers lender, it is a matter of being between a rock and a hard place. They need to understand if they will lose more through the short sale or by foreclosing. If they think they will do better through foreclosure, they will not approve the short sale.

By making full disclosure and following your state laws, there is no reason an investor cant profit by flipping short sales in todays market.

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