Posted by DJ-nyc on August 07, 2009 at 14:24:21:
In my opinion, there is nothing illegal with this transaction, just a bank getting a taste of their own medicine.
DJ-nyc
Short Sale “Flopping” - Posted by Jeff
Posted by Jeff on July 24, 2009 at 18:07:04:
I was checking with my real estate attorney about short sale double closings and he advised me against it. He says this process is called “flopping” and could make me and the other parties liable for defrauding the lender since the lender took an offer that was below a real selling price (the second buyer in the double close obvioulsy is paying more than me!). He said that repairs or any other value improvement documentation would not be helpful. Is this true, or am I getting bad advice? Any comments or ideas would be helpful.
What’s your state AG’s position? - Posted by John Merchant
Posted by John Merchant on July 24, 2009 at 22:31:44:
Ask your lawyer if there have been any convictions or prosecutions, or civil suits for fraud involving alleged “floppers” in your state.
A aizeable number of state Attorneys General (AGs) have banded together to make doing this much more difficult through passage of new “consumer protection” law in their states.
I believe that in the last 24 months at least a dozen states have enacted such restrictive legislation.
I know my state, WA has done so at the behest of our AG, Robb McKenna.
So I’d reccomend you get on the phone and talk to one of the assistant AGs in your AGs office and see what their attitude is.
If I were doing this (haven’t yet)I’d sure insert language in my deal with the bank* to protect myself.
That language would include saying that I was making no warranty of any kind that the price I was paying the bank was market value or “fair”, etc.
Plus stating clearly that I’d be totally free to sell it susequently to anybody at whatever price I elected.
True, this kind of exculpatory language might not wash with the bank but if they wouldn’t agree to it I’d back out of the deal.
If the bank did so agree, then I’d also inject similar language in my buyer’s contract to effect that I was making no claim of market value to him and he’d been advised by me to get his own advice as to value of the property.
*Bank would likely not agree and this would probably kill the deal. Banks are notoriously inflexible in my experience and unless done their way they won’t play.
Re: What’s your state AG’s position? - Posted by Jeff
Posted by Jeff on July 25, 2009 at 08:31:06:
John, thanks for the response. My attorney did provide some recent case law when I spoke with him (BTW I am in Georgia). I am concerned that many REI partiticpants on this and other forums may be in deep water regarding flopping. There are dozens of “gurus” out there selling various short sale, double close schemes, and there is a significant number of transactioal lenders that require double close transactions for funding. Seems to me that these folks (including participating sellers, investors, realtors and buyers) are treading on thin ice and will be very easy targets for lenders to sue. I have been an REI for 8 years, full time for 5 and never needed to do short sales in the past. I am looking for legitimate short sale strategies to develop. I already work with sellers and realtors on short sale negotiations for a fee and I know that hard money deals are workable where I buy the property, make repairs and sale adhering to title seasoning requirements. Any ideas would be much appreciated.
Re: What’s your state AG’s position? - Posted by BTI
Posted by BTI on July 31, 2009 at 14:03:28:
Jeff
I’m a contrarian and unless there is a statute that specifically prohibits this I wouldn’t be concerned.
As for the case law your attorney came up with I doubt it had to do with a party like a bank being taken advantage of.
I would just give the bank a crying towel and say boo hoo did the nasty investor do work the bank wouldn’t do and did the poor naive, unsophisticated defenseless bank with all its lawyers and experienced executives get fast talked and taken advantage of by a conniving investor they pushed around for months…