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Short Sales: FHA Seasoning Requirement Ending?

A lot of people are making a big deal of this whole FHA regulation 24 CFR 203.37a (b)(2) FHA Anti-Flipping rule and how it’s going to expire December 31st 2011.  Who really cares?  Most investors don’t realize the one common denominator here, and that is first of all trying to find a bank or mortgage broker that will even lend to an end buyer on a short sale purchase from an investor that hasn’t had seasoning for at least 90 days or more.

Same day quick closings or same day transactions will barely exist moving into 2012.  Trying to find a title company and a lender for your buyer is pretty near close to impossible.  I’m not trying to be all johnny rain cloud to short sale investors, but since the foreclosure law is so new, and most states are coming down hard on investors for doing same day transactions it’s becoming more of stretch to make this happen properly without somebody saying you didn’t disclose this or that not.

Most states are trying to impose that majority of short sale investors are “flopping” these transactions.  For instance, the state of Indiana states the following on flopping: “Flopping involves intentionally misrepresenting the value of a property in order to “flip it” illegally by avoiding or failing to make required disclosures and/or knowingly submitting falsified or fraudulent documents and/or affidavits.”

Moving forward into 2012 with short sales in general, I wouldn’t try to “avoid” anything that is within the grey area, and in order to do so you’ll need to find a money partner, private lender, hard money lender or a long-term transactional funder that will allow you to hold the actual deed allowing you to become “owner of record” for the 90 day period (my personal recommendation would allow prepossession to your buyer and collect rent while your the true “owner of record” in order to soften the blow a transactional lender will charge for the hold period).  There isn’t a way around this.  I wouldn’t advise using any kind of a “trust” as that’s unfortunately within the grey area, and additionally with trusts most banks cannot sell and package loans that have recently been put into a trust on the secondary market leaving them (the bank) holding the paper which they do NOT want to do and will not do.

Be creative in a good way if short sales are your niche and your passion.  Don’t get discouraged!  Since government has stepped in to try and help out homeowners with a solution facing foreclosure, we as a nation have seen a total of EIGHT total programs fail and leave homeowners without a positive outlook on their future.  With this being the case, there will be a huge opportunity to purchase short sales as an investor (a projected 12 million homes will be in default early 2012), and all (including the homeowner being able to walk away) involved will be winners of the transaction.  I honestly believe the consumer (i.e. the homeowner) in this situation needs to be looked after and not the bank.  The consumers are not receiving government bailouts, the big ole bank(s) are receiving those while they continue to have piles of foreclosure rise and shadow inventory that nobody seems to mention in the media rise to all time highs within our US history!

In ending… I leave with this… ALWAYS DISCLOSE, DISCLOSE, DISCLOSE!

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