Are Short Sale Double Closings Dead?

One of the mainstream strategies involved in working foreclosures and short sales is the "art" of the flip. The basic idea of a "flip" is to negotiate the purchase price with a foreclosing lender (that is based on their Broker Price Opinion and your negotiation skills) that is less than the price in which the property could be sold to another buyer.

If the difference between what the bank would accept and the end buyer's purchase price is large enough (including closing costs and etc.), this "spread" in the numbers can result in a nice profit for the savvy investor.

Normally these buy and re-sell transactions (called back-to-back, double, A and B, or simultaneous closings) would happen on the same day, or even a few minutes apart. In the "old" days, it was fairly common to have the entire double close transaction funded by a single source of funds.

Then the foreclosing lenders started to change some of the language in their approval letters. This new language prevented title companies from performing double-close transactions with a single funding source. The work-around in the investor community was to have a separate funding source for the buy side (A side) and a separate funding source for the re-sell side (the end buyer, B side).

This resulted in two separate closings with two funding sources.

Hard money lenders, with so-called "flash cash" popped up to provide the double-closing short sale investor with the funds needed on the purchase side (A side) of the transaction. This technique is still in play today, but may be coming to an end.

Lately, new verbiage has been added by some lenders in their approval letters. The first is:
"There are to be no transfers of property within 30 days of the closing of this transaction."

And now a new one that supersedes the above verbiage and has been added as an amendment to the escrow instructions:

"If Buyer or Seller has knowledge, or a belief this transaction will occur in conjunction with, or simultaneously with any other sale or transfer, they must notify the settlement agent. If settlement agent has knowledge or a belief or is notified this transaction will occur in conjunction with, or simultaneously with any other sale or transfer, settlement agent must contact the lender for further written authorization to proceed or this approval will be considered null and void."

OK. I hear you already, just use the "flash cash" and have the second close separated from the first close (there is some debate as to what the 30 days actually means). One issue that I see is that in the old way, the "flash cash" investors were protected from loss because the deal normally closed on the same day and the re-sell funding (Side B) was locked in escrow. The big issue is that these "flash cash" lenders are loaning at almost 100% of fair market value AND the re-sell closing is not held in place because of the amount of time that has to occur between the first closing and the second.

It will be interesting to see what the work-around will be in the investor market.

We talk much more about this in our REI mentoring program. After years of doing these calculations by hand, my partner and I have developed an online real estate software to make our lives much easier. We can now crank out offers and determine the exit strategy in seconds.

To Your Success,

Tom & Svein