Selling an REO

I have not heard of this being a problem. But I could see the appraiser creating some alarms. The appraiser will check the property listing and see that the property is under contract. They will no doubt wonder why the purchase price is higher than the list price. But, if an appraiser has not heard about a double close then they are not a very active appraiser.

Typically lenders will finance either the purchase price or the appraised value - which ever is less. As long as the appraisal can match or get close to the purchase price, I do not see why this will kill the loan. Just be prepared for some speed bumps in the process.

I have not "wholesaled" a house through a double close to a buyer using an FHA loan.
1. I can see some problems concerning time frame. How long until your closing date? Can your buyer get the appraisal, inspection and financing all approved within your time frame?
2. This is your fiance? So you will be living in this house in the near future? I would just change the buying entity from you to her and close the deal at the discounted purchase price that you have already negotiated. Your profit will be the equity you gain.
3. I don't think the FHA lender will do this because you simply do not own the property you are trying to sell. If you closed with some type of short term loan THEN sold it to your buyer in a conventional manner, then it could work, but why? It's going to be your house in the near future right?
4. If she was a CASH buyer there would be no problem doing the double close.
5. What, if any are the deed restrictions?

Michael

You will have a problem with the FHA seasoning issue. It is 90 days, unless you have bought it distressed and rehabbed it. Sometimes the lender will even want to see the breakdown of work you have done to the house.
If you sell it for more than twice what you paid for it, you will likely need two appraisals for up to six months after you purchase the property (bank discretion). Even if the resale price is only a few thousand more and less than the 90 days of original purchase, you will still likely need the two appraisals.
You would have an easier time doing conventional financing. They have more latitude, but need a bigger down payment.
I've been involved in many of these, rehabbing properties, and this has come up every time. Because we obviously haven't owned the houses very long.
So you may have to buy the house and sit on it for 3 months, or rehab and sell it.
Hope this helps,
Jim

Thanks for the replies guys. I was thinking the same thing on holding it and then selling it her... The property does need updating so I could technically close on this property rehab it and then sell it to her without any seasoning??

The only reason I didn't want to sell it to her for the purchase price I have it locked up at is b/c I can sell it to her for the appraised value and the profit i get from it can be her rehab money now...

And another thing what are you guys doing for Ernest money on offers for reos?? My realtor is saying I have to give one. She is not wanting to make offers without one!

Yes, Earnest Money will be required for REO's. Sometimes negotiable, sometimes not. My experience has been $1,000 to $2500 cashier's check within 48 hours of offer acceptance.

However, sounds like you have the ability to purchase this property and rehab it, so you're just putting down a deposit. I don't see any issues there.

Like others stated above, the FHA buyer will probably will have seasoning issues and FHA might not approve the loan. You as the seller need to check the contract for deed restrictions. Typically you can't resell within 90 days, or above 20% profit level.

Hope that helps,

- Tom

You will need EM. I have found I can usually get by with $500. However, it is not unusual to have the bank come back @ $1000, sometimes a little more. Might as well try low first. Having said that, sometimes a larger EM on the offer may sway the bank to accept your offer over another that may be similar to yours.
I have hardly ever submitted an offer on a property, REO or otherwise, with the EM. That would be a pain, especially if you were writing many offers. And in my state our purchase contracts have a line that allows the EM to be deposited 4 days after acceptance of offer.
There have been a couple of instances where the bank required it up front, but out of dozens of deals, I think I have only had that happen a handful of times.
Many times the banks have the REO agent submit the offer electronically. Then once accepted, that agent will submit your written offer. At that time you will certainly need the EM.
You may ask your agent if you can give them an EM check to submit with your offer, but don't deposit that check until offer is accepted.
I am an agent so I've dealt with this on both sides and EM is never that big of a deal.
Jim

I am under the impression that FHA has waived the 90 day restriction on properties until December 2014. The problem is that some lenders which are using the FHA financing are either unfamiliar or unwilling to personally waive the restriction.

FHA does have some restrictions to this though. You can read this article for more information: http://realtormag.realtor.org/daily-news/2012/12/04/fha-oks-2-year-exten...

The 90 day rule has been waved, if you can prove you have improved the property. FHA realized, after thousands of letters and complaints, that the only people who would be interested in buying many of the REO's is investors wanting to rehab them and resell for profit. The 90 day rule made this so it wasn't very cost effective, given that many were being bought with hard or private money, at an expensive interest rate. Consequently, there were way too many properties were sitting vacant, because they weren't selling.

Fannie mae still has you sign an addendum, when you purchase the house, that states you will not resell the house for any more than 20% above what you paid for it, for 90 days. This is not good for flipping, because if you buy them like many investors, your are borrowing the cost of improvement along with the purchase price and that alone will put you over the 20% mark. I think their addendum even stops you from borrowing any more than you are paying for the house. It's a pain. There are ways around it, but I haven't bothered messing with Fannie properties. Because of the 90 day thing and the fact they are usually over priced and I have found they will not negotiate.

The banks still have their own criteria when you resell it, even if FHA is guaranteeing the loan. As I said in a post above they will usually require two appraisals, if it is sold in less than 90 days, or if you sell the house for more that double what you bought it for, in less than 6 months.
Hope this clears up the confusion.
Jim

Hello There,

I am a newbie so please forgive me if I ask something silly but I thought I "heard" Reo's are not assignable. Can someone please confirm this for me?

thanks,
Debbie

They are not assignable. When you get an accepted offer on an REO, the bank will have you sign their "corporate addendums". One of their points is very clearly spelled out that the contract is not assignable and they will not negotiate it. I tried many times when I first started buying these years ago.
You will have to use transactional funding to close your purchase then immediately resell it (simultaneous closing).
The transactional funding is usually pretty easy to obtain, because it gets deposited at the title company and never leaves there. You will have your buyer ready to close at the same time, so their money will be immediately applied and the transaction funds go back the your transaction lender.
Jim

Thank you Jim,
So now that brings me to another question. Is there any other real estate deal that is pretty much un-assignable? Not that I don't mind "jumping thru hoops" to do what I need to do to make a deal work. I just need a little more insight into wholesaling properties that the books don't tell you about. I appreciate any information you provide.

Thanks,
Debbie

So you have to use transactional funding? I was under the assumption that you could double close with the buyer first then the seller second without the use of any transactional funding!

They made true simultaneous closings illegal in my state. A few years ago the powers that be decided you had to have your own funds to close. It was quite a debate for a long time, but we lost. So, now, you have to bring funding to the table. It was too bad because for a long time I made a living out of simultaneous closings. That is why we must always stay on top of things and to continue to educate ourselves, so we can create legal ways to do the same thing.
Check the laws in your state. You may still be able to do it. As for me, I had to find another route.
Jim

Jim what state are you in??

Utah

Well I'm in ohio so I will have to check and find out

I had a realtor tell me that you can no longer do a double closing back to back in Texas. He said you have to wait a day to do the 2nd closing. But I guess if you use transactional funding it can be done.

I am going to call my title company tomorrow and ask them if I have to have my own funding!!

I have been reading several threads lately that discussed the possibility of setting up a LLC that holds the property. You and your buyer are part of the LLC. The transaction uses the buyer's funding. Once the transaction is closed, you sign off as a partner to the LLC. The buyer/partner buys you out by paying you your wholesale fee.

Since many buyers (especially those looking for investment properties) place their property in a LLC, this can be one way to work around having your own funding.

This is how we do it most often. If the buyer is cash he can buy the LLC in advance. I collect my fee and I'm out. My buyer now owns the LLC and he goes to a single closing. If he has some type of funding that requires he pay my fee at closing than we sell the LLC at the closing table and I get my fee directly from my buyer then. (certified funds)
The LLC and the operating agreement must be set up properly in advance. Basically allowing a member/manager change at any time. Find an attorney that is familiar with this process and have him put the docs together for you.

The "wet" double close is no problem. Using TF you can double close in most states no problem. It is the "dry" double close that is really hard to get done anymore.(When you use your buyers money to fund the A closing) Underwriters are saying NO to this type of double close.

Michael

Ohio is a no "dry" double closing!! Must have your own funds!!