We have talked about the option contracts with short sales. It may be a bit tougher now for investors to flip short sales for big profits. Attorneys’ Title Insurance Fund notified its 6,000 member lawyers this week that it will not insure deals made with a popular – but controversial – method for closing flips of short sales.
In a letter to lawyers, the fund said it has become aware of short sale programs advertised on the Internet that promise to make investors lots of money with little or no work.
The letter says they involve investors entering option deals with homeowners for “the exclusive right to purchase their property for a period of time.” The investor negotiates a short sale with the mortgage holder by convincing it that the price it is offering is the market value of the property. The investor then finds a buyer for a much higher price. The sales happen simultaneously, and the investor pockets the difference. The problem is that “the original lender is not told that the buyer is flipping the property on the same day for thousands more than the lender has been told is the market value of the property.” The option contract method has been gaining steam as a way to work off inventory in a bad real estate market. Critics say mortgage holders are misled and don’t realize they could be selling for more.
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Note: The information provided is for informational purposes. No legal advise is given or implied. Please check with a qualified attorney in your area