Great Job Guy’s-

I have done many real estate deals. I am in the state of Massachusetts and we use a Realty Trust which is different from a Land Trust. However, my question is that will this apply to Mass? And, do you know if the Option will confuse attorney’s that work with the title companies (exclusively) since we are an attorney state. Thank you.

Thank you guys.
The call on May 6 was an eye opener.

Really enjoyed your stuff. I have been to another big preforeclosure seminar in Florida and it was all about land trusts. You guys not only explain why not to use a land trust but you back up all your claims that you make. Awesome!

Also I can’t make it to your event. Any way I can purchase some of your documents or info without going to the event?

thanks!

I loved the call. You guys are the best when it comes to doing anything “Short Sale”. When Jeff was going over some of the Title Commitments, i noticed that he said one was a FHA Buyer. I was under the impression that we could not use the Option Contract with Buyer FHA financing due to the 90 day seasoning requirement. The question is, Can we set up these back to back transactions with a FHA or Government Backed loan?

Thanks a Million,
Ryan Drachenberg

I understand all the mechanics of the option, but still not sure how it solves seasoning. It seems the reason given is the full disclosure provided by the documentation – but doesn’t the issue with seasoning occur when the end buyer’s lender finds out the investor seller hasn’t owned the property for at least X days (where X equals their requirement). Does being up front with them just make that all go away – if that is the case, how is using the option different than just using a standard P&S agreement for each of the the A to B transaction and the B to C transaction and just clearly stating in writing to the end buyer’s lender what is really going on???

How does the option contract solve the usual bank requirement of the seller on B-C contract matching the current owner of record. I understand the option contract allows the seller to market the property legally however in practice it seems it would be an uphill battle to make an underwriter understand it. How is this issue resolved?

Great call! Thanks for the very helpful information and the 2 forms. I love the full disclosure aspect of this method, but I am still concerned about the end buyer’s lender being a non-bank FHA lender. How do you handle this or are all the disclosures sufficent to overcome FHA seasoning requirements? Also, can you please clarify whether First American will or will not insure the option method as opposed to the land trust method OR are they out of short sale transactions altogether. Thanks.

Thank you guys,

I recently sat in on the same short sale seminar in Florida, and found the instructor to be very well read. I feel that I can successfully do the Land Trust transactions in my area, but am concerned about the road blocks that I will eventually encounter in the future.

My emotional thought process says that I’ve spent a lot of money learning how to use the Land Trust, so that’s the method that I should use. But my gut feeling says that I would be a fool not to use an Option Contract that lays all of the cards out on the table for all to see.

Thank you again for the information that you so freely give.

Jeff

I have really appreciated the information on Land Trusts. I too have taken Short Sales training which only depends on the use of Land Trusts to do the deal. This has become a major issue in OR and will soon follow into WA, both markets where I work as a RE investor and do Short Sales. The Options contract designed for S.S. looks like the way to save my legal behind and continue to do deals. Thanks for all the help and advice. Obviously with all the questions you really need to do a training on the Options Contract, I can only wish.

WOW! It seems that we all have the same unresolved questions of seasoning. It was not specifically stated in the call last night how long before the 2nd transaction was held, was the notice of option filed. I watched the video and you seem to have recorded the notice at exactly 90 days before the sell. I have been stalling the lender for an extra 30-45 days to allow me to close. Is this the method that you have been using?

In response to the several questions put up regarding the feasibility of doing a back to back closing using the option contract method with FHA deals, please be advised that I have only been successful with one or two of these. Once I have gotten a system figured out where it is teachable and reproducible then I will be happy to share it with everybody in the Strategic Real Estate Coach family. Until then, I am going to keep tinkering on it.

So, in the meantime, try your best to have your end buyers be something other than FHA or VA or Countrywide.

In answer to the questions of how the option contract addresses the seasoning issue, please understand the following.

First, in order for a real estate investor to legally take a profit out of a back to back closing in a short sale scenario the real estate investor must be on title to some degree or another in order to justify legally receiving profits from the sale in the second transaction. The struggle then becomes how can the real estate investor get on title in a way the does not affect or interfere with the subsequent sale of the property. For several years it was thought that land trusts would facilitate this through a smoke-and-mirrors tactic using the assignment of beneficial interests. The title insurance underwriters and the end buyers lenders have caught onto this and are no longer willing to do deals involving land trusts (yes, there may be small exceptions still remaining but by far they are the minority and they are rapidly going extinct).

So, with that in mind, please understand that by holding an option to purchase the property you have an equitable interest in the property which would justify you receiving the profits from the second transaction. So in a short sale scenario, in the first transaction the lender and the homeowner in default agree to sell to you, the investor, in accordance with the terms of your option offer. In the second transaction, you are selling to the end buyer but you are disclosing to the end buyer and the end buyer’s lender that your position in the property is that of an option holder.

In order to satisfy, release or remove your option one of the most effective ways of doing so is to go ahead and complete or exercise that option. That is done by having a deed put on record from the homeowner in default to you just before there is a deed from you to the end buyer. This, in essence, sets up two back to back transactions, one a lower price, the second one at a higher price where you recognize and keep the profit from the second transaction.

All of this information is completely and thoroughly disclosed in the title commitment to the end buyer’s lender.

sorry, I missed the DOLT call on May 6th. How can I download it? It seems that we need password to do it. How can I get it? Thanks.

In response to Mike Ouellette:

Mike, the option contract should not confuse attorneys that understand the short sale process and that work for title companies since you are in an attorney closing state. As long as the attorneys understand the concept of a short sale and what is going on they may really appreciate the simplicity of the option method.

In response to Erwin:

Erwin, In response to Erwin:

Erwin, the notice of option can be recorded 18 days or 180 days before the transaction closes. All of it depends upon how quickly the title commitment is prepared, sent to the end buyer’s lender and approved by them. The two transactions occur, and the deeds are recorded back to back and both transactions are handled and closed in the same day. If you will note during the conference call I showed an instance where an option had been recorded on December 12, 2005 but the transaction did not close until April of 2008. Another instance where the option was recorded in December of 2007 and the deal closed in April 2008. I have also seen instances where the notice of option was recorded two weeks or less before the deal closed.

Jeff,

Thanks for the responses. With the full disclosure of the B to C transaction to C’s lender, it seems they now are fully aware that B will be on title, albeit for a very short time. My interpretation of what you are saying is that C’s lender is not concerned about seasoning in this type of transaction because they know full when what is happening. Is that correct?

Also, does it have to be a back to back transaction to make this work. For example, what if I exercise my option on May 1 but my buyer isn’t ready to purchase until May 15th, would this change the lender’s opinion on “seasoning” now that B is on title for 2 weeks instead of 2 minutes?

If it all about full disclosure, could the same result be achieved if B simply purchased the property from the distressed homeowner using a std purchase and sale agreement, and then resold the property to C using a standard purchase and sale agreement (again with complete disclosure to C’s lender regarding the specifics of the transaction ). Maybe I’m just missing the magic of the option??? Is it that the option hasn’t been exercised when the title commitment is being written, and the notice of option is an exception to the commitment so it has to be resolved before the B to C transaction?

Thanks again.
-Chad

Chad,

You use the phrase “Maybe I’m just missing the magic of the option?” It appears that you are because what makes the option so significant and unique in this type of transaction is the option is reported on the title commitment as an exception to the title that must be cleared up in order for C to have good marketable title. There are only two ways for that exception to be satisfied or removed. The most obvious way of doing it it by completing the option or having a deed recorded. The alternative method of having that option satisfied or removed is by the option holder having a notice of removal of the option recorded in lieu of a deed.

Since there is more to it than just full disclosure just using standard purchase and sales agreements would not be sufficient because you are not getting the benefit of having the option on record and being listed in the title commitment as an exception to the marketable title.

Jeff,

So it seems there needs to be a back-to-back type closing to make the option “magic” work. For examle, if I was to close on May 1st and plan to resell 2 weeks later, the notice of option will be satisfied (assuming everything gets recorded before title is run for the B to C transaction), thus the notice of option would not be listed as an exception on the title commitment and seasoning again could appear as an issue (at least for those lenders that have seasoning requirements).

It still seems wierd to be that seasoning requirements seem to disappear even though C’s lender now had to know that it is a A to B, B to C type of transaction, and not just a A to C transaction with some exception on the title commitment. I believe it works, just don’t understand all the logic behind it.

-Chad

Has anyone in the New York area use the option contract for short sale?

Jeff,

Will the show you did Tuesday be available here ? If so when?

I was scheduled to be on the call and wasn’t able to make it. I REALLY wanted to grasp this concept to make it work for me here in S FL. No one I know is using this method.

Thanks

Dustin

Hi guys!
Wow! You really made the content simple to understand even for us Advanced students. I only have a few Land Trust deals in my pipeline but the Option Contract is now ready to use on upcoming appointments. Way to go and I must say I am very proud and thankful to know all the detailed work and hours you all put into this subject so we can do it right! Hugs and Hugs from Denver CO! See you in a few weeks! Wendy

Thank you for all the information that you kindly give us. I’ve been an investor for almost six years and I have been using the land trust in almost all my short sales.With all this inf. I’m willing to change for better.
Thank you Jeff for all this great information that for sure I’m going to follow
Tony

Hi Jeff!
I sent you an email the other day and I was just wondering if this waiver is going to help us investors in anyway or is this specifically for REO’s. I want to start filling my pipeline but would hate to do so and this not work. I am going to take my chances on this and see if it works–I will keep you posted. I am in an area where most loans are going FHA. Thanks.

I would like to get into the Short Sale arena. But being in Texas, utilizing a lease option in any form that allows the purchase of the property at a later date has been deemed illegal by our legislature.

It is considered an executory contract and will convey title to real property sometime in the future, which means the agreement binds the seller to convey title to the buyer after the buyer meets the requirements of the contract.

Also, the lender must approve in writing allowing you to lease option the property. I used to work for a lender and that in itself would be almost impossible to acquire.

Over the last year there have been many investors tied up in court already for trying to circumvent the new laws here.

Please respond…

Thanks, David “Lee” Lesniewski
[edit post]