Short Sales, Land Trusts, & Option Contracts, Oh My!

I landlord, my aunt, is trying to sell her property with the help of a loss mitigation company. They finally found an end buyer but they will be using FHA financing. They have an option contract on the property but apparently they have a 90 day seasoning issue in order to have their loss mitigation fee paid out. Will they need get filed under land trust then close in 90 days or will a separate form to option contract suffice?

Alex

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Hello Alex,

FHA requires that the homeowner/seller be on title for ninety-days for the new FHA buyer to obtain a loan insured by the Dept of HUD.  The land trust method of closing short sales is fraught with all kinds of problems too numerous to list in this post.  Stay away from anyone deeding the property into a land trust or for that matter into anything else until they’ve paid off the mortgage indebtedness in full. 

The option contract method of closing short sales is an awesome/successful way of closing short sales with full disclosure to the shorting lender and the originating lender.  I personally purchase short sale properties via option contracts.  Enough about me, back to your question – the ‘loss mitigation fee’ is not the issue on the transaction that you’ve described – what it sounds like the buyers are trying to do is to flip the property and that won’t work with an FHA buyer.  If the buyer is obtaining an FHA mortgage then the loss mitigation company can charge a fee for their services on either the seller’s side or the buyer’s side of the HUD1.  If the fee is on the seller’s side of the closing statement then it comes out of the shorting lender’s net and if on the buyer’s side then the buyer pays it. 

In sum, the ‘loss mitigation fee’ is not the problem.  The buyer is trying to flip a property to an FHA buyer and that ain’t happen’.  Now, VA, that’s a different story. 

Oh, and I’ve also got a secret on how to close FHA short sales with an option contract but I can’t post it here.  As much as I type on this blog, there’s still a few things that I have to keep secret.  Of course, any sellers, real estate agents, or buyers who work with me on their short sales will learn all the legal moves in Paul’s playbook. 

Which reminds me: sellers, real estate agents, and buyers, oh my!  Get it?  Lions, tigers, and bears.  You’ve really got to watch how these short sales are processed from beginning to end because when the process isn’t handled correctly, the lions, tigers, and bears are let loose and an otherwise workable deal dies.

Thanks for the questions and hope this helps.

Paul