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Posts Tagged ‘oakland county michigan short sale’

Southeast Michigan short sale buyers- beware of the “flopper.”

That’s right- Buyer Beware. Most of what I’ve read about flopping bemoans the fact that the poor banks are getting screwed by unscrupulous investors. Sometimes there’s an obligatory mention of the risk for the seller this practice causes. But never a word about the buyer. Not the “straw man” ‘investor” “flopper” buyer. But the “real buyer.”

Let me start out by defining the term “flop” or “flopper.” There is not definitive place to look up the current use of the word “flop” and like I mentioned in the first paragraph, most of what I could find about the practice concentrates on the issues of mortgage fraud and fraudulent BPO’s (broker price opinion) or appraisals. So I’m going to give MY definition of flopping and I’m going to define by way of an example.

Mr. and Mrs. Seller need to sell their home and they owe more than they are able to sell it for. So they list their home with a Realtor and disclose up front that any offers will be subject to short sale approval (the bank or lien holders agreeing to reduce the mortgage payoff enough to accommodate the accepted offer). So the house hits the market at say, $220,000 and after a couple price reductions the seller gets an offer of $180,000 which in this scenario is on the low side of fair market value. In North Oakland County Michigan many short sales are selling on the low side of fair market value– sort of like sweat equity for waiting 3-6 months to find out if your offer is even going to fly. So Mr. and Mrs. Legitimate Buyer get their offer of $180,000 accepted subject to short sale approval within 6 months and they sit and patiently wait for the good news (hopefully good news).

flopper investor and low life listing agentIn a flopping situation, the offer submitted to the bank is NOT Mr. and Mrs. Legitimate Buyer’s offer, but Investor Snake’s very low offer. In this example we will make that an offer of $120,000. The idea being if the bank approves the offer of $120K then Investor Snake will close on the sale for $120K and later the same day or a few days later the same investor will close with Mr. and Mrs. Legitimate Buyer and pocket a cool $60K minus any seller fees (commission, transfer tax, revenue stamps and new title policy).

So what’s the problem? The bank gets a payoff they are satisfied with (after-all, the loan WAS insured and the bank probably did receive an ungodly amount of our tax dollars), Mr. and Mrs. Legitimate Buyer got the house for a price they are happy with, Mr. Investor Snake made a tidy little profit, and the listing agent collected TWO listing commissions and at LEAST one buyer side commission. IT’S THE AMERICAN WAY!!!

Except when the bank just denies the $120K offer, flat out rejects the short sale. Mr. and Mrs. Legitimate Buyer wait around for 6 months and don’t get the house they loved enough to wait 6 month for, the seller still doesn’t have their home sold, and since prices are declining the bank will get less with the next offer than the $180K that should have been presented in the first place.

OR– the bank approves the $120K offer and since Mr. and Mrs. Legitimate Buyer are getting an FHA loan their mortgage won’t get approved due to the 90 day seasoning law that is in place to stop this sort of practice. At this point Mr. Investor Snake may not close on the $120K approved offer and the seller may go into foreclosure. 

OR– several different scenarios can fill in this paragraph, but the bottom line is Mr. and Mrs. Legitimate Buyer wrote a fair offer and were led to believe that the short sale to be approved was with their $180,000 offer. 

Is this practice legal? From what I have read it probably is when there is full disclosure to all parties involved. The problem with this is you more than likely won’t get consent of ALL parties involved if there’s full disclosure. Why would the bank approve $120K when there’s a legitimate buyer out there for $180K? Why would the buyers write $180K if the offer is subject to $120K getting approved? How can a listing agent list a house and accept an offer on behalf of a seller who doesn’t own the house? And if the seller is fully informed about the potential consequences of a Michigan short sale, why wouldn’t they just take the fair offer and be in a better position to negotiate away the possibility of future law suits?

In the above scenario it is probably unfair to call the investor a snake. The true pond scum is the listing agent who was enticed into neglecting his/her fiduciary to his/her seller for a double or triple commission for the same amount of work.

don't hire an inexperienced agent to represent you in your short sale purchase

don't hire an inexperienced agent to represent you in your short sale purchase

There are times with an investor can be used legitimately in a short sale and I will be writing about that in the next day or two. But unfortunately, the above situation is more common and with the increase in short sales in Oakland County Michigan there will be more abuses of the system.

If you are going to buy a home in Southeast Michigan, especially a short sale, you need a successful, experienced agent more than ever. For a successful, experienced, professional to represent you in the home buying process be sure to contact the Jackie Hawley Team at Keller Williams Realty, Clarkston Market Center.

Jackie@JackieHawley.com

1-800-401-1444 

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Buying a Southeast Michigan Short Sale Listing- Negotiating Tips- Part 3 of ?

Jackie Hawley's pearls of wisdom for southeast michigan home buyersThis is part 3 in a ? part series about buying short sale listings in Southeast Michigan– particularly in the North Oakland County and Lapeer County areas.

Part 1 of ? explains the short sale process, gives you the seller perspective, and how the seller’s perspective affects how you negotiate.It also goes on to suggest that for some sellers, some free possession after the closing might be more of an enticement than price.

Part 2 of ? goes into a bit more of what the seller goes through, including the possibility of a deficiency judgment (in Michigan the banks can sue the seller after a short sale) and what is sometimes involved to negotiate away that liability. The article goes on to suggest that you, the buyer, not ask for personal property in your offer to purchase. That is something that can be bought outside the closing, between buyer and seller. The seller may need that cash in order to negotiate away the liability for the deficiency.

In Part 3 of ? I am suggesting an extremely strong pre-approval. A strong pre-approval is always important, but even more so with a short sale for a variety of reasons.

First- what do I mean by strong pre-approval? When we submit our offer to the listing agent/seller, we should include a pre-approval letter from a reputable lender. A letter that states that your credit has been pulled and reviewed, that income and funds to close have been verified, and that you can afford to buy a more expensive house. (Which means you should NOT max yourself out when buying a short sale)

The strength of the letter is important. The seller will be taking their house off the market or marketing for back up offers only. They need to feel comfortable that you will truly be able to get the loan. These sellers are potentially looking at foreclosure and a failed sale can be devastating. I understand that the seller’s problems shouldn’t be your concern, but when you understand where the seller is coming from, it is much easier to come to terms and often at a substantial savings to you.

The offer will be accepted by the seller but the amount will eventually be decided by the lien holder(s) (“the bank”). It’s easier for a seller to take a low offer if they know the buyer has the ability to match a reasonable counter. We also don’t know what interest rates will be in 3-6 months when the short sale gets approved. If you don’t max yourself out you should still be able to afford the house if interest rates tick up a bit.

So in a nut shell- Write a clean offer supported by an extremely strong pre-approval, don’t max yourself out, be prepared for a counter offer, and be prepared to wait and wait and…  

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