Wells Fargo short sale guidelines for the “C” buyer
It’s about damn time these lenders are catching on to the importance of how investors conduct short sales and recognize that we actually help banks liquidate their inventory when buying and negotiating short sales transactions.
It makes common sense..right? Well most don’t get that a short sale doesn’t start till there is an offer submitted with the lender specific short sale package. If their is no offer the package is incomplete. Anyways, Wells Fargo recently released new guidelines to their loan officers for short sale flips.
The Wells Fargo instruction document to their processors states that “Due to current market conditions having a large volume of distressed properties, the existing policy of not allowing financing for flipped properties has been revised. Legitimate property flipping transactions are now eligible to be financed by Wells Fargo Home Mortgage…”
The rules are as follows:
1. Down payment and cash needed to close must be fully documented, but transactional funding is allowed if it meets this rule.
2. Second mortgages are allowed to help fund a deal.
3. No gifts are allowed; no funds from the seller.
4. If the increase in the Investor seller (the B in A to B and B to C transactions) sale price over their purchase price is more than 15% then two full appraisals are required. An exterior appraisal will be ordered if the difference is less than 15%.
5. A LoanSafe report will be reviewed with full information about sales, property history, buyers and sellers of nearby property, etc.
6. Traditional means of marketing must be used, including the MLS or a traditional auction, or marketing by a developer if it is a new home.
7. No assignment clause will be allowed. There must be no change of hands of the property from the party who signs as the B party in A to B and the B party in B to C with a 12 month period unless it is a lender or asset management service such as ones that banks use for REOs. All contracts will be reviewed to make sure names are the same and the documents meet standards.
8. The seller must hold title with clear chain of title.
9. No bogus owners. An LLC, corporation or trust that takes title must be fully documented.
10. All transactions must be arms-length. So, for example, the Investor cannot sell the property back to the original homeowner or one of their kin.
See the official document here.
In addition here are two links for anyone that needs additional support for why doing short sale flips is legal.
Freddie Mac‘s “Best Practices for Loans Involving Possible Property Flips” http://www.freddiemac.com/learn/pdfs/uw/bp_propflips.pdf
Attorney’s Title Fund Service in a September 4, 2009 bulletin http://www.jswlaw.net/drop/September2009bulletin.pdf
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Mazie – I’m not sure how this applies to mortgage and the promissory note associated with real property. Can you expand on your comment.
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