Discussion Forum

nyinvestor
real estate investor

Title Companies that Due Backwards Funding

Saturday, August 04 2007 08:57 AM

Hello Board,

How are you? Some of the questions and comments on this board have been stupendous. I appreciate all the knowledge I can get from my peers. If alot of you havent notice title companies are requiring alot of buyers to bring cash to closings to due certain double closings. alof them will not backwards funds as the process is called with your end buyer financing the entire transaction.

Does any body know any title companies nationally that still backward fund and/or familiar with the entire process.

Please I have a deal that I put into a landtrust and I am in limbo as to how to satisfy the lender A with there HUD approval crap.

Why they are not happy with just getting there money and being done with it, I have no idea

You only know what you eek out

REPLY

nyinvestor
real estate investor

Re:Re:Title Companies that Due Backwards Funding

Sunday, August 05 2007 06:35 PM

Thank You. Very Much this aspect is crucial to my business!

You only know what you eek out

REPLY

Marty Couch
Investor

Re:Re:Re:Title Companies that Due Backwards Funding

Monday, August 06 2007 03:26 PM

Hello All,

Well, as Randy has asked for my input on the issues of Title Companies doing double closings and as the question relates to nycinvestor?s question on using a land trust and/or double closing for short sales ?flips? I thought I would answer both so this will be posted (through the magic of cut and paste? under both topics.

Also, this is going to be a somewhat lengthy post. There really is no other way to fully discuss this topic. At the end I will give some ideas of how nycinvestor can work his deal and still make a profit. So, here we go?

First, lets talk about what makes a double closing work (at least on the surface). All of this is specific to Illinois transactions as that are what I am familiar with, so you may have to look up some state laws.

Ok, the reason a double closing IS legal in Illinois is Illinois is a race-notice state. That means to be the owner of a property you either ?race? the deed to the county OR give ?notice? that the deed exists.

So, Sue Seller gives Mary Inthemiddle a deed putting Mary into title and agree that for the deed, Mary will pay Sue $150,000.00 (money she will have in just a few minutes.

Mary then gives notice to the Title Company that the deed exists putting Mary into title. Even though the deed is not recorded, Mary is now the rightful owner of the property.

Mary then sells to Bill Buyer for $200,000.00. Bill gets a loan from Carle?s house of Cash to buy this. Bill pays Mary the $200,000.00 and Mary pays off her I.O.U. to Sue for $150,000.00.

So, when is the above legal and when is it illegal? Well, if the seller is motivated to sell quickly (job loss, moving, death, etc) and they are aware they are selling the property under the true market value and the property that the lender is lending on is actually worth $200,000.00 and the buyer can legitimately repay then this is legal.

So, where does this go wrong? The biggest way is that instead of buying a property below retail and selling it at retail, the investor ends up buying it at retail and gets an inflated appraisal for the final sale price.

The next way is the investor ?counsels? the end buyer through the application process. The 1003 application is loaded with false statements (such as the buyer?s income, stating the property will be owner occupied when it will not, etc.)

And finally, let?s talk about the short sale scenario. In this case, let?s say you are getting the lender to take a short sale for $150,000.00 and you are immediately reselling it for $200,000.00. So, if the BPO (broker price opinion) for $150,000.00 is accurate YOU ARE DEFRAUDING THE END LENDER WITH AN INFLATED APPRAISAL. If the final appraisal is correct for $200,000.00 YOU ARE DEFRAUDING THE CURRENT SHORT SALE LENDER BY PROVIDING INFORMATION THAT THE PROPERTY IS ONLY WORTH $150,000.00. It is possible a little of each is happening.

Let?s face it, if the property is actually worth $200,000.00 and this is disclosed to the short sale lender, they would not approve the short sale for $150,000.00. The part many investors are forgetting in this envireroment is they are dealing with REAL MONEY. The lender loaned the full amount of money to the buyer when they bought. You are taking that money away from the shot sale lender and pocketing it. So, the question is why are you entitled to the money and not the mortgage company who loaned it in the first place. THIS IS WHY A TITLE COMPANY WILL LIKELY NOT DO THIS TRANSACTION.

This is not to be confused with finding a good deal. You work out a short sale because the property needs some work THAT YOU WILL DO. The buyer has hit real financial trouble. You will actually do something to create the equity besides just telling a lender the property is worth less than it is.

This is why the short sale lender wants a HUD showing THEY GET ALL THE PROCEEDS. This is why the new lender wants the property seasoned. Remember, the title company represents the LENDER, not the buyer, seller or investor.

Before you do anything with this transaction, google ?mortgage fraud?. You will be amazed with what is qualifying for mortgage fraud these days. I read of one case where the property was flipped legally. The sellers sold below value and the appraisal appeared to be legitimate. Here?s the problem. The instant the first transaction closed for the lower price, the attorney general claims THAT IS THE CURRENT PROPERTY VALUE, as that is the most recent sale, which means the APPRAISAL IS AUTOMATICALLY INFLATED. This is one of the craziest I?ve read about. But they are getting crazier.

So, what created this environment? Well, the sub prime lenders (who?s loans are traded in pools) wanted to get as much money on the streets as possible. To do this they made low, affordable initial rates that would adjust before people realized it and they effectively eliminated all underwriting guidelines. As shocking as it may seem, these loans are going bad in a big way. We?re talking billions (with a B) of dollars in defaulted loans. These companies have stockholders to answer to. So, rather than the governing body putting at least some of the blame, they are going after THE BIG BAD INVESTORS. We are the bad guys and, yes folks; investors are the ones getting 25 year prison sentences and multi million dollar fines. WE NEED TO BE MORE CAUTIOUS NOW THAN EVER BEFORE.

Now, I don?t think it will be like this forever. It will be for the next 1-5 years (I believe).

So, the theme here is being very careful about ?short sales?, ?wholesaling?, ?flipping?, etc.

Now, back to what we can still do?

The first idea is to buy and hold. Have your company buy the property out right. Lease option it to your end buyer. You will have to finance it yourself but it is a legit sale.

The second idea, bird dog. Offer to sell your company (that has the property) under contract to the buyer for cash. Once he has bought the company, he can complete the sale.

The third idea, buy the note. This has worked for colleagues of mine. It works best when there is a first and second mortgage and the second will short. Offer to buy the note and mortgage outright. If they agree, pay cash and YOU provide the 2nd mortgage payoff letter to the Title Company that way.

I know this may not be the answer you were hoping for. Unfortunately the industry is different than it has ever been.

Just be careful out there.

Hope this helps.

As always, what ever you choose to do, HAVE AN ATTORNEY REVIEW EVERYTHING FOR YOU! At least with legal counsel you can state with certainty that you thought everything was legal as you sought proper counsel.

If you do not have an attorney, I highly recomend PrePaid Legal. For a VERY small monthly fee you have access to an attorney on any matter you need them for.

Find out more at http://www.PPLChicago.com

Marty Couch
http://www.PPLChicago.com

REPLY

Marty Couch
Investor

Re:Re:Re:Re:Re:Title Companies that Due Backwards Funding

Monday, August 06 2007 10:19 PM

Dear nycinvestor,

The part you overlooked in my post was where I suggested you do some research online to get facts. Instead of responding to my post with facts, you chose to respond with opinions. So, here are some facts:

According to the American Land Title Association (ALTA) Title Companies as escrow agents ?perform a fiduciary duty on behalf of the Lending Institution and complete transactions in accordance with the escrow instructions provided by the Lender?. Title companies are always SUPPOSED to represent the lender.

As far as Mortgage Fraud, here are just a couple cases I found in about 5 minutes on the NY Attorney Generals Website:

ATTORNEY GENERAL TARGETS MORTGAGE FRAUD RING
Consent Decrees with Certain Defendants Yield Nearly $1.8 Million in Restitution and Penalties
New York State Attorney General Spitzer today announced that he has filed a lawsuit alleging that a group of real estate sellers, mortgage brokers, attorneys, and appraisers pursued a fraudulent real estate flipping scheme targeting minority neighborhoods in Brooklyn. In addition, the Attorney General announced that he has entered into consent decrees with some of the defendants that will provide substantial monetary relief to victims and stringent oversight of future real estate activities by the settling defendants.
According to the lawsuit, defendants Isaac Katz and Yoel Silberstein devised a scheme in which they purchased distressed properties in the Brooklyn neighborhoods of Crown Heights, Bedford-Stuyvesant, East Flatbush, East New York and Bushwick, and then enlisted the services of a front-man, mortgage brokers, and real estate lawyers to dupe purchasers and lending institutions in order to obtain significant resale profits.
The lawsuit alleges that defendant Amenophis Alleyne found prospective minority buyers with excellent credit to purchase the properties. The minority buyers, many of whom were Alleyne's family and friends, allegedly were told that the properties were "investment opportunities" that could be purchased with no money down. They were also assured that rental income they would receive from prospective tenants would more than cover any mortgage payments.
According to the complaint, the mortgage brokers, defendants Theodore Welz and Shaya Saks, induced banks into issuing loans for the properties by preparing loan applications that misrepresented the borrowers' income and assets and falsely stated that the borrowers were making significant down payments. According to the lawsuit, the banks were also provided with false appraisals, prepared by real estate appraisers including defendants Jeffery Richardson and Erik Johnson, that significantly inflated the values of the properties.
Defendants Benzion Frankel, Rephoel Weitzner, Devon Clarke, and Joseph Treff, the real estate attorneys who represented the lenders, the buyers and the sellers at the closings, prepared loan documents and public filings (including deeds and real estate transfer tax records) that allegedly misrepresented the actual sales prices of the properties.


According to the lawsuit, defendants Katz and Silberstein reaped substantial profits from their fraudulent scheme, which was carried out dozens of times between 2002 and early this year. In one case identified in the suit, they purchased a property for $205,000 and sold it later the same day for $370,000. The buyers, the lawsuit alleges, were unaware that their "no money down" deals were being accomplished only by hiding the true nature of the transactions from their lenders. As a result, many buyers were saddled with large, high-interest-rate mortgages they could not afford. Some allegedly ended up in default and foreclosure, ruining their once-excellent credit. The lawsuit further alleges that the scheme artificially inflated market prices of homes in the affected neighborhoods as appraisers, sellers, real estate brokers and others seeking to value properties in those areas relied on the false sales prices reported in deeds and other public records.
"The perpetrators of this scam promised minority home buyers an opportunity to climb the economic ladder," Spitzer said. "In reality, the defendants profited handsomely while their victims saw their financial security impaired or even ruined. By imposing significant monetary penalties on the participants in the scheme, we hope to send the message that fraudulent and discriminatory real estate deals will not be tolerated in the State of New York."
The Attorney General has entered into consent decrees resolving the lawsuit against defendants Katz, Silberstein, Welz and Saks. The decrees require:
? payment of nearly $1.8 million in restitution and penalties;
? a detailed accounting of the real estate transactions conducted by the mortgage fraud ring;
? extensive monitoring of future real estate activities by defendants Katz and Silberstein; and
? significant restrictions on mortgage brokering activities by defendants Welz and Saks.
The funds remitted pursuant to the decrees will be used to compensate victims of the scheme who file complaints with the Attorney General. Any remaining funds will be retained by the State as penalties.
The lawsuit will proceed against defendant Alleyne as well as defendants Clarke, the lawyer for the buyers at the closings; Frankel and Weitzner, lawyers for the defrauded banks; Treff, the lawyer for defendants Katz and Silberstein; and Richardson and Johnson, the appraisers.??This case is being handled by Assistant Attorneys General Brian J. Kreiswirth, Beth S. Frank, and Brian J. Schmidt under the supervision of Natalie R. Williams, Chief of the Civil Rights Bureau.

EIGHT INDICTED IN MASSIVE MORTGAGE FRAUD RING
The Scheme Included Mortgage Brokers, Attorneys and an Appraiser
?New York State Attorney General Spitzer and New York State Banking Superintendent Diana L. Taylor today announced the indictments of eight individuals charged with Enterprise Corruption and other felonies in connection with a multi-million dollar residential mortgage fraud scheme. Attorney General Spitzer also announced the filing of a civil forfeiture action seeking the recovery of more than $8 million from the defendants.
The 83-count indictment alleges the criminal enterprise, named in the indictment as the "Sandella Group," operated since at least 2001, principally in Brooklyn, Queens and Suffolk County. Defendant Louis Sandella is named as the Group?s leader, assisted by his brother, defendant Michael Sandella, defendant Danielle Moss Fontanez, and five others, including two real estate attorneys ? defendants Gary S. Shaw and Ida D?Angelo.
As outlined in the indictment unsealed today in Kings County Supreme Court, members of the Sandella enterprise stole millions of dollars from banks and other financial institutions by submitting false and forged documents to secure mortgage loans. The Sandella Group paid people to pose as legitimate real estate buyers. False information about these straw buyers? employment, income and financial assets were provided to the banks to obtain the loans. The banks were also provided false real estate appraisal reports which often misrepresented the physical conditions of the properties, the market value of comparable properties and the identities of the individuals who prepared the reports. Through these reports ? prepared by a member of the Sandella Enterprise ? the value of individual properties used in the fraudulent mortgage transactions were inflated by $100,000 or more. ??The Attorney General?s investigation began in 2002, based upon intelligence developed by his Organized Crime Task Force and his Civil Rights Bureau, combined with information from other law enforcement agencies. Additional investigative resources were contributed by the State Banking Department, the State Insurance Department, the Federal Bureau of Investigation, the US Department of Labor and the Waterfront Police.
"For the average American, buying a home is their most important investment. The scams carried out by these defendants not only harmed targeted individuals and lending institutions, but had the potential to undermine the housing market in the neighborhoods where they practiced their scheme. Protecting New York?s real estate market from this kind of fraud must be a priority for all of law enforcement." Spitzer said.
?New York State Banking Superintendent Diana L. Taylor said: "I am proud of the role that the Banking Department?s Criminal Investigations Bureau played in this investigation. What this criminal network did was to rob hard-working New Yorkers and banks of equity and confidence in what should be an honest, law-abiding, professional industry. We will continue to work closely with law enforcement to protect the interests of New Yorkers, the health of our communities and the safety and soundness of our financial institutions."??The ultimate financial losers were the financial institutions, which provided the mortgage loans based on fraudulent applications.??A transaction set out in the indictment as an example of the Sandella enterprise?s scheme concerns the January, 2004 sale of a house in Flatbush, Brooklyn. Although the true purchase price of the property was $310,000, the Sandella Group falsely told the bank that the purchase price was $450,000, and applied to the bank for a loan in that amount. The criminal enterprise gave the bank false information about the financial condition of a "straw buyer" that it recruited as a front man in the transaction, and submitted a forged appraisal report. The group then pocketed the bulk of the inflated amount, and allowed the loan to go into default.??The following individuals are being arraigned today before Judge John J. Walsh: ?Louis Sandella, 43, of Commack; Michael Sandella, 41, of Hauppauge; Danielle Moss, 36, of, Commack; Kim Moss Fontanez, 33, of Lindenhurst; Geraldine Moss, 60, of West Babylon; Gary Shaw, 68, of Northport; and Ida D?Angelo, 38, of Dix Hills, NY. One defendant, Andreas Perdikos, 41, of New Jersey, remains at large.
The charges included in the indictment are: Criminal Enterprise, a class B Felony; Grand Larceny in the First and Second Degrees, a class B and C felony, respectively; Scheme to Defraud in the First Degree, a class E felony; and Falsifying Business Records in the First Degree, a Class E felony.
If convicted of the top count, the defendants face prison sentences of up to 25 years. The charges in the indictment are merely accusations and the defendants are presumed innocent until and unless proven guilty.??Spitzer and Taylor thanked Assistant Director in Charge Mark Mershon of the FBI, Brooklyn District Attorney Joe Hynes, Suffolk District Attorney Thomas Spota, Superintendent Howard Mills of the New York State Department of Insurance, Inspector General Gorden Heddell of the United States Department of Labor, Commissioner Andrew Eristoff of the New York State Department of Taxation and Finance, and Executive Director Thomas DeMaria of the New York-New Jersey Waterfront Commission for their assistance on this case. ??The case is being prosecuted by Assistant Deputy Attorneys General Sean Courtney, Peter Zanolin and Robert Biancavilla of the Organized Crime Task Force, under the direction of J. Christopher Prather, the head of the Task Force. The civil forfeiture is being handled by Assistant Attorney General Lynn Goodman, head of the Criminal Division?s Forfeiture Unit. Former AAG Leah Griggs-Pauley, of the Civil Rights Bureau, assisted in the investigation.

Now my opinion: A property is not worth 2 amounts on the same day. Either the property is worth what the BPO says in which case you have gotten a bogus appraisal for the end lender or it is worth the appraisal amount in which case you managed to get the broker to offer an inaccurate BPO to the short sale lender. EVERY short sale lender is ultimately discounting no lower than what a BPO says the property is worth, regardless of how quickly it will sell. So, you are providing fasle information to someone in this transaction. THIS MAKES YOU A SCUM BAG, in my opinion. You made the comment that a short sale lender can go after the seller for the deficiency. There would likely not be a deficiency if the property was bought in the first transaction for the appraisal amount. The only reason there would be a deficiency is because you pocketed it.

It is my very humble opinion that people doing what you are doing is the reason our industry is under the largest microscope we have ever had to deal with. More and more legislation and court cases are hitting the books every day at the state and national levels that limit what legitimate investors can do. It is because of the unethical people that have wondered into this industry that the rest of us are looked at funny when we tell people we are real estate investors.

As far as the seasoning issue, it is not a law. But, if the lender instructs the title company to insure the property is seasoned, that is what must happen. And the 90 day seasoning is a HUD requirement, not Fannie Mae. HUD by the way is a government agency.

Please do us all a favor and educate yourself. Research online. Get some legitimate real estate courses that show you how to buy wisely without shorting lenders and having to come up with 2 values for a property. Please learn to invest responsibly so we all don?t have to suffer for your actions.

If you choose not to do so, I can only hope you are caught quickly and shut down before you can do some real damage to all our reputations.

Marty Couch
http://www.PPLChicago.com

REPLY

MattMitchell
Real Estate Investor

Re:Re:Re:Re:Re:Re:Re:Title Companies that Due Backwards Funding

Tuesday, August 28 2007 03:01 PM

Randy,

I am a newbie investor trying to work short sales here in California.  After reading this exchange between NYInvestor and Marty, I am now very confused.  Marty seems to indicate that flipping short sales using double closes (where the investor is not on title nor has cash in the deal and essentially is using the end buyer's money to pay off the short sale lender and then keeping the profit spread) is mortgage fraud and unethical.  I think that is what Marty is suggesting (if not, Marty, please clarify).  

Marty goes on to state: A property is not worth 2 amounts on the same day. Either the property is worth what the BPO says in which case you have gotten a bogus appraisal for the end lender or it is worth the appraisal amount in which case you managed to get the broker to offer an inaccurate BPO to the short sale lender. EVERY short sale lender is ultimately discounting no lower than what a BPO says the property is worth, regardless of how quickly it will sell. So, you are providing fasle information to someone in this transaction. THIS MAKES YOU A SCUM BAG, in my opinion.

In my very limited experience, lenders will take less than the BPO value (the BPO that they ordered and paid for themselves) on a short sale because they know this discounted amount may be more than they would get if they take the property to foreclosure and then REO it.  In other words, theyd rather get 90% of the BPO today vs. netting less than 90% several months down the road.

So, here is my question / confusion. Martys position / argument seems to be counter to what I've read on this site and many others (e.g., using land trusts to keep the title seasoning intact and thereby conduct a double close where the investor is not on title and has no cash in the deal).  Randy, please clarify.  If Marty is correct, then as I understand it, buying and then selling a property within a very short time frame for two different amounts is illegal and unethical, and using a land trust to facilitate the transaction only serves to facilitate and hide an illegal activity?

Thanks, Matt

REPLY

Phil S.
Investor, foreclosures

Re:Re:Re:Re:Re:Re:Re:Re:Title Companies that Due Backwards Funding

Tuesday, August 28 2007 04:36 PM

Marty, I appreciate your informative post and would appreciate some clarification on your position because it suggests that the way I am doing short sales (and many others for that matter) could get me into some hot water.  So, let me give you a real life example with actual numbers on a deal:

1. Defaulted 1st mortgage with "Big Lender" for $350,000 (homeowner is in foreclosure)

2. Big Lender's BPO comes in at $300,000 (their number, not mine).

3. I offer Big Lender $260,000 as a short sale price, and they agree (86% of their BPO).  

4. I concurrently line up an end / retail buyer who has agreed to pay me $280,000 for the home (which I already have under contract), which is 93% of the short sale bank?s BPO

5. End buyer's lender does an appraisal and comes up with a value of $310k.  Therefore, the end buyer is getting a new loan at 90% of his bank's appraisal (and bringing 10% cash to the deal)

6. I plan on doing a double close using a land trust, and after expenses net somewhere between $15k and $20k.  In this transaction, I personally will not be on title and will not put any cash into the deal.  The short sale lender is paid from the new buyer's funds


Assuming I proceed with this transaction (in California) here is my question: What aspect of this transaction is illegal, or would be considered mortgage fraud on my part?  Please cite the specific state and/or federal code in violation.

Thanks, Phil S.

REPLY

MattMitchell
Real Estate Investor

Re:Re:Re:Re:Re:Re:Re:Re:Re:Title Companies that Due Backwards Funding

Tuesday, August 28 2007 05:10 PM

Marty,

Great feedback!  Thank you!  I feel a bit relieved.  If I can summarize (there was a lot of words there LOL), the "illegal" activity comes into play when hiding a break in the chain of title (no seasoning) when dealing with the end buyer's lender.  Okay, got it.  

Now, on the first transaction regarding the short sale lender, if they believe the home is worth $500k and agree take $400k from me, then, it would seem this is a fine and legal purchase, and ultimately flip.

On the 2nd transaction (done concurrently), if I understood you correctly, that is where we could run into trouble if the end buyer's lender requires title seasoning and we use a land trust to disguise the fact that there is no seasoning.  Correct?  If yes, then what I understand that to mean is using a land trust to hide title seasoning is mortgage fraud?  Isn't that what the gurus, including this site teach, though?

Marty, here is what I've heard/learned, and maybe it is in error.  Once a property is placed in a trust, the home owner and potential investor (me) are not on title.  In fact the seller of the property is the trustee on behalf of the trust and beneficial interest holder.  So, the chain of title would work as follows:  1) homeowner in foreclosure deeds his property to a land trust.  The land trust sells the property.  No break in seasoning and title?  Right?

Finally, if the end buyer's lender does not have a seasoning issue, then, as I understand, there is nothing illegal about me flipping the property to the buyer without me being on title?  I think this is what you'd call a legal flip?  

One additional note, you mentioned that you'd be surprised if the short sale lender's BPO was the same as the end buyer lender appraisal.  Frankly, I'd be surprised if they weren't close.  Shouldn't the value of the property be within a fairly close range?  To me, if two independent valuations were far apart, I'd be suspicious, and if they were why?  I'd wonder if each lender was influencing their valuation to suit their own purposes.  Wouldn't that be fraud by the bank committed on the potential buyers?

Thanks again,

Matt
 

REPLY