Foreclosure Rule Changes Short Sale Flipping

Colorado Foreclosure Protection Act Updated with New Disclosures

The Colorado Legislature passed House Bill 10-1133, signed by Governor Ritter in June 2010 and effective January 1, 2011 which mandates new disclosures for investors (called “Equity Purchasers” in the Foreclosure Act legislation) who are flipping short sale properties.  The key text from the actual bill is below, the most dramatic changes are as follows:

  • Investors must disclose to the home owner and lender within one day if they find a “subsequent purchaser” as a flip
  • Investor must disclose  to the homeowner and lender accepting the short sale the subsequent purchase price for which the property will sell as a flip.
  • Investors must disclose to the subsequent purchaser and the subsequent purchaser’s lender the purchase price the investor paid for the property as a short sale, and the profit margin.
  • The time frame associated with a “flip” is 14 days.

In effect, the legislature has created a 14 day seasoning period for investors that will not allow for a contract to be signed between the investor and the end user of the property.  This is a different type, and in addition to, the seasoning period by lenders selling properties (most notably Bank of America) who are disallowing any change of ownership for a short sale property for 30 days up to one year.

It will be interesting to see how this affects short sale transactions, if it just adds more holding time to short sale investors who think that these disclosures will kill deals, or it really has the affect of stopping the “flips.”

NOTE:  ALL CAPS text indicates new language that will be added to the Colorado Revised Statutes.

6-1-1121. Short sales – subsequent purchaser – definition.(1) WITH RESPECT TO ANY SHORT SALE TRANSACTION IN WHICH AN EQUITY PURCHASER INTENDS TO RESELL THE RESIDENCE IN FORECLOSURE TO ASUBSEQUENT PURCHASER, THE EQUITY PURCHASER SHALL:

(a) PROVIDE FULL DISCLOSURE TO THE HOME OWNER AND TO THE HOLDERS OF THE EVIDENCE OF DEBT ON THE RESIDENCE IN FORECLOSURE, OR SUCH HOLDERS’ REPRESENTATIVES, OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER AND ANY SUBSEQUENT PURCHASER,INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE TO BE PAID BY THE SUBSEQUENT PURCHASER FOR THE RESIDENCE IN FORECLOSURE, WHICH DISCLOSURE SHALL BE MADE WITHIN ONE BUSINESS DAY OF IDENTIFYING ANY SUCH SUBSEQUENT PURCHASER AND IN NO EVENT LATER THAN CLOSING ON THE SHORT SALE TRANSACTION;

(b) PROVIDE FULL DISCLOSURE TO ANY SUBSEQUENT PURCHASER AND TO ANY SUBSEQUENT PURCHASER’S LENDER, OR SUCH LENDER’S REPRESENTATIVE, AT THE TIME OF CONTRACT WITH THE EQUITY PURCHASER,OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER ANDTHE HOME OWNER, INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE PAID BY THE EQUITY PURCHASER FOR THE RESIDENCE IN FORECLOSURE;

(c) COMPLY WITH ALL APPLICABLE RULES ADOPTED BY THE COLORADO REAL ESTATE COMMISSION WITH REGARD TO SHORT SALES; AND(d) COMPLY WITH SECTION 38-35-125, C.R.S.

(2) AS USED IN THIS SECTION, A “SUBSEQUENT PURCHASER” MEANS ANY PERSON WHO ENTERS INTO A CONTRACT WITH AN EQUITY PURCHASER  PRIOR TO THE DISBURSEMENT OF THE SHORT SALE TRANSACTION TO ACQUIRE THE RESIDENCE IN FORECLOSURE AND WHO ACQUIRES THE RESIDENCE IN FORECLOSURE WITHIN FOURTEEN DAYS AFTER THE DISBURSEMENT OF THE SHORT SALE TRANSACTION.

Download Complete H.B. 1133 Colorado Foreclosure Protection Act Update

This new legislation is part of a trend of increased scrutiny and regulation in the business of real estate investing.  Investors are adapting to these new rules and learning to add value using new tools and products.  Most recently, title company rule changes now prevent investors from using simultaneous closings to flip properties.  A group of transactional funding companies is creating a cottage industry to help investors adapt to these changes.  Additional products and services will likely become necessary as the regulation increases in this area.

  • Share/Bookmark

EPA Lead Paint Rule

Lead Based Paint Certification

What does this mean for contractors on your projects?  Well, this could be a BIG problem for fix and flip investors.  Or it could be just a minor inconvenience. When was the last time your contractor went back to school?  What happens if you get caught?

To be a certified renovator, contractors are required to take eight hours of training from an “accredited” service.  Two hours must be “hands-on training.”

I can’t wait to see some bureaucrat training MY contractor!   If that happens, the training certification is good for five years. The cost of this training is set by the providers, and of course these companies that will have to apply to be certified as qualified to certify other contractors.  Sounds like a big bureaucratic mess.

Do you think you could find a certified “Lead Safe Renovator” today if you wanted to?  Well, the Rule is effective on April 22, 2010. Here is a quote from the EPA website on April 24, 2010:

NOTE: Due to heavy demand, users may experience delays in searching for training providers and certified renovators. EPA regrets the delays and is working to improve the system.

If you are a contractor looking for a “school,” here is a short cut to the local accredited companies as of this writing.  Its risky not to become certified, as fines for contractors who work in pre-1978 homes without EPA certification are rumored to be as high as $37,500 per incident per day!. Wow.  How will the rule be policed?  The EPA expects those who bother to get certified will police their own industry.

They are probably right because contractors who abide by the rules will have significantly higher costs and will lose bids to contractors who are not certified.  This is of course the bad news for investors:  our construction costs just went up!  We just don’t yet know by how much.  Ouch.

If you are an investor (or homeowner) looking to hire a certified contractor, I have words for you:  Good Luck!  In the meantime, watch out for the “spot checks” by the EPA on your job sites.

Links to more information:

  • Share/Bookmark

HUD Proposes Seller Financing Rules

Elimination of Owner Carry Mortgages Disastrous

Attention all real estate investors!  HUD is proposing to eliminate ALL seller financing with two lame exceptions:

  • Seller lives in the home, or
  • Seller becomes a licensed mortgage originator

Passed last year, the federal SAFE mortgage act passed last year preserved the right for sellers to make up to five seller financing transactions per year without needing a mortgage originator license.  But that law was passed subject to HUD’s approval as “compliant” with the intention of the federal law.  This means that, for those states which do not have a ‘compliant law’, the SAFE act allows HUD to implement licensing for those states.  HUD has since issued proposed rules which would no longer allow seller financing for non-owner occupied homes.  This is a disaster for real estate investors trying to capitalize on the high-inventory and poor lending environment we currently face!

HUD is soliciting comments on these proposals and the Deadline for filing Comments is February 16, 2010.

Please contribute and do your part to help our industry comment to HUD on this issue.  Efforts to affect this law will not be successful unless thousands of individual investors communicate that we are opposed to this the rules.  Please submit your comments to HUD today, here are the links:

To read the proposed rules, go here – http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480a6b033

To file your comment, go here – http://www.regulations.gov/search/Regs/home.html#submitComment?R=0900006480a6b033
and fill out the form.

Here are some sample message to relay to HUD:

  • Mortgage bank loans are not available on many types of properties today
  • The current lending climate has made traditional bank financing impossible for some borrowers
  • Seller carry financing is a solid way to help the housing industry recover
  • These rules would prohibit even partial seller financing – e.g., a “owner carry second”
  • Many investors own a property free and clear and would like to get interest on their investment
  • Million of Americans own a property other than a primary residence
  • Mobile homes are more difficult to sell with bank financing, and there are LOTS of them

Please comment TODAY and help our industry.  It only takes 5 minutes.

  • Share/Bookmark

FHA 90 Day Flipping Rule Waiver

FHA Flip Rule Waived for 1 Year!
This will be music to investor’s ears everywhere!  We no longer have to wait and plan to hold for 91 days to contract and sell fix and flip projects to first-time home buyers.   This will translate to lower holding costs, more projects, and higher quality inventory for buyers.  Some [...]

A Tale of Two Title Companies

One of the Craziest, Weirdest Wholesale Deals Ever
This is a wild story, even for seasoned real estate investors. It’s a bit long, so you might want to get comfortable, grab a cup of coffee or a beer (depending on the time of day). Read it and weep. And then cheer at the [...]

Real Estate Investor Abbreviations and Jargon

ARV – CAP RATE – HUD – MLS – NNN – REO – OWC – ETC…
Real estate investors, brokers and agents are as guilty as any other industry practitioners at using jargon and abbreviations that seem commonplace to us, but are often confusing to our clients and customers. As a reminder to slow down [...]

Sewer Line Inspection and Repair Tips

Camera Sewer Scope Critical for Denver Realtors and Buyers
Old House Sewer Pipe Problems:  When Don Nichols visited our real estate office recently, I asked him about his Denver sewer line inspection company. Specifically I wanted to know how it relates Realtors who are buyer agents shopping for older houses in the central Denver [...]

Is Leasing to Medical Marijuana Tenants Legal?

Amendment 20 Economic Impact in Denver
Medical marijuana might seem like an odd topic for a real estate blog, but bear with me and I will explain. There are three interesting social trends happening in Denver in 2009, two have been publicly and proudly announced, and one is a little more underground, but buzzing:

Solar [...]

How to Get Fast Mortgage Approval and Best Rate

FHA Mortgage Broker and Banker Lender Time Frame
This scenario has happened often enough in our office recently that it has become newsworthy and worth sharing with other real estate agents, buyers and investors:  Our buyer clients are getting a competitive advantage in the 1st time home buyer and investment property markets because of a mortgage [...]

Top 5 Questions about IRA Real Estate Investing

Self Directed, IRA Loans, Property Types, Investment Groups

In 2009 we have had a lot more requests and questions from clients about using IRA funds to purchase investment real estate for fix and flip projects and rental properties.  So I thought I would post an FAQ with answers.  Here are the Top 5 Questions from 1st [...]

DENVER Real Estate Badge
EPA Lead Certification

COUGH!

Please excuse the dust while we remodel with an awesome new theme.
How smart is your Theme?  How good is your support? Check out ThesisTheme for WordPress.