Dennis Norman
I have written a couple of previous posts about a practice that has gained popularity over the past couple of years:the use of an option contract to “buy”a property on a short sale and,assuming the investorcan find a buyer, flipping the property to a new buyer on the same day the option is exercised.
I expressed some concerns (which based upon the comments not everyone shares my concerns) one of them having to do with what title companies and their underwriters think of these deals and how they are handling them when confronted with this type of transaction.
Wendy Cromer,Vice-President of Marketing,Security Title Insurance Agency LLC
To answer this question,I turned to a twenty-five year veteran of the title insurance industry,Wendy Cromer,Vice-President of Marketing for Security Title Insurance Agency,LLC in St. Louis,Missouri. Wendy has worked in all aspects of the title business from production and closing to operations. Wendy currently serves as 2nd Vice President of the Missouri Land Title Association and serves as a director for the St. Louis Association of REALTORS(R) and the Missouri Association of Mortgage Brokers.
When asked how title companies and their underwriters are handling option deals on short sales Wendy gave the following answer:
“ This is viewed as a “flip”transaction. Every title insurance underwriter takes a slightly different approach to flip transactions,but all review them very carefully because of the possibility of fraud arising in these transactions.
The biggest issue with “flips,”whether short sale or other,is disclosure. Generally,as long as the title commitment for the final buyers does not show the “flipper”as the vested owner and as long as the money trail is fully disclosed to the lenders and shown on the closing statement than these deals can be done.
In a short sale situation,however,a same-day flip should be disclosed and approved by the lender.”
Title insurance laws vary by state and local laws may affect how these deals are handled as well as variations in policies of different title companies,however given Wendy’s expertise and the fact that her company is an issuing agent for three large national underwriters,I would say she probably has a very good take on it.
Clearly the answer is disclosure. This is something I have stressed before and is something that can keep you out of a lot of trouble on deals. While many of the blog posts I’ve seen,as well as advertisements for short-sale programs,stress there is full disclosure,I really question it. Particularly on the option “flip”transactions. I don’t know that as Wendy recommends,the lender is being made aware of the flip and approving it….I sort of doubt it.
Below is contact information for Wendy Cromer in case you would like to contact her with questions about title insurance. Also,if you go to her website you can sign up for her free newsletter which I would recommend. I receive it and find it to be quite informative and useful.
Wendy Cromer,
Vice President of Marketing
Security Title Insurance Agency,LLC
email: wcromer@securitytitlestl.com
website: www.securitytitlestl.com
phone: 314.402.6626
business address: 11884 Gravois Rd.,St. Louis,MO 63127
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