The Fund has become aware of several "short sale programs" advertised on the internet and elsewhere that promise to make the investor lots of money with little or no work by purchasing and selling property through short sales.  The programs involve the investor entering into options or similar contracts with the homeowners for the exclusive right to purchase their property for a period of time.  The investor negotiates a short sale with the lender, convincing the lender that the price they are offering is the market value of the property.  The investor then finds a buyer for the property at a much higher price.  Once the buyer is lined up, the investor buys the property from the seller, pays off the seller’s mortgage at the short sale rate, and simultaneously sells the property to the buyer at the higher price, pocketing the difference.  In most cases the original lender is not told that the buyer is flipping the property on the same day for thousands more than the lender has been told is the market value of the property.
 
In the cases we have seen, the investor has not put any of his own money into the transaction, and uses the new lender’s money to fund the entire deal.
 
A variation of this program involves the investor having the seller convey the property into a "trust" with the investor as "trustee".
 
The Fund has made a business decision not to insure these types of transactions. 
 
Before you insure any kind of transaction involving a short payoff to the existing lender, or a simultaneous closing, make sure that the following requirements have been met:
 

1. There are no violations of any restrictions listed in the short sale payoff letter or closing instructions.

2. There have been no misrepresentations as to the value or ownership of the property to the existing lender, the new lender, or the purchaser.

3. All disbursements must be made exactly as stated on the HUD-1 settlement statement, and only to parties involved in this specific transaction.

4. Each half of the simultaneous closing must be kept separate and stand on its own.  The sale from A to B must be fully funded and disbursed with money coming from and going to all appropriate parties.  The sale from B to C must also stand on its own.  The money from C’s lender must not be used to fund any portion of the A to B transaction.

 
If the circumstances of your transaction do not meet the above requirements, you must contact a Fund underwriting attorney for approval prior to insuring the transaction.