ATIF Refuses To Issue Title Insurance On Controversial Short Sale Deals Involving Simultaneous Investor "Flips"

In Tampa, Florida, The Tampa Tribune reports:

• It may now be a bit tougher for investors to flip short sales for big profits. Attorneys' Title Insurance Fund(1) notified its 6,000 member attorneys [last] week that it will not insure deals made with a popular – but controversial – method for closing flips of short sales.

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• In a letter to attorneys, the fund said it has become aware of short sale programs advertised on the Internet that promise to make investors lots of money with little or no work. The programs, the letter says, involve investors entering into option contracts with homeowners for "the exclusive right to purchase their property for a period of time."

• The investor negotiates a short sale with the lender by convincing the lender that the price it is offering is the market value of the property. The investor then finds a buyer for a much higher price. The sales happen simultaneously, and the investor pockets the difference.

• The problem is that "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," the letter states. [...] Critics say lenders are misled and don't realize they could be selling the home for more money. [...] Some attorneys have raised concerns that sellers could have to pay the difference later.(2)

For more, see Title insurance group's move could stymie short sale flips (Attorneys' Title Insurance Fund notified its 6,000 member attorneys this week that it will not insure deals made with a popular – but controversial – method for closing flips of short sales).

(1) The Orlando-based fund is a major underwriter for attorneys who write title insurance in Florida.

(2) If the simultaneous transactions are consummated as part of one closing (as opposed to two separate closings occurring back-to-back, using different closing agents - usually carried out in two separate conference rooms at the same location), the closing agent, as a fiduciary for the lender agreeing to the short sale (as well as to all other parties to the transaction), could also find itself having to pay the difference if the lender can establish that:

• it was defrauded in this type of transaction and,
• the closing agent either knew or should have known what was going on. title insurance legal issues