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Ned Carey's Comments on Real Estate Investing, Business and Finance

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Seasoning it’s not just for food any more

July 23rd, 2011 · 11 Comments

What is Seasoning?

One of the issues we used to see with financing was “seasoning”.  Lenders wouldn’t loan on the resale of a  property that was just recently purchased.  The purpose was to avoid “fraudulent flipping.”  Of course it didn’t stop fraud in just  made it tough for legitimate real estate investors to rehab and flip houses quickly.

A New Type of Bank Seasoning

Well we are seeing something similar in today’s market.  Some banks are adding seasoning requirements to  REO or  short sales properties.  The banks are requiring the property be held for a period, typically 90 days, before being resold.  I guess they figure if someone is going to make a profit it should be them.

Banks are requiring Seasoning affidavits

Here is the text from an example by GMAC

Property flips occur when ownership of one property changes several times in a brief
period of time. Property flipping becomes illegal and a fraud for profit scheme when
a home is purchased and resold within a short time frame at an artificially inflated
value. For the purposes of this statement, a short time frame is defined as a period
extending ninety (90) days from the date of the short sale transaction.

BUYER represents, along with BUYER real estate agent, that I/WE are not involved
in a for profit scheme to flip the property and that there are no current agreements,
written or otherwise, to immediately re-sell the Property at a higher price, and that no
transactions of this nature will take place within ninety (90) days of the date of
closing on the short sale transaction.

I/WE represent that there are no relationships between any parties involved in the
transaction, including BUYER, SELLER, FINANCING COMPANY OR
INSTITUTION, NEGOTIATOR, or REAL ESTATE AGENT.

I/WE understand that any information associated with the short sale, may be made
available to federal, state, and/or local law enforcement agencies for such action
within their jurisdiction as they deem appropriate if illegality related to this short sale
is discovered.

Bank of America sues Investor

I heard a story from an attorney, that Bank of America sued an investor because he had quickly resold a property for a profit.  (Sorry I can’t confirm this because if you search Bank of America and lawsuit there are just to many responses to filter through).  Their basis was because the investor  defrauded the bank on what the property was worth.  Oh come on now, Bank of America has all kinds or resources at it’s disposal.  They can click a button on their computer and get a automated valuation model in about 30 seconds.  They have real estate agents which are essentially on staff.

If they wanted to know the condition of the property they could get off their fat asses and actually go look at  the thing.  In most cases a two minute walk through would tell them the overall condition of the house.

This is laughable on the part of banks.  Basically only investors buy bank owned properties.  Of course the investor expects to sell the property for a profit.  That is why they buy it in the first place.  Banks are proving once again they know nothing about real estate or business.

Fortunately this isn’t happening on every transaction.  It’s just another roadblock that we have to get around.  It shouldn’t stop you, but is something you should know about so that you can structure your deal properly

Happy investing,

Ned

Tags: real estate

11 responses so far ↓

  • 1 Brooks (3 comments.) // Jul 28, 2011 at 1:03 pm

    Nail on the Head Ned. That type of control is ridiculous.
    “Yes, we need to sell our houses. Yes, we’re willing to take losses on them. Yes, we have thousands of backlogged inventory that we’re looking to sell. Yes, we check the value multiple times. Yes, you can buy at this low price. No, you’re not allowed to make money. Why were you buying this house again??”

  • 2 Ned // Jul 28, 2011 at 2:39 pm

    Exactly Brooks, Thanks for stopping by and commenting.

  • 3 Sire (6 comments.) // Jul 29, 2011 at 12:49 am

    I’ve never heard of seasoning before Ned, and I’m pretty sure that the banks over here don’t use it. Having said that though most people tend to keep houses for awhile because if they don’t they would have to pay the government a capital gains tax. That being the case the only time that would be viable would be if there was a huge profit.

    The only way you can get out of paying the tax is if you live in the house for a year.

  • 4 Brooks (3 comments.) // Jul 29, 2011 at 1:46 pm

    Real Estate Investors [rehabbers at least] unfortunately don’t have the luxury of holding a property for a full year.

  • 5 Liz Benitez (6 comments.) // Jul 29, 2011 at 4:50 pm

    Is there not a difference between flipping and predatory flipping? A way it is legal to purchase low and flip to sell for a profit. It doesn’t seem this policy differentiates between the two.

  • 6 Ned // Jul 29, 2011 at 11:08 pm

    @ Sire the idea was to stop bank fraud. It is a silly rule. You don’t have silly rules in Australia do you?

    @ Liz, yes there is clearly a difference. Also yes, the policy doesn’t distinguish between the two and doesn’t address the real issue – fraud. It’s just another stupid policy.

  • 7 Sire (53 comments.) // Aug 3, 2011 at 7:55 am

    Sure we do Ned, and every one of them originates with the government 😉

  • 8 Ellie Kenon (1 comments.) // Aug 3, 2011 at 9:08 am

    politicians and bankers are screwing up the world, unfortunately both seem to me a necessary evil

  • 9 Ned // Aug 3, 2011 at 11:49 pm

    How true Ellie. Thanks for reading and commenting.

  • 10 Clay (1 comments.) // Aug 15, 2011 at 9:37 am

    You are absolutely right about Bank of America and what a pitiful excuse that was on their part. Given the billions of revenue they make each quarter, you’d think they could hire someone to look into property values. Good post!

  • 11 Jason Homes (4 comments.) // Jan 31, 2012 at 4:32 am

    I never knew what bank seasoning is until I read this posts. And I agree with Ellie that politicians and bankers are necessary evil in this world.

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