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
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