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Is a “seasoning of title” requirement delaying your sale?

Perhaps you are in the process of flipping a house and it is a thoroughly legitimate transaction. However, you are running into an issue with the lender your buyer is using.

The lender has what is called a “seasoning of title” requirement. This will delay the transaction, possibly for months, and you are afraid you might lose the sale.

How flipping works

Flipping houses is actually a very old practice. We hear about it more today because of house-flipping shows on TV or because some kind of fraudulent activity made the news. The usual procedure is for an investor to purchase a fixer-upper property at a low price. The investor makes improvements to the property and sells it to a buyer who pays fair market value.

When fraud is a possibility

A legal problem arises when the investor purchases a property for a song, makes subpar improvements, then sells the finished product to a less-than-sophisticated buyer who will pay considerably more than he or she should. Those who are also in on this scheme will likely be the real estate appraiser, the mortgage broker and the agent who closes the deal.

All the parties involved expect to profit. They misrepresent the facts of the transaction to a lender who is unaware of the scheme, thus committing bank fraud, the main elements of which are the inflated value of the property and the falsifying of loan documents. It is the specter of possible fraud that has led some lending institutions to require the seasoning of title, which puts a hold on the deal and enables a closer examination of the details.

What you can do

As an investor, it is important for you to keep good records. You must be able to prove that you purchased the home you are flipping at an appropriate discount from a motivated seller, and that the home required renovation work before you could resell the property. You should also keep all the invoices and receipts from the workers who performed the rehab work. This kind of documentation may be sufficient for a bank to waive its seasoning of title requirement. If not, you may want to introduce your buyer to a lender that does not have such restrictions.

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ANDERSEN PLLC
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Scottsdale, AZ 85255

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