I am sure that you all have been asked recently about whether or not you are able or willing to do a short sale flip/simultaneous closing.  I know I have been asked to do one recently.   

In the instant case I told the client that I would handle both transactions, but reminded them that I had to disclose the "flip" to the short sale lender.  This of course did not please my client but that was my position and I was sticking to it.  I went on to advise the client that each of the transactions would be required to "stand alone"  and that if the short sale lender had any prohibitions in their letter of instruction to me then I would be compelled to adhere to these instructions. 

The client was unaware, as I believe many may be, that short sale letters of instruction from short sale lenders can, and do, sometimes include language that prohibits the transfer of the property for a specified period after closing.  If that is the case then obviously a title agent cannot complete the "flip" until the time period has passed and further, the title agent should disclose to the lender on the 2nd transaction the fact that the seller acquired the property pursuant to a short sale, stating the date upon which the seller acquired the property, purchase price, recording information, etc. 

I have recently read information from underwriters where they ask that title agents confirm that the short sale buyer is not related in any way to the short sale seller and that the short sale buyer has not entered into a contract or agreement that allows the short sale seller to re-acquire the property, including lease with option contact etc.  These scenarios may be in conflict with the provisions of the short sale lender's understanding of the transaction. 

It is getting more and more difficult to underwrite these transactions.  Of particular interest from an title agents standpoint are issues surrounding the issuance of a title policy to the lender on the 2nd transaction.  Additional steps should be taken to acquire the release document from the short sale lender as quickly as possible after the 1st transaction has closed and funded, if a pending foreclosure was revealed in the 1st transaction we have to make sure that the foreclosure action has been dismissed, and naturally any other outstanding issues that were revealed the 1st transaction must be resolved before proceeding on to the 2nd transaction.

A lot of clients would suggest that the title clearance and settlement fees on the 2nd transaction should be less than on the 1st transaction since the title agent has already done the title work on the property.  However I find that in underwriting the 2nd transaction there is actually more work to be done and possibly more risk to be taken on. In particular are issues surrounding creditors rights. At least one underwriter has issued a statement surrounding creditors rights issues and have offered a specific exception to be added to the owner's policy.

We need to be careful in reviewing title and other related documents in all transactions, but when it comes to short sale transactions we need to be extra diligent for our own protection and that of the final buyer and their lender.