Ok. Here it goes.
As an experienced investor, I’m not interested in buying a piece of paper with a couple of signatures on it. That’s how prospective assignors are presenting their deals to me. Collect the fee, pass the paper and see 'ya. What kind of deal is that for the assignee?
Just last night I was presented an "deal" for a pre-foreclosure home with a new roof and complete interior remodel, only needing exterior paint and landscaping. There investor calculated about $35K "equity" between the 1st mortgage and the estimated After Repair Value (ARV). For a $5K, he offered to sell me this deal.
"Ok," I said. "Can you answer a few questions?"
Being a pre-foreclosure, I asked the investor about other possible liens--he assumed that there was only one mortgage. I asked about the contract he used and if he had included a safety clause to deal with any additional liens discovered--there was none. I asked if the seller had filed for bankruptcy--he said the seller was not going to file (I've heard that before). I asked how much was required to bring the payments current--he didn't have that information. After running a few comps, I asked how he arrived at his ARV because I couldn't find any sales to support his number--he said his partner had the information. Huh? When questioned, he admitted the house was in a new development-- I explained that the majority of recent sales I could find were pre-construction lots. I asked him how he (and his partner) expected to be paid--"cash up front." he said.
I graciously declined this "deal" to unconditionally give him $5K for, at best, a $20K proft ($35K minus repairs, costs to bring current, closing costs, holding costs) in a new development where many brand new homes were available for sale, with no supporting comps, no protection against other liens, no guarantee of clear title, no assurances of closing, and no contingencies if the deal went south or the owner filed BK. For $5K, I got to do the bulk of the research and due diligence and assume all the risk.
Good deal? Perhaps I'm too picky.
I’d really like to know how other investors are successfully buying assignments–especially if they are like the scenario above?
Q: How much homework do you require the assignor upfront? How do you get that information before making your decicion to buy?
(Of course, I check it all out. But, I’d like the assignor to be accountable for the information they present, especially if they want to get paid upfront)
Q: What assignment agreement to you use?
(I have one that’s adequate)
Q: How do you pay your assignment fees?
(upfront, at closing? I prefer at closing. The assignor is on the hook to write solid contracts on good deals with a good chance of closing)
Q: What contingencies do you place on payment of the assignment fees?