question about getting around non-assignability clauses

okay, when it says non-assignable, i know you can try to get them to let you out of it, or just do two closings, but i read something that seemed interesting, yet i’m questioning its real world application.

Here:
"To recap, here are the steps in the process:

  1. Make offer in the name of an LLC. I often include the property address in the name of the LLC.

  2. Once the offer is accepted, create the LLC. Check with an attorney and/or your Department of State regarding the procedures and costs for forming an LLC.

  3. Assign/sell your membership (ownership) in the LLC to a buyer once you receive your assignment fee. Check with an attorney regarding the documents required to assign/sell an LLC.

  4. Collect your assignment fee in the form of cash or a check made out to the LLC and endorsed over to you by your buyer (the new owner of the LLC).

  5. Celebrate! Congratulations on a job well done."

This is from
http://www.reiclub.com/articles/non-assignability-clause

Now, here’s my questions and problems with this.

  1. if a bank is uncomfortable with you signing the contract with “john doe and/or assigns”, why on earth will they let you sign with an LLC?

  2. the way he advocates this is that you are signing as a representative for an LLC, yet the LLC isn’t even real at that point!! Clearly, it would be way cost prohibitive to setup the LLC before making an offer, but are you telling me that banks will let someone just come in and sign for properties in the name of a (at that point) phony LLC??

i’d have to imagine, or hope anyways, that he is actually doing this in real life, and not just making up stuff that he thinks sounds good. can someone explain how this would work smoothly?

This is the method used by Steve Cook on www.Flippinghomes.com. Steve uses this method all the time as he does most of his buying from the MLS, through a RE agent and he has to use the state board of realty contract for his deals.

The use of the LLC name to sign the contract has to do with the Board of Realtors standard sales contract, which is non-assignable, and not so much a bank since he is selling his interest in the contract to a rehabber who will be using his own cash or a hard money lender. He controls the deal by avoiding bank lending and setting his buyers up with his own HML.

You should check with an attorney in your state to see if it is truly legal for you, but he uses this method constantly in MD. In MD it only costs $100 to form an LLC so it is a cost saving over a double close in a state where closing costs are high.

yeah but do you know if it is truly legit? like is it even legal to sign in the name of a non-existant corporation? and why would a bank be okay with a phony llc, but not with personal liability through him just signing ‘steve cook and/or assigns’? I’d be more comfortable with that than a currently non-existant entity.

not trying to argue, but you didn’t really answer the main points of my questions. I know he says that’s what he does, i’m more concerned over how and why a bank would be comfortable with that when they are not comfortable with ‘and/or assigns’. And/or assigns still allows some personal liability, doesn’t it? an entity that is still just a thought cannot be held liable, and the bank knows that. So does he keep them in the dark about it, or are they okay with that, yet they won’t just let him do ‘and/or assigns’, which is actually going to be safer for them?

also i’m curious about whether or not you can even legally secure a property that way. i mean, are you allowed to sign as a representative of a non-existant entity? how do you have that right? even if it is legal to do that, couldn’t hte bank just sell the property to someone else until your llc is running, since until that point a non-existant entity is the person liable?

this sounds like a cool idea, but put yourself in the banker’s shoes. why on earth wouldn’t they just want him to sign ‘and/or assigns’, which would, assuming there’s no liquidated damages clause, allow them to sue him for specific performance or damages. They cannot sue a non-existant entity, and they likely wouldn’t sue him (but who knows), but at least he woudl have more reason to want to perform according to the contract

Hi jdeity,

My answer is that Banks wouldn’t enter into this equation at all unless you are buying an REO. The reason the LLC is formed is because the State Board of Realty Sales Contract is non-assignable. If you are working with a real estate agent you will have to use that non-assignable contract.

You can ask on the flippinghomes.com newsgroup how banks feel about the LLC in the case of REO’s.