True or False…
Banks won’t allow you to get a house under contract if they know you intend to assign the property to an end buyer???
For that matter, would they even agree to a double close?
Thanks
<<Banks won’t allow you to get a house under contract if they know you intend to assign the property to an end buyer??? >>
Nothing in real estate is necessarily black and white. MOST banks will not allow you to assign their contracts.
<<For that matter, would they even agree to a double close?>>
Generally speaking, once you do the initial closing, they have lost any control over a second closing.
Keith
I’ve worked a lot with REO’s lately and here’s what i feel you should know…
Banks contracts are NOT assignable, what you want to do is aim for a double close. Also, put in your contract that you want to close with YOUR closing attorney, this can help smooth the whole process if you have a good attorney (or title compnay for some states).
The good news is you really don’t have to worry too much about the big bad Banks because 99.99% of the time you’re going to be dealing with the banks agent. And as we all know RE agents want to get houses SOLD! :biggrin
Just make sure your end buyer can close before your contract with the bank expires…otherwise you could be out of $1,000 earnest money. Hope this helps.
You can also put a property under contract in the name of an LLC (123 Main St, LLC). The LLC gets created after the contract is accepted. Then, you sell the LLC to your end buyer who closes the deal.
I agree that it is essential that you control the deal with your own closing attorney & lender (for your purchaser).
Chris
The bank is trying to get as much of their money back as possible. If you have a buyer for $150,000, and the bank knows it, they aren’t going to sell you the house for $90,000. They know that someone out there thinks the house is worth $150,000, so they will hold out for more money.
You are trying to convice them that the house is only worth $90,000, so they will sell you the house for $90,000. Kinda hard to do when they know you have a buyer for $150,000.
If banks contracts are not assignable…
Is it legal to do so? For instance, a year later your not going to be getting a call from some attorney or something???
Also, how do you keep the bank from knowing about a double closing? Don’t you have to provide them with the contract you signed that says and/or assign?(as an exit strategy??)Or would you do a contigency for inspection/appraisal as an exit strategy on an REO?
Girldog,
When you are doing a double close, you are actually buying it from the bank, and then your buyer is buying it from you. There are 2 separate closings. The bank doesn’t care what you do with it after you buy it. They just want it closed.
You are getting assignments and double closes confused, I think. If you are doing a double close, there is no need to put and/or assigns in the contract, because you are not (and can not) assign an REO in most cases. So, you do a double close, or a simultaneous close instead. With a simultaneous close, your buyer’s funds are used to fund the transaction between you and the bank. This way you do not need to provide your own cash. You will have to find a title company who is on board with this method, though- many wil not do them.
OR, you can buy the property in an LLC and sell the LLC at closing. OR add your buyer onto your contract, close on it together, and then give them a quit claim deed after closing in exchange for your fee.
There are ways around the non-assignability issue with REOs, you just have to get creative.
Hope that clarifies,
Steph
Exactly! I’ve handled it like this, in a nutshell…
- Get the REO under contract from the bank: Ex. 123 main street for 50k
- Get a contract for your buyer to buy from you (along with earnest money) : EX. 123 Main Street for 65k
- Send both contracts to YOUR attorney and tell them you are doing a double close.
- Keep an eye on your buyer and the loan process (Make them use one of YOUR lenders if at all possible)
- Go to closing and pick up your check for 15k
- Go celebrate :beer and do it again
ArcAngel and TampaSteph- That is really good and inspiring information you given us. I just have two questions:
-
If my exit strategy is the “Inspection Period”, than I should be good, right?
-
If I get a proof of funds letter from a money lender, what would do they usually require in return for this?
I’m ready to put some offers in on REOs. If I can get these two questions answered that will close the loop for me and I can get started. Thanks so much for the advice.
If your going to do a double closing you have to disclose to everyone involved just exactly what is going on. Otherwise good luck finding an attorney or a title company that will do it today.
So, you’re saying you have to let everyone involved know you are wholesaling & that you want to double close, or nobody(att. or title company)won’t do it? Do you know this from first hand experience or just reading up on it? Also, what state are you in, does that make a difference on this particular information?
Just asking, because alot of the information on here says that you should not tell everyone involved, because if they know they can possible get more money for the property, why would they sell it to you for less? Thank you all!
Your success is paramount in letting everyone involved what kind of transaction it is. You don’t want hiccups at the last hour. Tell everyone involved i.e. your buyer, title company, etc. The realtors and the seller (in this case the bank) don’t have to know a thing. That is your choice. As mentioned the bank wants the money you promised them to pay. That’s all they care about. If you make 100K after that on that property (exaggeration, you get the point) then kudos to you.
Don’t listen to people who tell you that title companies aren’t doing double closings or simo closings. They are. You just have to find the right title company or lawyer to do those deals.
An inspection period is not an exit strategy. Its a contingency. If your home fails inspection or the inspector finds some stuff that you don’t like then you should be able to back out of your deal and get your deposit back.
A proof of funds letter should be if you are offering cash. The want to see where this cash is so they want proof i.e. bank accts, credit lines, IRA, etc.
A pre-qual letter is what you get from a bank that states that you are qualified to buy X house.
Hope this helps,
Nate-WI
With what kind of company? The one that can make you money legally and morally? I agree. Stay away from those people :banghead
Nate-WI
A couple of things to add to the rather lengthy discussion that are of VAST importance if you are exclusively trying to learn from the forums.
#1 if you plan on doing a double closing with an end user that is obtaining traditional financing be sure that you don’t run into seasoning issues on the home. Talk to the end users mortgage company about seasoning prior to getting involved with the buyer
#2 if you plan on doing an llc/sale/assignment then be sure to have your llc established before you put the home under contract. I would recommend having a couple of llc’s done and then you always have one ready if you want to do a deal.
#3 If you plan on doing a double closing it is not necessary to let all parties know. In many cases that is why you do double closings in the first place. Double closings work great if you are working with an end buyer that does not want to see you profit very much money, because unlike doing assignments your end buyer does not see the actual amount that you have the home under contract for
#4 The reason that the inspection clause is my preffered clause is that it is completely reliant upon your opinion rather than something that can either be determined fact or fiction. Many people mistakingly use the financing clause, the trouble with the financing clause is that in countless court cases the buyer has lost his/her earnest money and or been sued because it was proven that they were indeed financable, unless of course they were willing to sacrafice their credit.
Just a few more tips to add to your aresenal.
“you can buy the property in an LLC and sell the LLC at closing”.
No you cannot. Better read up on your LLC’s. You cannot voluntarily remove yourself from membership of an LLC w/o specific operating agreement allowing you to do so. The cost would be prohibitive. If you purchase in your name and xfer to the LLC, you trigger the DOSC of the mortgage as the ownership of the property has just changed.
The bank will NEVER close a non funded entity purchase simply for that reason. At least not one without substantial track record and financials. They are not going to let “joe nobody” assign it into an underfunded entity and have no one personally responsible for the note. That’s never going to happen. If you’re AT&T, or Ford sure…but not you and I.
The minute you assign that LLC to someone else you’ve committed fraud as the ownership of the HOME has changed without the underlying note being paid off or the bank being notified. You have just broken at least a couple Federal Laws. And you’re still a member, remember?
Not to mention, if you do it this way…you’re going to be in bankruptcy court in the blink of an eye since the new owner is not legally obligated to pay the mortgage…YOU ARE. He/she can walk away at any given time without recourse as the bank is coming after you for payment.
Good luck with that. If you find a way to do it LEGALLY, and affordably I’d love to hear about it.
Vette Boy,
Yes, you can.
We’re talking about REOs here (bank owned properties), so there is no underlying note in the picture. No fraud being committed, no DOS violated, no bankruptcy court, none of that.
Not sure what type of transaction you are talking about, but it’s not the same as the one I am.
Steph :cool
I think this restriction applies to the simultaneous closing where your buyer’s money is used to fund your closing.
Whether accomplished on the same day or weeks apart, isn’t a double closing two separate settlements each with their own funding? Since the settlements are mutually exclusive, the first settlement is not impaired if your buyer backs out before the second settlement can take place.
Since I don’t buy anything I am not prepared to hold for rental income, I don’t get into these situations. I am just trying to understand the terminology. Is a double closing a synonym for a simultaneous closing, or are these really two different things?
tampasteph
I realize you’re speaking of REO’s, that said you still have a huge problem with the LLC. The first being the cost. Setting up the LLC is simple, and cheap for sure unless you’re in CA in which case it’s $800 minimum to start. The expense is in making sure there is a solid operating agreement in place. With the LLC, unless the operating agreement specifically provides a means for you to divest yourself of membership w/o disolving the LLC, you’re in it for the life of the LLC, or your own. And ONLY those who are registered members have beneficial interests.
That’s how it becomes a good protection vehicle as you cannot be removed from managing the LLC as you can in a corporation if you are sued and have a judgement levied. Again tho, that’s if you have charging order protection which the majority of SMLLC’s do not have. It’s something that has to be spelled out specifically in the operating agreement, if not you don’t have it.
So, if you buy it in an LLC…if the bank would somehow let it be deeded to an unfunded entity and not have someone personally liable for the note, which I can’t forsee happening, and you try to sell the LLC (which is an entirely different issue if it has real property with an attached mortgage in it) …you cannot divest yourself of membership w/o disolving the LLC. So, what have you gained?
You’ve just spent a ton of money to no avail, have gained nothing. Double close or simultaneous close and be done with it. The expense of the LLC and operating agreement would be severely prohibitive when you’re only going to use it for 2 hours.
If you are the manager of the LLC, and member/beneficiary you are still liable personally. You have to be at arms length to be protected by the LLC and it’s benefits. If you don’t have a property manager between you and the property, the benefits are zero and the cost is throwing money down the :flush
Vetteboy,
You are WAY overcomplicating things.
I am talking about CASH transactions here… Your statement, “So if you buy it in an LLC…if the bank would somehow let it be deeded to an unfunded entity and not have someone personally liable for the note” doesn’t make any sense. This is a CASH transaction. There is no note to speak of.
The bank does not give a crap if you are buying in an LLC, a land trust, or in your own name. They just want the property sold.
Doing a double close is more expensive, because you will have 2 sets of closing costs.
Steph
Hey,
Any decent operating agreement specifies the ability of the manager to transfer their rights to manage the entity if they choose to. Additionally, upon transfer, the manager(s) are divested of and held harmless from any and all liabilities resulting from, but not limited to, the actions or inactions of future owners or their respective assigns.
Each LLC operates under the same general operating agreement, which is used as a boiler plate…with specifics adjusted to each deal.
If title is taken in the entity, you just sell the management rights, as defined above, and the buyer quit claims the home out of the entity after purchase…if they desire.
It doesnt exist for any protection, only works with as-is Cash transactions, and is done to provide an added–transferrable–layer of ownership as the contract itself is not assignable…
Or you could just DC.
JD