BiggerPockets

Long story short:

- This guy, call him "Yao", bought a house for $400k a few years ago
- For whatever reason he wants to get out from under the mortgage but he's been making all his payments. His credit history is bad.
- My mentor put me in touch with him.
- Yao wants to do a short sale on the place, clean it up, and re-sell it for more. The idea is, I buy it from bank at $200k and resell for maybe 330k. Comps are 350k easy.
-Yao offered me 10% of the profits
-Yao's realtor already has the place listed for $350k, and they've had multiple offers, but they're withholding that information from the bank. They want me to make a $200k offer, which they will present to the bank.
- I will carry the mortgage and a lot of risk, but is there anything illegal in this setup?

Thanks

No I'm not paying my mentor; but this guy Yao owes him money. So, Yao will benefit only as middle man; but I understand the fraud part of it.

Any more advice?

So I spoke to my mentor and this is what he told me.

First, Yeow (current owner/seller) will not (directly) benefit from this whole thing.

He said when the bank accepts the offer and I buy the place, we will add another person to the title (as a control measure against me, apparently?), and once the place is re-sold, the profit will be split between me and the person in the title.

Where can I learn more about "adding someone to a title"?

Is there anything illegal in the fact that seller's listing agent will not disclose to the bank that there were higher offers offers on the property than mine? If the agent doesn't owe fidicuary responsibility to the bank, I don't see the reason for that to be illegal.

From a "moral" standpoint I know the seller will not benefit, since whatever money is made besides my "10% commission" will go to repay his debts to my mentor (who used to be HML).

The person being added to the title is also my mentor's person. I guess he's doing it for his own protection from me?

Still, can you recommend good resource to learn about adding someone to the title and how it works and what it means?

It means you cannot sell the property until everyone agree's to sell it and you'll be stuck paying the mortage. Whose name is going on the mortgage/loan? Mentors are supposed to mentor you, not control your deals when its your name and money on the line. By putting somone else on title, you lose control and that is never a good thing.

The seller doesn't benefit? Absolutely he does. A debt he owes to your mentor will be forgiven as a result of this transaction. The IRS considers forgiven debt as income. That is most certainly a benefit.

Here's a "sniff test" for this deal. Lay out the whole deal, beginning to end, with all the names of all the people involved AND their relationships with each other explicitly spelled out. Show every exchange of money. Now, include that in the short sale package to the bank. Think they will agree?

If that document was published on the front page of your local newspaper, would you care? That sort of thing really does happen. In the last couple of years, there have been at least three times when our paper dug into some series of deals and wrote lengthy articles detailing how a scam had been accomplished. You do not want to be the subject of such an article.

"Putting someone on title" simply means all your names are on the deed. They're proposing that you and your mentor's person become the owner of the property. If I understand correctly, you're the only one that would be on the loan. So, you will be obligated to pay a mortgage on a property that you cannot sell without this other person's consent. And that's not a red flag to you?

yep, thank you for advice. I'll let you know how this turns out :)

hi ivan
I can only give you one piece of advice
if you think its fraud and you are willing to do that you can find lots of ways around and getting the deal done
the question for me are you willing or wanting to do that.
the most important thing in busiess and really the only thing in business is your own intergretty so if you are will to accept a deal that on the face of it would for me damage mine I would not do the deal
legal or illegal
even deals that are legal that damage that respect I would not do
because at the end of the day no matter how many deals I do
that respect or that reference of clients or even agents is some thing that i want.
so for me is this dodgy as I say and is it going to damage my core values
and if this one does not yours it does mine
but that just me
if you are going to try to undercut a mortgagee or funder is going to the heart of investing
the person group or company that you are undercutting is the same group I have to try to find funding from.
a bank can and does make a loss and they sell at a discount.
but it make the job of a negotiator hell of alot harder to do when things like above turn up as funder think that these are not arms length transactions.
so for me if the property was going to you and only you and the vendor was getting zip thats fine by me.
as soon as you get to giving money back and not disclosing to a funder that will come back to bite you not the vendor on the rear end
as you will want funding at some stage in your live and funders don't like that sort of this and tahts why I say in all your dealing my view is honesty is the best policy

RUN IVAN, RUN IVAN, RUN RUN RUN!!!!!!! Rich

NOW:
- I make an offer to Yeow to purchase property for $200k
- Yeow negotiates with bank for a short sale and gets it approved
- I get the loan in my name and pay off the bank
- I rehab the property and sell it, say for $320k - $20k rehab, so I have $100k gain
- I give $90k (minus taxes and whatever else) to my mentor and keep $10k to myself

Ivan, there are a lot "I's in there for you only to make $10K. You are assuming all risk and getting the smallest cut. If you do this deal you should at least be getting half, if not the $90K (or $100K). What confidence do you have that you can get the property for $200K when you are getting offers near the $330K range? Has a BPO been done already, whats is the ARV?