I've got a few here and I'm feeling really stupid asking them!
1. We buy using an option contract. Haven't closed a deal yet, but are getting close. we haven't had any complaints from the banks about using an option contract on the few deals we have submitted. Do we need to record our option with the county? I've read before that it doesn't really do anything, maybe gives you equitable interest(some say it does, others that it does not)
2. What is the interaction/conversation between the Title co. and the C buyer's lender? For instance - when the C lender has a title search run, they will see A homeowner, not me on title. does the title co just say "yeah A is selling to this guy Dave, and he is re-selling to your C buyer on same day."? And will recording our Option contract help with this process?
My understanding is that by recording the option, you create a cloud on the title. That is, the option gives you the right to buy the property. If the seller tries to sell it to someone else, the title company doing that transaction will discover the option and that will prevent this second sale.
Now, if both your AB and BC transactions are being done the same day, there's not much time for A to try to sell to someone else.
The C buyer's lender will discover you're not the owner. Don't think they will get into a conversation with the title company about what's going on. They may well just nix the loan right at the last minute. Be sure your end buyer is open with their lender about what's going on, and the lender is made aware of the situation. Best if your end buyer has cash or a flexible lender like a HML.
Q1- I would grab a trust agreement and have the trust buy the property Naming the trust the street name of the house... This helps with Q2 also... Also grab a deed on the property as soon as legally possible... .. Do not record the deed nor grant it to anyone.. It is a blank notarized document... Please dont lose it. There are various reasons for this which take more then a forum to explain... BTW once a seller signs a grant deed they dont know you didn't record it all they know is that they have sold the property. The fear of an unrecorded deed is that the seller can grant it to another party and unless one of the parties occupies the property the first deed recorded wins.. Keeping in mind that it is a short sale... When multiple people start communicating to the lender to negotiate the short the LM will advise you.
Q2- The trust is the seller to your buyer. That is the beauty of trust agreements... When you enter into the the right to sell, include on an addendum to the purchase contract, not the purchase contract, that the sellers has an unrecorded deed and the purchase is subject to the Seller authorizing the recording of that deed. The authorization is at the sole discretion of the seller. I have yet to have an issue although the trust is not on the pre...
Dave, I don't know what Jon or Michael has said but it's probably just some stuff that will confuse you even more because I hear all the time that bald guys are crazy. Especially ones that remind me of Gandalf when I see him and old school Oakleys LOL!!!! I crack myself up sometimes.
don't waste your time recording nuthin. What are you going to do when the lender rejects your offer and closes the file? Do you really think clouding the title on a property that is upside down by up to 50% or more is going to help you? Nope!
Do you want to cloud the title or buy the house?
Don't worry about what the title company and the C buyers lender say. Just worry about cashing the check.
To help yourself, I would make sure that the C buyer is aware as well as their lender that you are clearing title through the negotiations and will be executing a double close to sell to their client. If you do this when they submit the offer, they have been disclosed to and you won't have that problem to begin with.
If the crazy bald guy Michael just mentioned anything to do with trusts in short sales, just remember, he's bald so that makes him crazy ;)
1) You do not have to record your options. There are many different schools of thought about this subject.
2) This is probably the most important part of your transactions. You really need to have a meeting with your title company and make sure ya'll are on the same page. Then, they can convey all the measures to the transactions. If the end Buyers Lender is of full understanding of the entire process, they are more likely to allow it to happen. Spending time upfront with your Title company will save lots of heartaches!
Q1 - Are you intending to close on the property or are you wholesaling it? If you are wholesaling the property, why in the heck are you talking to banks about it? If you are closing on it yourself, once you know your funding options go back and have the seller sign a standard real estate contract that meets your lender's approval.
No need to record anything. If a deal falls through, for one reason or another, go find another one. Don't cry over spilled milk. There's plenty more out there. Not every deal you contract will close - that's a given.
Q2 - In regards to wholesaling, don't sell to someone trying to get a conventional loan. I've encountered this many times early in my wholesaling days. Their lenders will require the end buyer to purchase directly from the seller or they won't fund the deal. When wholesaling, I only sell to investors with cash, lines of credit, or hard money. No exceptions!
Hi Dave, IMO Jon is pretty close to what happens in our mid-west area. Trust transations are not popular in this area as they are in CA. In Missouri, a notary may not provide an acknowledgment of deeds in blank. Also, when the deed is executed is when title is conveyed not filed. Title is perfected upon the filing of the deed. It might be simpler just to assign your option to the end buyer for your option fee. Assinging an option is not a real estate transaction, it's just an assignment. The assignment allows your end buyer to purchase under that agreement directly with the seller. A good option will provide sale transaction agreements, more like an assignable sale contract. Most of the internet option agreements I have seen are really a mess, IMO and require getting another sale contract executed for the transaction. Selling the option is the cleanest way to go. I think the reason many investors go these other routes a to b and b to c, is simply because they don't feel comfortable in just telling c that they are in business and that they are making a profit. If c has paid a significant non-refundable assignment fee and they wanted the house, seeing the HUD-1 isn't going to make them walk away, and if the do, fine just let it expire and do another one and move on. Now, if your option is for 35K and you want 30K, maybe you should do a double closing and consider what an end lender is going to do and perhaps just buy it and carry it with transactional funding. Lots of ways to skin the cat, but I like to keep things as simple as possible. Also, filing a memorandum IMO is a good idea for more reasons than clouding title so the seller can't sell. What if there is an insurable loss and the place burns down? What does you option agreement say about that? What if your seller goes belly up in bankruptcy or other creditors come into the picture during your option period? What if your seller get's hit by a beer truck that on its way to Michael's house? Then what?Good Luck, Bill
wow - guys thanks for all the varied responses; its nice to know I have so many great minds to help me out when i need it!
Nick - you nailed it, I was totally confused, LOL!
Do you want to cloud the title or buy the house?
that's funny, I just read Chris Brogan's blog this morning about pursuing the goal and not the method. I love when stuff comes together in life and I actually notice it.
What exactly do you mean by "clearing title through the negotiations" though? that sounds like some fancy bs answer to give someone. are you just saying that through my negotiations with A's bank I am assuring there will be clear title when its time for C's lender to close?
Jaremy - I will be doing a double close, not wholesaling.
Bill - assigning the option sounds nice, but aren't there a whole lot more folks wanting to buy, who don't have $20K lying around to put on a $115K property? If i had more spread and less partners to split it with then I would certainly pursue assigning it to another investor.
that's funny, I just read Chris Brogan's blog this morning about pursuing the goal and not the method. I love when stuff comes together in life and I actually notice it.
What exactly do you mean by "clearing title through the negotiations" though? that sounds like some fancy bs answer to give someone. are you just saying that through my negotiations with A's bank I am assuring there will be clear title when its time for C's lender to close?
Jaremy - I will be doing a double close, not wholesaling.
Bill - assigning the option sounds nice, but aren't there a whole lot more folks wanting to buy, who don't have $20K lying around to put on a $115K property? If i had more spread and less partners to split it with then I would certainly pursue assigning it to another investor.
Hey, Good point! I like to finance deals myself, it keeps the girls from spending my money! LOL, It's all how you structur the deal, who ever gets the money can pay fot, one way or another, Gotta run, Later, Bill
It doesn't matter if you're double closing or assigning the contract - if your buyer is trying to get a conventional loan, you are more likely to encounter problems than if they are paying with cash or hard money.
I have double closed deals and assigned deals. The only times that I prefer to double close are when my profit is above $10K or if I'm dealing with an investor for the first time and I'm making close to the $10K mark. For the most part, it's easier to just assign the contract and more profitable because you don't incur any closing costs.
I agree that it would be easier to assign the contracts Jaremy. I try to make sure all my deals are at least $20K since I'm splitting profit 3 ways.
In my market there aren't too many folks who can pay me $10K+ in cash to buy a $100K house. If its a place that needs work I will try to flip to a rehabber, or if I have enough spread I would certainly flip to another investor, but I prefer to flip to retail buyers to make more $. at least until I have a solid pipeline and am doing a lot more volume
Let me see if I understand your situation a little better now. You're talking about finding a house in good condition and selling it to a retail buyer, not an investor? If so, you are going to have issues with the buyer's lender whether you double close or assign the contract, at least in my experience you will.
One way I've gotten around this is to just get an option on the deal, find a buyer, and then have the buyer contract directly with the seller. You then have the seller sign a "consulting" agreement with you and then submit the agreement to the title company to be paid out of the seller's proceeds at closing. You may need to consult an attorney in your state to make sure you're legal, but I've done it and it works.
Another way to get around this is to have the seller deed the house to into a trust (with your stake detailed in the trust docs) and have the trust sell the house to the buyer. This is a little more complex than option #1, though.
I'm glad you added 'At least in my experience' part because it would be wrong to assume that short sale flippers have a problem selling to retail buyers for higher profit.
motiv8td - I don't do any short sales, so my experience is from buyers trying to buy my "assigned" deals with conventional financing. I'm more of a "instant results" kind of guy, so the length of time it takes to do shorts (and the fact that I can't finalize a deal by negotiating with just the seller) is not in my comfort zone. Plus, in the Houston area, there are so many deals that aren't short sales it just seems to be easier for me to focus on the quick and easy deals.
I'm likely missing out on some deals since I pass on short sales, but the Houston area hasn't been hit as hard as other parts of the country and shorts aren't as commonplace as in other areas. That's why I just prefer to pass on them.
To each his own. Different strokes for different folks.
1. It's a matter of preference. I don't record it but I know it may be a matter of time before I get burned. I know a lot of people do and a lot of people don't usually. The people that do have had a deal or two stolen from them.
2. I would ask your title company how this occurs. You should have a great relationship with your title company. The lender may not even care they may just look to make sure title is clean.
For the record, I get the Notice signed and notarized by the seller. I only record the option if If there is a divorce scenario going and I think one might decide to shop around. As a rule of thumb and related to what Nick stated, it does not really pay to record a notice when the home has no equity.
I have yet to lose a deal to another investor nor have I heard any other investors losing one.
When the tide changes and there are 100 investors for every short sale lead, I may change my mind. For now, it is a waste of time and money IMO.
Brian - how does a deal get stolen if there's an option recorded? I'm guessing that another investor might look for these records, then contact the homeowner and offer them cash or some other incentive to sell to them instead of me?
Scott - kind of the same question for you with the divorce scenario; would one of the owners look for another investor to offer them something - like cash - to go with them?
Also, if you have time, would you mind explaining why it does not pay to record a notice of option if the home has no equity?
And i"m going to throw another newbie question in here - currently we don't go after any short sales where the property is already listed. my mom is a real estate broker and has a non-related agent that works for her who does all our listings. She acts as buyer's agent and we have the homeowner sign a "list/show/sell agreement" which basically states that the seller is granting the agent the right to do those 3 things, but that the agent works on behalf of the buyer and not the seller.
My question is this - how can we make offers on property that is already listed with another agent? would it be best to try and get on the listing agreement with the seller? or is there some form we could sign with the other agent that would in effect allow them to split the A-B commission, but allow our agent the right to list it for the B-C? :idea: maybe the agents could just switch roles? so the other agent becomes buyer's (my) agent and my agent becomes seller's agent? i think that's it but please let me know if I'm missing something
If not the title company someone in the deal does want to explain the transaction to an end buyers lender. If not, you are likely to have many 11th hour headaches and failed closings due to lender title seasoning issues. However, some lenders are starting to allow some back-to-back flips with conventional financing, some based upon 20% down payments. Also, FHA suspending their 90 day no-flip rule now allows you to sell to a retail buyer. (Retail=higher spread). So, more options are starting to present themselves for flip financing other than cash or HML
I use the Notice of option for effect. I tell the sellers that it protects my interest by putting everyone on notice that there is a contract on this property and i tell them it should help with those "other investors" from contacting them. So I do get them to sign and notarize it and have it ready to record if necessary.
Secondly, once I have a contract I put it in escrow. This virtually puts a time stamp on the deal and also allow me to do order a prelim title report.
Thirdly, I make a really good impression on people and I assume this also really helps with confidence levels of the sellers. if they believe your the MAN, why would they sign with less of a man. LMAO!!
Lastly, it is time consuming. This is a volume game... Get as many quality deals under contract as possible. if you are filling a notice on every deal, this is opportunity lost since time = money.
What works for me, does not necessarily translate for others. Your market could be more competitive than mine, so you might run into a deal stealer. I am in the West and that is a lynching offense! HEE HAW!!
This is a much more complex issue because state laws and MLS association rules vary from state to state. I have spent a great deal of time in California, Arizona, Nevada, and other states working with various agents and attorneys only to conclude it is not clear cut.
In my opinion, if your working with the a listed property, you need to be very careful becuase there are a lot of eyes watching agents right now becuase lawmakers tend to believe distressed homeowners need to be treated with a higher degree of protection. My attorney has told me that there are a lot of fines being levied against brokers and agents for violations of agency and lack of disclosure.
I am taking my attorney's advice and avoiding lsited properties.
Feb 08 '10, 09:29 PM
