How do I collect a fee?

Question

I have a buyer who has agreed to buy a home for $140K (knowing that I am going to collect $10K).  I have a home which the seller will sell to me for $130K.  The home will appraise for $160K and the buyers will need to use FHA financing.  Can anyone tell me how to do this deal, avoiding seasoning issues, quickly?
            THANKS! 
            
            Colorado
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Jonathan Rexford · Answer

Option to buy for 130K
Have Seller and Buyer go into contract for 140K

You release your OPTION to buy for 10K show up on seller side of HUD.

No seasoning. No lender worry.

To record your interest in the option just record your option or your notice of option.

Now with recent underwriting guidelines it may have a funding issue.  If you can stick with local banks you should be ok.

I ain't a fan of FHA, but it may work.

Dory Peters · Answer

First, open a binder (for 1-2 years) with the title company that you plan to use.  It's cheaper than a double close, and you don't have to perform both closings on the same day.

Second, if the seller isn't a bank, then you could use either a double option or sandwich lease option to control and sell the property, and to work around the seasoning issues.  In either case, make sure to record your option with the seller, so that you'll cloud the title.  Also, make sure that the duration of your option (12-18 months for a lease-option, or no longer than 6 months otherwise) with the seller is longer than the duration of your option (3-4 months in both cases) with your end-buyer.  When your end-buyer is ready to exercise his/her option, then you can also exercise yours, and handle both closings.  Although there are several other ways to handle the buy/sell, I won't belabor my point.

Third, if the seller is a bank (ie the target property is a (pre-)foreclosure, REO, or short-sale), then you'll probably have to buy the target property with conventional or private money.  Nevertheless, you could still use an option or lease-option for the sell-side of your deal.  Also, make sure that you properly structure the sell-side transaction so that you'll not have to come out of pocket for your holding costs--especially if you opt to buy the target property with private money.

Fourth, ask your end-buyer to ask his/her lender for their underwriting criteria to do a rate-and-terms refinance (for the FHA and other loan products).  You may find that it will be easier for your end-buyer to purchase the property from you using a wrap with a 1-year balloon, and to refinance you out of the deal 3-12 months later.

Will Barnard · Answer

You are right. Once you have ownership of the property, FHA requires 90 days of title seasoning so that will not work.
Trying to double close to an FHA buyer these days seems to be way more trouble than it is worth. It was done much easier before, but the new requirements make it next to impossible.
Is your seller a bank or a private owner? If a bank REO, "forget about it" as we Italians say. If a private seller, then (only if they agree) you need to have a VERY open purchase agreement or option agreement that allows you time to extend and extend again, closing dates in consideration of the fact that FHA loans rarely close on the day they are scheduled for.

Christopher Johanski · Answer

Nationwidepi, wouldn't Chris still have a problem with seasoning?  I do have a title co., that will do these double closing and I have transactional funding source but I have this exact problem with a property that a seller has agreed to sell to me for 210 and my buyer has agreed to buy for 240 but the end buyer has a pre approval from a FHA lender, can't go to conventional lender becuase was manually underwritten that allows end buyers better deal than any conventional.  Can i option contract it and flip in one day to fha then?  The end buyer is happy to pay me the 30k fee from the seller's proceds but I dont think FHA will allow?  Thanks.
cj

Will Barnard · Answer

Chris,
The potential problem with Craig's suggestion is that the additional fees in assignments of purchase contracts and assignments of option contracts are not recognized by the end buyer's lenders and they would have to come out of pocket for those fees. In other words, if the purchase price is $130k and the assignment fee is $10k, the end buyers lender will only lend based on the $130k and the $10k fee would have to be paid in cash.
The way around that is to double close but that is easier said than done. Double closings are difficult enough finding the right title company and having e=verything go smoothly enough at the end for it to work. Doing this with an all cash buyer is much easier. With an FHA lender, it is very common for closing to be delayed due to the need for another document or some other BS at the end. This would hinder the ability to double close. You will need a very loose and open ended purchase contract with your seller allowing you to extend the close date at your option to allow for the problemtaic FHA lender demands of your end buyer. Not only that, you will need to record your option contract with the county so that when title is run by your end buyer's FHA lender, you show up.

Craig Grella · Answer

You can purchase the house from the seller using an option agreement with a purchase price of $130k and then assign the option to the buyer for a fee of $10,000.   That's perfectly legal, and very common, in all the states i've done business in.

Without knowing all the laws and regulations regarding real estate in the state of colorado, you might want to check into whether you need to have a real estate related license or broker's license to do so.  Most states have rules about how many times you can do that.  Over a certain amount of transactions they consider you to be a real estate broker/dealer and require you to have a real estate license.

You can also look into using some sort of finder's fee agreement with the seller.  Rather than have the seller sell the property to you, you would have the seller go into contract with the buyer directly and your fee agreement would stipulate you receive that 10k fee at close.

Good luck.