problems with owner financing

6 Replies

I am a wholesaler and I would like to get into owner financing. Sometimes I get sellers that are willing to finance. I'm told I can match buyers with sellers and collect just as much as wholesaling. My question is how do I get my fee. Some say the deposit, which I don't understand and others say off the payments. Which is it and how? 

I find owner finance buyers for some of our houses, and get paid 1000 to 1500. Qualifying the buyers is critical per dodd frank, need documented income, down payment, job. Plus, you don't want to get the house back in two months and have to foreclose. 

@Everett Marshall  

Never had a wholesaler bring is vendor carry, but have had one crop-up where a real estate agent was used.

With the real estate agent it is simple to detach the vender and lender roles. The vendor remains responsible for paying the commission.    The lender requires whatever amount of downpayment and writes a note for the remainder in exchange for the mortgage on the property.

In the case of a wholesaler, your payment is usually layered as a markup on the price of the property, so I guess you would need to ensure the downpayment made by the buyer was sufficient to cover both the downpayment requirements of the vendor and your markup.

When you start doing this, it kinda makes your payment look more like a fee for service or commission.  Here you would require a licence to be paid a commission.

Just like in a standard wholesaling transaction, the simplest solution is to take an assignment fee. That way you don't have to worry about licensing laws or whether you're practicing real estate without a license.

Another option is to buy the property with seller financing, mark it up, and sell it with seller financing ("wrapping" the seller financed loan that you got from the seller), or as a lease option. In that case you should make more money, but you'll have management to deal with.

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@Nate T.  undefined

I do a lot of these and lease option assignments (where are you are advising buyers and sellers on selling their homes and buying homes, entering into a contract as a lease option with your LLC) and assigning that for a 3% assignment fee

1. If you want to do a lot of them the real estate board in your state is going to get some kind of complaints from other licensed brokers saying you are talking to sellers and buyers about buying and selling homes, so I would get licensed, even though you're only assigning a lease option contract

2. If you're taking any part of an option fee in the contract and then assigning a contract , the CFPB and Dodd Frank look at that as some kind of financing arrangement as per my RMLO, and I want to protect myself in case the tenant buyer gets a lawyer and says that the "ability to repay rule was not followed".

Bottom line get a RMLO with lease option assignments and underwrite the tenant buyer.

If the buyer is not going to live in the house, IE an investor, there are no Dodd Frank regs you need to worry about.  Brian does bring up a point that wholesalers are always on the boarder with,, being acting as an agent / broker regs per state.  

Be clear with the seller, you buy real estate with a P&S contract with earnest money at risk.

Be clear with the buyer, that you either sell real estate you control, or cleaner and with fewer legal issues, you assign P&S contracts. Maybe a P&S with a seller mentions financing. No big deal, it's just a P&S contract you are assigning.

Steer clear of occupant buyers, assign contracts, and you'll have fewer legal risks.

Well, here comes the parade pooper again, a PS contract that "mentions" seller financing may not be assignable it depends on how it is mentioned. You can not assign an obligation to lend or finance, that is unique to that proposed borrower. If you say that the seller will consider seller financing, that would be fine as the seller has the opportunity to agree or deny that buyer.

Trying to pick up a spread on a residential deal gets into more than Dodd-Frank, taking payments may put you in a servicing position, a real estate license won't help you there.

I could spend an hour easily pointing out the issues, I won't as some searching on seller financing here on BP should paint that picture.

There are other issues, buying at one price and adding to that with some arbitrary amount can put you in a predatory financing/dealing position, if you don't add value to the property. Your sale just set a base line as to its value, you'll need to show that such value was not the market value, can you prove that? Being reasonable can keep you out of these concerns. Staying within that arena, a wrap or Sub-to isn't going to be worth the risks and hassle I assure you.

Stay with your wholesaling, stay away from trying to finance passing that through to a residential buyer.

I can tell you from experience, if you have anything to do with a financing deal, you introduce the option, you advise, you provide documents, give assurances, accept a payment, when that borrower defaults and the lender gets an attorney to foreclose, you'll be getting a phone call, that lender may love you until that attorney explains your responsibilities. Can you defend yourself as the originator? Doubt it. Stay away from getting involved in a SF deal unless YOU are the borrower or lender. :)

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