How do I word offer when entity does not exist yet.

Question

Hi BP,

I'm working on an offer to purchase an REO property, financed on commercial money. The property will be purchased and held in a yet to be formed, entity between Myself and one partner. In Wisconsin an LLC can be formed in a few days but We are not quite sure of the Operating Agreement untill the terms of sale are complete.

I've had conversations with the bank that owns the property and I think that were pretty close on terms. Now I want to get it under contract. There are a buyers and sellers RE agent involved.

I just want to be upfront with all parties involved and avoid snags in the future.

So Who's name goes in the purchasers box? The two partners?

Thanks, John

Jon Holdman · Answer

Here in CO it takes five minutes on the secretary of state's web site and $50 to create an entity.  Anyone can do it.  Can you do that in WI? If so, just do it.  Looks to me like you can, for $130:

Wisconsin Limited Liability Company - Directions

The bank will almost certainly NOT let you assign the contract, even if you put that in your contract.  If they accept your offer they will send back a stack of addendums.  One will forbid any assignment.  If the person on the contract doesn't close you won't have a deal.

Steve L. · Answer

John Adamkewitz or assignee

Or

Entity TBD in Escrow

Jerry W. · Answer

The language I have seen used is Buyer:  Jerry W. or subsequently formed corporation.

Adam Johnson · Answer

I'm about to say something that might resemble legal advice, but that isn't my intent.  Speak with your attorney about this.  The issue is not with John "and" assigns versus John "and/or" assigns.  Dropping the "or" means that you personally along with the unnamed assignee would share ownership.

My previous point was that you need to clearly communicate to the seller, likely through the listing broker, that your intent is NOT to set yourself up to wholesale the property, but rather to CLOSE the transaction in the name of a yet to be formed entity that you will be in control of.

What you are trying to do is not all that unusual.  Clearly communicating what you are trying to do will make it a lot easier!  Asset managers and other more seasoned real estate practitioners quickly recognize an assignable contract, no matter how it was written, and many strongly oppose them out of fear that it will waste time/money.  They want to deal with a principle (you or an entity that you are in control of) directly.

Just be honest and fully explain yourself in the offer.  In addition, before as well as after the offer is written, contact the seller's representative and clearly verbalize that this is your intent and see what objections they might have so that you can deal with them.

Good luck!

Adam Johnson · Answer

My response would have mirrored @Joel Owens .  One consideration for this or future deals is to clarify that the assigns will be a "related" entity in which you explain "related" best possible.  This is especially true with REO properties or those owned by more sophisticated sellers that have been around the block a few times.  Generally these more seasoned sellers are alert for somebody trying to be sneaky about locking a property up under contract and then selling the contract off before closing, aka "wholesalers".  In most cases, they want to deal direct with the principle's, not some yet to be determined party.

Explaining that you are/will be the principle in the transaction, but simply don't have the entity formed yet, will help grease the wheels a little.  Removing as much of the doubt with your initial offer as you can will increase the chances of them accepting you as a "real" buyer versus somebody that just spent 6 months salary on a get-rich-quick guru seminar that tells you to write assignable contracts.

I understand what you are trying to do and it makes a lot of sense.  Your goal should be to make sure that the seller understands it as well.  Best of luck.

Joel Owens · Answer

Sometimes an REO bank seller will not allow a blanket assignment in the contract.

In that case you would want a clause that says you are allowed to assign it into your llc etc.

The reason is the bank has seen your qualifications to the get the deal done but they do not want it assigned to some mystery buyer they know nothing about. Assigning into your entity once it is created is typical for commercial while under contract and before closing.

No legal advice

John Adamkewitz · Answer

@Adam Johnson @Jerry W.

I agree, I talked to the asset manager this morning and laid the "or subsequently formed corporation" language on him, I also assured him this was not an attempt to re-assign the contract. So I sounded like genius for at least 5 seconds of the conversation. Not so sure about the other 4 minutes. ;)

He responded, "Thanks for the call, we're working on a counter offer right now, You should have it back this afternoon".

I offered about 55% of asking and at least wasn't rejected. Lot's more work to do now.

Thanks, John

Adam Johnson · Answer

I like that, I will remember that the next time I need to use it.  Now I can say that I learned something today!

John Adamkewitz · Answer

@Adam Johnson and @Jon Holdman  Thanks Guy's for the good advice.

I should add some info, My partner is My Attorney of 10 years. He was on vacation to a place with no cell coverage, I had received info (Not from My RE Agent) that another possible investor offer was coming in, early this week coming.

I may have been shilled or not, it did'nt matter as I wanted to be on the table first. I'm speaking directly to an asset manager, and I'm smart enough to know that they are very slick and well versed at what they do. Most of the time.

Anyway I appreciate the info given because it helps Me understand better, what My partner is doing at Our next meeting, and that is Priceless.

John

John Adamkewitz · Answer

@Adam Johnson , Thank You.

Perhaps the key wording should be John "AND assigns"

The "and or assigns" offer went out this morning, I will follow up with a phone call Monday morning to the bank. I have about 30 hrs into this deal with more diligence to follow, all in an effort to know what I was doing.

It's all in the damn details.

John

How do I word offer when entity does not exist yet.

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