What is included in the HUD

Question

I am completely new to investing in real estate and so I went out to find a mentor who I knew from home and I considered my friend. He wholesales, does contract, and whose girlfriend is a real estate agent. Within a week he called and said he found a house that met my criteria.

Acquisition: 45k

Rehab: 6k

ARV: 61k-65k

I felt pressured throughout the whole process which i understand is the case when you are flipping a home so i never brought it up. However, his gf (real estate agent) asked that I get a cashiers check for 43k by sending me a picture of only section of the HUD and not the whole document. I requested the whole document and when received to my surprise the sellers price was 28k. Dont know really what to make of it. If im honest i placed too much trust and did not do my hw on the property. I am not sure if the house is even worth the 61k-65k or if the rehab is really 6k since he got it so cheap. After calling and asking he said he did not acquire the house for that cheap. Is that possible? Or is the price sated is what he got it for? Like i said i am completely new to this and i am not sure if he is lying about the whole situation to get the most money from me.

1. How do i go about finding the ARV of a property?

2. I have 2k in earnest money. If it does not go through can i get that money back? if so, how?

3. Assignment fees were 16.5 k and he claimed its not for him. What questions musty i ask?

Any advice will help. Might've not been clear enough so feel free to ask questions.

Thank you

Jeff Copeland · Answer

Hi Gabriel,

This whole deal sounds a little shady. For the right deal, a $16k assignment fee might make sense, but only if it's disclosed and everybody knows what they're getting into. $16k on a $60k property sounds outrageous. The fact that they tried to hide it from you makes matters worse.

At a glance, a $6k rehab sounds really low (most "typical" rehabs are $20-30k), and the spread between your purchase price and the ARV seems really tight - especially if you are uncertain about the rehab costs and the ARV.

With regards to your questions:

1. With regards to determining ARV, See my post at http://www.biggerpockets.com/forums/88/topics/1848...

2. That depends on the contingency clauses in your contract - did you include an inspection or financing contingency? See my post at http://www.biggerpockets.com/forums/93/topics/1838...

3. It doesn't really matter who the assignment fee is "for" - If it's on the HUD, you still have to pay it unless you are able to get out of the contract.

If you are able to get out of this with a contract contingency, that would be your most direct and simple option - you and the seller need to execute a cancellation of the contract and request your earnest money back from whoever has it (is it a title company or the girlfriend's broker? If, for some reason, the girlfriend/agent has your earnest money, that in itself might be a problem, and a violation. Here in Florida, agents are required to hand over all earnest money deposits to their broker or a title agent within 24 hours).

If an independent third party such as a title company has the earnest money in escrow, and the seller doesn't dispute it, then they should return it promptly.

If that option doesn't work out, I would suggest contracting the girlfriend's broker and explaining the situation. As a licensed agent, at a minimum, she has a duty to be open and honest, deal fairly, and account for all funds. Sounds like you're questioning the open and honest and fair part, and the accounting for all funds part might be an issue as well - so you might want to make a call to her broker regardless.

Good luck!

Wayne Brooks · Answer

You are getting hosed, plain and simple. Even if the rehab and ARV are correct, there's no money. You'll have at least $6k in holding, closing and selling costs. They are ripping you off, and since the girl friend has a real estate license, I'd tell her you're going after her license if you don't have your EM back in48 hours.....then do it!

Gilbert Dominguez · Answer

Besides her broker I would say its time talk to a real estate attorney and for God's sake do not sign anything anymore and certainly do not give up your $45K or whatever it is.

This so called mentor is for sure not your friend but taking full advantage of the trust you placed on him.

If you are lucky enough to get your money back and even if you are not give yourself more time to get yourself better and more completely educated about real estate before you try another deal.

Wow! just think if they are cheating you so bad right out of the gate what could be their intentions toward you if you were going to depend on them to guide you through the entire process of purchase, rehab, and sale?

Time to put up your defenses best you can and whatever happens hold on to your money for dear life. Never close, do not sign or agree to anything more , do not even listen to anything that does not include letting you out of the contract and giving you your money back.

Get the hell out of this deal whatever it takes and get the hell away from those people.

Do it !!!!!

Jose Salcedo · Answer

Trust yourself and walk away. Never convince yourself to do something that doesn't feel right. Make sure you perform the right due-diligence on the next project and do your risk assessment. Best of luck.

Wayne Brooks · Answer

To be clear....your "Mentor", like many, is not trying to be a mentor to you....he's looking for a pipeline of suckers.

Wayne Brooks · Answer

Unless you can hold your contract up to the screen for us to read, I'm not sure what you signed. An assignment agreement should call for "an assignment fee of $xxxx" along with a copy of the contract that is being assigned. Otherwise you don't know the terms of that contract you are being assigned. Not sure how the other wholesaler is a party to your contract. I'd be curious to see how this was worded...."we're assigning an undisclosed contract, for an undisclosed feel, but bring $45k to closing"? The way this was structured tells me the agent is likely at risk of losing a license. I'd be happy to review anything you have, simply to see how these shaky guys operate.

Gabriel Haro · Answer

@Wayne Brooks that's right it was an assignment but I was only aware of the 45k I was paying and didn't see the 28k sellers price until I received the HUD one day before closing. His name does not appear on the HUD there was two assignment fees to different parties. 10k for the realtor (which they'd split) and 6.5k to another party I don't know (they're the ones that will not sign)

Other than speaking to the broker about reporting her, what other steps can I take to get the EM back?

Wayne Brooks · Answer

@Gabriel Haro Just to clarify; What kind of purchase contract do you have with your"mentor"? If it was an assignment, you would have already known the underlying purchase price. If you had a purchase contract with your mentor, with him double closing, you wouldn't be seeing the HUD from the first transaction. One reason I ask is that the "other person who will not sign tom release the EM", sounds like the owner, who I'm guessing you don't have a contract with.

Mike D'Arrigo · Answer

@Gabriel Haro You're being lied to plain and simple. If the HUD says they paid $16K then that's what they paid. The title company didn't just make that number up. I'm glad you're walking away from the deal. Never do business with anyone you don't trust.

Gabriel Haro · Answer

Thank you for all of the advice.

I called the title company to request my earnest money back. There is another party involved who will not sign to release the money. I will be getting in contact with the broker tomorrow and sharing the situation with him as well as reporting her to the Texas Real Estate Commission.

And thank you Jeff for taking the time of day to talk over the phone and lend some advice, it was greatly appreciated.

What is included in the HUD

What is included in the HUD

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