Flip now has a title issue: what would you do?

Question

Hey BP fam!

I've been slogging through what WAS my first flip for nearly a year now (same old story here -- hired the wrong person, made other bad decisions, blah blah) and we've finally righted the ship by getting a start QB on the field and we're weeks away from market-ready now.  I can taste it!

Then Mr. Postman found me with some certified mail . . . never good.  Ever.

The sack-of-shade contractor that I canned for being so pathetic at his job that it illuminates my idiocy for hanging onto him for 8.5 months, filed a mechanics lien on the property.  Makes sense.  It won't go the distance in court if (sigh . . . . ) it goes to that, but it DOES sufficiently cloud the title and prevent a nice and simple sale.

So, without the ability to transfer the title right now, what would you do with a flip in a desirable location with a broad base of buyers looking to buy in that pricerange?

Thanks in advance for your thinking here!

Will

Account Closed · Answer

I'd sell on Lease Option for $25,000 Option fee and cash flow the property. That is all I ever do anyway.

You have three ways to deal with a mechanics lien, 1. Pay it off 2. Negotiate it off 3. Sue him for defamation of title. If you owe the money, pay the man. It can be paid at closing as well.

If you don't owe the money or dispute the claim, spend an hour with a real estate attorney and get some good advice.

Will Fraser · Answer

You've just added some incredible value to my life, Account Closed!  Thanks for diving into this strategy more and sharing the sheet!

Account Closed · Answer

I use a Lease agreement and a separate Option agreement.

When I sell to a Tenant Buyer, since I am offering Terms that they otherwise can't get, I sell the property "As Is" for a "built in equity" of an additional $10,000 to $25,000 depending on the house. So, I sell at $200,000 house for $220,000 (I bump up the sales price what the value WILL be) then I get that (it is called "the back end" when they refinance or sell. The buyers are usually successful businessmen that can't get bank financing because they aren't W2. They have good income, money in the bank and want to buy a home.

I get an Option fee up front of $20,000 to usually $25,000 non-refundable then I get the monthly cash flow and then I get a "back end" equity payoff.

When I sell it to a tenant buyer, there are no real estate agent fees, I get $25,000 immediate cash, I don't have to worry about roofs, ACs, and tenants and I get the same cash flow. When the roof or AC goes, the Tenant Buyer takes care of those. If the market tanks, my built in equity still exists. Each time I get a Tenant Buyer's down payment, that gives me Money to Buy the Next one and the Next one and the Next.

I did a basic spreadsheet at:

Average Cash Flow Per Door In Phoenix Metro Area

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

Will Fraser · Answer

Account Closed that's an awesome recommendation!  My wife and I have been reflecting on how this sticky issue may be a blessing as I would have defaulted to a standard retail sale of the home.  I understand that pathway well, but Lease Option is a mystery to me.

Do you use a purchase-option contract alongside a standard lease, or something altogether different?

Account Closed · Answer

I address those questions at my profile but I can't tell you to look at my profile even though BP allows me to put the links there, they don't allow me to point you to it. You have to be sharp enough to go there on your own. ;-)

Will Fraser · Answer

Teehee, thanks for pointing me there!  I shall now apply my point (the sharpness required) to get there, haha!

Will Fraser · Answer

@Mike M. As I’ve dug into this more I am even more appreciative of the time you took in sharing this!

How do you market these homes in order to get them in front of the people who are most interested and qualified?

Flip now has a title issue: what would you do?

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