Real Estate Agent · North Jersey, NJ · Member since 2008 · 287 posts · 51 votes
Hey guys, so I have a cash buyer on one of my short sales that wants to close with the bank in his name. We already agreed to a price and he showed me his POF so I know he is serious. Now the bank is asking me to submit a final contract and I am wondering what is the best way to do this....Should I ask him to pay me the difference in price now and hold it in escrow until we close? That way I will continue to negotiate but it will be in his name. Or should I just add him to my own contract and then back once we have an approval letter.
What is the cash buyers motivation for going around you? If they are a cash buyer, then you no seasoning restrictions and can do a double or simul close.
In my opinion, you lose control of the deal if you allow him to close. By placing money in escrow, and making that money contigent on when he closes makes you an agent not an investor.
I would go back him to and state he needs to buy the property from you, and after you buy it from the homeowner or no deal. If its a good deal, there will be another buyer who wants it.
What is the cash buyers motivation for going around you? If they are a cash buyer, then you no seasoning restrictions and can do a double or simul close.
In my opinion, you lose control of the deal if you allow him to close. By placing money in escrow, and making that money contigent on when he closes makes you an agent not an investor.
I would go back him to and state he needs to buy the property from you, and after you buy it from the homeowner or no deal. If its a good deal, there will be another buyer who wants it.
Well, the property is need of rehab. He is a contractor and wants to fix and flip it himself and he said too many transactions showing up on title would raise red flags to his end buyers lender.
Honestly I don't have any other buyers at this time and his offer is very close to asking price. He owns around three properties in the neighborhood so he is willing to pay a little more.
Doing the double close would likely cause him to back out. I don't mind submitting the contract in his name I just want to do it legally without getting screwed by this guy. I figured a non-refundable "referral" for the difference would be the best way to do it so he can't back out.
Justin you said by doing it this way it would make me an agent, does that mean I can't do it b/c it's illegal?
This sounds like you have found a property that is listed with a Realtor. You are going to have a difficult time working this deal. See, most Realtors do not want you to jump into the middle of a deal. Not to mention putting yourself into a short sale!
Please explain the entire situation and I assure you , we will be able to help you out.
The property is listed with a realtor that works for me. However I found the property through my own marketing and have full control of the deal including negotiations. The realtor only listed it on the mls for me but is not really involved in showings or anything else. The buyer I found doesn't have a realtor either.
He is a contractor that saw my for sale sign and made a cash offer.
Everyone received full disclosure. The buyer simply wants to close directly with the bank (A-C) and pay me on the side so he can fix it and flip it on his own. That way the title companies won't raise any red flags for his end buyer.
So instead of... A-B B-C then C-D
it will look like A-C, then C-D with (B) getting paid on the side.
Now I am at the point where the bank is asking for a final contract to be submitted. The buyer has already agreed to pay me the difference of what his offer is and what I get it for...so my question is.....how should I proceed?
Do I ask him to pay me the difference now and hold it in escrow until he closes? Or is there a better way
Since he's all cash, I would let this close A-C and put a "loss mitigation" fee on the HUD-1 so you're paid out at escrow. Otherwise like you said, you're going to have to get paid on the side and unless you really know this investor, it could be pretty scary. Did you make an offer in an LLC or Corp? If so, you could always sell your interest in the LLC/Corp just before closing and that would cover your fee.
Just my 2 cents.
Best of luck on this.
Moe
Originally posted by Lafi Siyam:
James,
The property is listed with a realtor that works for me. However I found the property through my own marketing and have full control of the deal including negotiations. The realtor only listed it on the mls for me but is not really involved in showings or anything else. The buyer I found doesn't have a realtor either.
He is a contractor that saw my for sale sign and made a cash offer.
Everyone received full disclosure. The buyer simply wants to close directly with the bank (A-C) and pay me on the side so he can fix it and flip it on his own. That way the title companies won't raise any red flags for his end buyer.
So instead of... A-B B-C then C-D
it will look like A-C, then C-D with (B) getting paid on the side.
Now I am at the point where the bank is asking for a final contract to be submitted. The buyer has already agreed to pay me the difference of what his offer is and what I get it for...so my question is.....how should I proceed?
Do I ask him to pay me the difference now and hold it in escrow until he closes? Or is there a better way
Usually, the realtor is working for the seller even if you brought the property to the realtor unless the seller already has a realtor who represents him/her. In this case your realtor could not list it on the MLS since he/she doesn't have a contract with the seller. You can do what I do. I have several buyers whom I have a separate consulting contract signed and witnessed which make my buyer oblige to pay me the agreed sum at closing. I let them buy it directly without the double closing. I do, though have them sign the contract prior of showing them any property. I work with an agent who set up the deal and so far I didn't have any problem. If you go with contract like this, make sure that you have a clause allowing you to put a lien on the property should your end of the bargain is not fulfilled.
Well I am using my LLC but I would prefer not to pass on my rights to it. I think the consulting contract makes sense in this situation. Thanks Eddie and thanks everyone else for the advice..
When using a loss mitigation charge on the HUD 1, the seller's lender may question the charge when going A to C.
Some lender's will not care if you charge the fee, but others may be unable to accept this fee. Some lenders work with an preapproved list of acceptable HUD 1 fees with some capping the amounts.
It might be wise to have a conversation with the negotiator before making a decision. Also, get the loss mitigation fee itemized on the approval letter. If thye give you a hard time about it, tell them you will sweeten the pot by increasing their net proceeds.
Also, loss mitigation fees will most often be called into question when they exceed agent commissions. If you are expecting to charge a fee greater then 3%, then I would definetly get this approved by submitting a new HUD to the negotiator and get the loss mitigation fee on the approval letter.
Lastly, when submitting the title company submits the HUD 1, have them do it several days prior to the scheduled close. I have had the transaction halted because the negotiator I was been dealing with was not the same person who approves the final HUD 1.
Additionally, find out how much more your end-buyer is willing to pay to have a clearer title. Generally, this would net the contractor more on the flipside and I would then negotiate a slight increase to the offer price.
Well the loss mitigation fee is actually paid out to my negotiator(who I found after countrywide laid her off back in 2008) :) I have an agreement that I don't have to pay her if the bank accepts her fee and if they don't than I will pay from my proceeds.
I'm not sure if the fee has anything to do with this specific situation though since I don't use my name or my company name as the one asking for the fee. Therefore I am only an independent buyer so switching it shouldn't be a problem. Who knows this is my first time in a situation like this I guess I will find out soon enough. Thanks Scott!
Well the loss mitigation fee is actually paid out to my negotiator(who I found after countrywide laid her off back in 2008) :) I have an agreement that I don't have to pay her if the bank accepts her fee and if they don't than I will pay from my proceeds.
I'm not sure if the fee has anything to do with this specific situation though since I don't use my name or my company name as the one asking for the fee. Therefore I am only an independent buyer so switching it shouldn't be a problem. Who knows this is my first time in a situation like this I guess I will find out soon enough. Thanks Scott!
Lafi-
Thanks for clarifying. If that fee is going on the buyer's side, then only disclosure is necessary.
Sorry it has taken me so long to reply. I had several meetings and got bogged down.
After reading this entire thread, here is my advice. Either have the title company hold it in escrow. (With a signed agreement between you and the buyer.) Or better yet, but will cost more money, call your attorney.
Thanks James, I called my attorney and he agreed to hold it in escrow. I am taking Eddie's advice about putting a lien on the property if he doesn't pay but at the same time holding it in escrow would make it safer for me even though I don't really have to. I haven't closed a deal like this before so I think playing it safe is more important even if it will cost me a bit more.
Thanks James, I called my attorney and he agreed to hold it in escrow. I am taking Eddie's advice about putting a lien on the property if he doesn't pay but at the same time holding it in escrow would make it safer for me even though I don't really have to. I haven't closed a deal like this before so I think playing it safe is more important even if it will cost me a bit more.
The problem with holding it in escrow is that it must be officially part of the escrow transaction and therefor it has to be put on the HUD-1 settlement. That can raise some eyebrows and possibly some resistance if there is a loan involved or a bank involved (As a seller which is not the case here), however, since this is a short sale, the bank who hold the note may have an issue with it being part of the HUD-1. Check with the title company first.