Wholesaling and Bank owned properties

22 Replies

You can only assign a contract if the seller allows it - and I've never seen a bank allow an assignable contract. You CAN, however, offer in the name of an LLC, and then SELL the LLC, thereby wholesaling the contract.This technique is called a "disposable LLC".

Originally posted by :

You can only assign a contract if the seller allows it - and I've never seen a bank allow an assignable contract. You CAN, however, offer in the name of an LLC, and then SELL the LLC, thereby wholesaling the contract.This technique is called a "disposable LLC".

Great point Benjamin, I would love to understand this completely. Wouldn't that LLC need to purchase the property first? I don't clearly understand how a company would make a difference than a person putting the property under contract.

I have learned of using a company to avoid a due on sale clause but I'm a little baffled on this one. Would you care to elaborate a bit more please?

Originally posted by @Lee Scarlett :

I have learned of using a company to avoid a due on sale clause but I'm a little baffled on this one. Would you care to elaborate a bit more please?

HUH?  Who told you that fairy tale?  Due on Sale has nothing to do with the entity type which is recorded on the deed.

Originally posted by @J Beard:
Originally posted by @Lee Scarlett:

I have learned of using a company to avoid a due on sale clause but I'm a little baffled on this one. Would you care to elaborate a bit more please?

HUH?  Who told you that fairy tale?  Due on Sale has nothing to do with the entity type which is recorded on the deed.

 If I find the post I'll make sure to send it to you. You are right, but you're assuming the member who share said anything of that sort, and he didn't.

 The member who shared seems quite experienced, said he used it before, an there is deductive reasoning that makes me see it's doable. Before you criticize the technique, would you at least like to hear how he said he did it?

Originally posted by @Lee Scarlett :

I have learned of using a company to avoid a due on sale clause but I'm a little baffled on this one. Would you care to elaborate a bit more please?

 Lee:

Once upon a time that was a practice used - mostly with commercial real estate - to be able to sell a property along with its current financing and to avoid transfer levies; property tax reassessments, etc.

These days the due on sale wording used by lenders includes "change of control" in addition to change in ownership.  As a result, selling the company which holds (owns) the asset will trigger acceleration of the mortgage note.

Originally posted by @Roy N. :
Originally posted by @Lee Scarlett:

I have learned of using a company to avoid a due on sale clause but I'm a little baffled on this one. Would you care to elaborate a bit more please?

 Lee:

Once upon a time that was a practice used - mostly with commercial real estate - to be able to sell a property along with its current financing and to avoid transfer levies; property tax reassessments, etc.

These days the due on sale wording used by lenders includes "change of control" in addition to change in ownership.  As a result, selling the company which holds (owns) the asset will trigger acceleration of the mortgage note.

 Awesome! Thank you for that Roy. Happy New Year!

Originally posted by @Lee Scarlett :

 If I find the post I'll make sure to send it to you. 

a) You are right, but you're assuming the member who share said anything of that sort, and he didn't.

b)  would you at least like to hear how he said he did it?

on (a), I made no such assumption, but sought the source of the information, sorry you did

and therefore on (b) absolutely

@J Beard, @Roy N. offered an explanation of sorts (above). What the user had posted a month or so ago was to avoid selling the property directly by first putting it in an LLC then sell the LLC. Now Roy mentioned the word "control" which I suppose means transferring the property into a company name.

I would like to have your take on how this works or doesn't work.

@Mary 

@Mary anne Raymond undefined

No, you can't wholesale bank properties. As a buyer, you'll also be signing closing document concerning the intentions of use of the property. Lie there by selling business entities takes you down the road of fraud. 

Before you get started in wholesaling I strongly suggest you do more investigation about the practice and FL is tough on wholesalers! Not the place to be. Learn real estate before trying to learn guru tactics of dealing in real estate.

Be keen on real estate in "16! :)

Originally posted by @Roy N. :

@Lee Scarlett

If the property were owned by a company (LLC) and you sell the {shares in the} company, there will be a "change of control" of the company which the lender will treat the same as a sale of the property.

 I like it Roy, that's spelling it out for me like A..B..C..

Question: How does the bank usually gets alerted of a sale? I'm a curious pupil and like to totally wrap my mind around a subject. It is said on here that in most cases the bank doesn't take any action (tho of course it's a huge risk)

In your opinion, is it that sometimes the bank simply may not be aware of the sale. Is it possible the poster who mentioned this was saying the bank may be less likely to know about the sale of a business?

Originally posted by @Lee Scarlett :

 I like it Roy, that's spelling it out for me like A..B..C..

Question: How does the bank usually gets alerted of a sale? I'm a curious pupil and like to totally wrap my mind around a subject. It is said on here that in most cases the bank doesn't take any action (tho of course it's a huge risk)

In your opinion, is it that sometimes the bank simply may not be aware of the sale. Is it possible the poster who mentioned this was saying the bank may be less likely to know about the sale of a business?

Lee, 

It is quite unlikely the lender is watching/scanning the corporate registry for changes to directors/ownership structure, etc of companies which from which they have subscribed mortgages, though with today's computer search methods and big data processing, it is not outside the realm of possible.

Technically, as a stakeholder / creditor, the lender should be notified at the time the company is sold / experiences a change of controlling ownership.   However, it is more probably the lender only becomes aware of the change in control sometime after the event has occurred: they received a communication from new persons with whom they have had no prior dealing; or, perhaps, the source of mortgage payments changes.

If the lender does not know, they are not going to take action - however, it's not quite honest to operate with the intention of keeping your lenders / creditors in the dark.  If the do find out about the change of control after the fact (and they were not notified) chances are they will accelerate repayment of the mortgage.

In PA, the best way to "wholesale" a REO property is by doing a double close, which means you will need to buy it first (typically with a bridge loan).

As for the LLCs, I buy many non-RE related companies all the time and generally speaking the buyer assumes the assets and liability of the entity. Typically, if you tell the bank you will assume the note and make the payments, they are happy to have a performing note, even though they could technically call the note. Just have plan B in place (ability to pay off the note).

Originally posted by @Percy N. :

In PA, the best way to "wholesale" a REO property is by doing a double close, which means you will need to buy it first (typically with a bridge loan).

As for the LLCs, I buy many non-RE related companies all the time and generally speaking the buyer assumes the assets and liability of the entity. Typically, if you tell the bank you will assume the note and make the payments, they are happy to have a performing note, even though they could technically call the note. Just have plan B in place (ability to pay off the note).

 Percy,

The problem with that approach is you might well be violating the terms of the agreement with the bank. On every REO with which we made an offer, the lender has had a claus in one of their schedules whereby the purchase agrees not to dispose of the property for a given period of time (we've seen intervals ranging from 4-months to 18-months).

Originally posted by @Percy N. :

In PA, the best way to "wholesale" a REO property is by doing a double close, which means you will need to buy it first (typically with a bridge loan).

As for the LLCs, I buy many non-RE related companies all the time and generally speaking the buyer assumes the assets and liability of the entity. Typically, if you tell the bank you will assume the note and make the payments, they are happy to have a performing note, even though they could technically call the note. Just have plan B in place (ability to pay off the note).

  Very helpful Percy, I greatly appreciate your input. Happy New Year!!!

Thank you again @Roy N. Some ppl on this forum like to say "Go talk to your lawyer", which I don't discount. I just think learning and hence knowledge is a crucial part of been in control of your situation.

This may be as a REI or a businessman in general. As such, I can't say how much I am elated that you keep taking the time to spell it out as you know it. I do understand and want to say for other newbies that skipping a consultation with your lawyer is of course not an option.

Originally posted by @Lee Scarlett :
Originally posted by :

You can only assign a contract if the seller allows it - and I've never seen a bank allow an assignable contract. You CAN, however, offer in the name of an LLC, and then SELL the LLC, thereby wholesaling the contract.This technique is called a "disposable LLC".

Great point Benjamin, I would love to understand this completely. Wouldn't that LLC need to purchase the property first? I don't clearly understand how a company would make a difference than a person putting the property under contract.

I have learned of using a company to avoid a due on sale clause but I'm a little baffled on this one. Would you care to elaborate a bit more please?

 Lee, 

For what I do, I use "disposable LLC"s as such: If I find a property I'm interested in, I use a generic, established LLC, such as Sarasota Investments, LLC - insert your name here. To get a REO property under contract, the contract itself has to clearly stipulate that the contract is not assignable, and that the buyer cannot be released from liability. I honestly don't care, as the buyer is an LLC, not me personally. I have a network of buyers to which I e-mail the listing, I don't market these properties to the public. I do not offer the contract "for sale", nor do I complete a double closing - that would defeat the "do not sale within xxx days/months/years" clause of the REO addendum. What I do is sell the LLC. I collect $X for the purchase of the LLC, and the new entity is now on the hook for the closing. ALL of the above MUST be completed PRIOR to day of closing!! In other words, since the sale of the LLC has been completed PRIOR to closing, no terms of the REO addendum have been violated, and I walked away with my wholesale fee, and my client got his property cash - everybody's happy. The only headache is the $25.00 check to Sunbiz that can take up to 15 business days to clear. Without their name on the LLC, they aren't able to close.

-Ben