Selling A Contract when a purchase could't be made
Investment Info:
Single-family residence note investment investment in Montecito.
Sale price: $1,100,000
https://www.flickr.com/photos/14088277@N03/albums/72157602145464785 This address has sold at least twice since this transaction. I was offering to buy this as my primary residence with loan approval. Conditions of the loan approval changed at the 11th hour and the purchase transaction could not be completed. I found two buyers willing to buy my contract to purchase as my obligation to perform had not expired. One buyer eventually bought the property and we agreed on terms that were ultimately reneged on by the buyer. Arbitration took place and the deal netted $30,000 in the end from a property I did not purchase. I sold the contract that I had a limited-time control of to another buyer, keeping the terms of the purchase agreement the same. After the fact, some people informed me about an UCC1 filing that I could've completed to secure my deal structuring. This late advice cost me. It pays to have an education when dealing with things that can go wrong.
What made you interested in investing in this type of deal?
I didn't start out doing it as an investment. It turned out to be one when the loan approval conditions changed by the lender and I decided I could sell the contract instead as the negotiated purchase price had built in equity by a seller who had multiple properties and wanted to sell one of them at a discount.
How did you find this deal and how did you negotiate it?
It was actually a listing. This was before I became a Realtor / Mortgage Broker. I was a homebuyer.
How did you finance this deal?
I convinced a prior buyer to leave cash in escrow and that I would sell the contract and them double his investment from the "contract sale". After the sale took place, escrow refunded the deposit to the original buyer, and I took some of the proceeds from the contract sale and added to the refunded escrow amount, essentially doubling his investment in one month, an incentive for leaving the escrow money with escrow another 30 days.
How did you add value to the deal?
An appraisal was conducted and the value was nearly double that of the listing price. The original buyer's spouse did not like the property as it wasn't turnkey. So when they backed out, I stepped up to make an offer.
What was the outcome?
The outcome was arbitration. I made about 1/2 of the amount originally agreed but still walked away with a net gain. The final purchaser did not honor fully the agreement. The appraisal company who completed the appraisal, the insurer of the appraisal company requested I should settle though my attorney said this was a winnable case. I opted to settle as payment was instant Vs winning the case and waiting to get proceeds.
Lessons learned? Challenges?
Get a UCC1 filing on all private deals. Keep deals involved with escrow and avoid doing deals outside of escrow.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Well yes. Chris Page and Adam McKaig. They were inspirational as they stated i essentially performed on my promise to buy via a creative way, and essentially did what a Realtor (before I became one too) would do and find a buyer for the right situation.