Can you "assign" a contract to a buyer who is using conventional financing?

Question

Just wanted to know if you can assign a contract to a conventional buyer? I assume you can but I hear the term "cash" buyers quite a bit in wholesaling examples. Thanks

Bill Gulley · Answer

This, in reality will be rather subjective. Conventional financing begins in the application process by reviewing the purchase agreement. An assignment will be something out of the ordinary. A loan officer/RMLO relies on experience and education and assignments is something they may not have either with, so they may begin to investigate the matter. What's the possible issue?

There is a gap between the buyer and the seller, they never entered into any negotiation. Disclosures concerning the property may have been made to the straw man that were never conveyed to the buyer. There is no "meeting of the minds" between the seller and buyer.

A contract is said to only take a buyer and seller to settlement, if they show up at closing and close the deal, the contract becomes ineffective as the obligations have been met. Well, not entirely as the contract may become evidence of what led the parties to closing months later if other matters arise. Having a straw man complicates the chain of evidence.

So, I can see why a conventional lender may require the buyer to contract directly with the seller. An addendum to the contract executed by the seller releasing the straw man and acknowledging the new buyer cleans up the contract. This is what I had to do a few times, I didn't originate many of these as are done by wholesalers, they usually came up due to other aspects of the deal where an assignment was made because the first buyer wasn't qualifying and another purchased "for them".

Conventional, Fannie/Freddie/VA/FHA will require a direct contract, conventional includes a portfolio loan, say by a bank. A bank will generally follow conventional, secondary market guidelines but they make exceptions that makes their product more marketable, they may be willing to accept additional risks, so they may say yes to an assignment. IMO, a portfolio lender will rely on intuition, if they know the borrower and feel comfortable with the assignment they may fund the deal.

Would I suggest assigning to a buyer who needs financing say at 90% LTV? No, probably not, at 60% LTV, yes that may fly with less concern.

Much of it will be about the deal, the parties, collateral, LTV, and how much reliance there will be given to an audit trail of the transaction. It's a grey area for a portfolio lender. I suggest you look for cash buyers or a very strong buyer that has a history with their lender. Selling retail to a Fannie Mae homebuyer, no, not unless you can amend the contract to be between the seller and the buyer. :)

Vicki Stewart · Answer

Thanks, Tyler, for asking one of the many questions I have and, Bill, for your thorough response.