Who pays the bank?

Question

Hello everyone I have a question about wholesaling real estate. All the reading and googling on how to wholesale real estate still can not find answers. So I got the basics down how you cold call or advertise houses that are going into foreclosure and you tell them you can help them out. You go over there and come up with an agreement price and put it under contract with contingency. Just want to know that dosent someone have to pay the bank? If so who pays the bank back? After you put in under contract I know you contact investor builder etc and you get a 5-10k fee which is awesome but I am still wondering who pays the bank back?

Mindy Jensen · Answer

Hi @Brett Elia.

If you get a property under contract, you are essentially promising to pay that seller the amount you have agreed upon. You should be willing to pay this amount, even if you can't find a buyer before closing. Let's say you've got a property under contract for $50,000. If you cannot find a buyer willing to pay $50,000 or more, you should be prepared to purchase the property for $50,000, then continue to market it to your buyer's list until you can sell it.

You exchange the $50,000 for the deed to the house.

The title company or attorney - depending on your state - will handle the repayment of the bank, and the homeowner gets anything left over.

You don't necessarily get a $5-$10k fee. You get whatever the difference is between what you have it under contract for, and what a buyer is willing to pay you.

There is a misconception that you just tie up the property, and then cancel the contract if you can't find a buyer. This is monumentally unfair to the seller, who is already in a tight spot. Make sure they understand what you are trying to do. Hiding your intentions doesn't benefit anyone.

Stone Teran · Answer

I'm glad you said that and I agree completely!

Champak Shah · Answer

Welcome to real   world of making money in real estate.....

A   First you need to invest some money in Books and read --Robert Allen's  Nothing Down,  also there are some online courses by Investors - Wholesalers --

Read more in this forum - for next four weeks - about Contracts , Valuation and Wholesaling

One question  will NOT get you an answer.

B  Wholesaling is NOT that easy ... need to work hard to get leads and negotiate a good price.

C   Need to have a buyers List first - specially cash Buyer - who can close in less than 30 days - some   even close in ten days. They have all  set up with Title company - they will have cash money and tools to perform due diligence and valuation of property etcHis ( her ) attorney will work with bank to determine payoff - on mortgage and some times negotiate lower payoff.

D   You need to know - understand how to determine  after repair value of the house - ARV.  Meaning you should know comps a- in the area -- then when you see owner.. you need to walk through the house and estimate condition and repairs required and estimate cost of repairs.  Also you need to know - ask owner about the mortgage balance,  delinquency, penalty etc and total payoff ,,    --  then estimate the offering price - as 65 % ( preferred ) or 70 % of ARV.

E   As far as contract - goes - most investors - cash buyers - have NO contingency

they perform due diligence before hand and - writes ALL cash offers with Ten days -

subject to Clear Title.

In your case - you can do what is called an " Option to Buy  Contract" -- for as little as $ 100.    If you do NOT find  a buyer in time - all you loose is $ 100.  This is doen in many states . You need to talk to some investors and Pro - RE Agents in your states.

You need to have  a clause that says this contract is assignable  -- OR sometimes -

you write as a  Buyer - You  /   partner --   OR say subject to " my partners approval".

If you do NOT find a buyer - you can say my partner did not like it- and get out of contract -

F  - How you get paid -- You need to use an  " Assignment Contract " ....   when you have a  serious buyer - you charge them $ 5000  fee and assign contract over to her ( him). Then he is responsible for paying the bank and  closing.

G   -- Find out and join some REI - group in your area or nearby city.. and meet Investors and Mentors - who may help you- walk through - they need MORE deals.

Jeff B. · Answer

CAVEAT EMPTOR  "houses that are going into foreclosure".  Once the NOD is published, third party involvement can be (in several states is) considered predatory and civil codes prohibit "Purchasers of Equity" in such cases.

Calif CC 1695 is such a case and this link is a fair explanation.

Wayne Brooks · Answer

No tough guy routine......just amazed that someone with a real estate license, trying to wholesale properties, doesn't realize the bank has to be paid off with proceeds from the sale when the owner sells it.  Can't understand how you can get your license without learning that.

Jeff B. · Answer

I certainly hope you didn't consider my caution as bully - - it was meant as an eye opener to legal issues involved and I would not sleep well to learn that you never were informed.  In my early days, I too was headed down that path and a kind soul pointed me to the reality in Calif.

Wishing you nothing but success in your REI experiences.

Brett Elia · Answer

@Charles David thank you! So maybe I am confused about wholesaling because everywhere I read up about wholesaling, one of the examples is someone that needs to sell because it about to go into foreclosure. So what I was thinking what happens if the wholesale price I offer them is lower than the price they owe the bank. I was just confused on all that. Yes I am new to real estate and I know about short sales and all that but don't know much about wholesaling and I want to start doing it. A lot of people on here I see have nothing better to do then just sit on there computer and bully people about "learning". Hey man I am 24 and actually starting to take action in it then just sit around and talk about doing it. Thank you Charles for your reply really appreciate it. Yes I am trying to find classes and mentors just hard.

Stone Teran · Answer

I agree that an agent should know all this.

To answer your question, if the mortgage balance exceeds the sale price, it's a short sale and the bank is going to control the sale process.  The sale will take longer than usual and my experience is that they don't want to futz with a wholesaler.

Brett Elia · Answer

@Wayne Brooks LOL thats not even the question I am asking. I think you should read it again.

Who pays the bank?

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