downpayment for REO - Posted by Lette

Posted by Tonya Brown on December 09, 1998 at 13:17:33:

what you probably want to do is assign your flip to the investor and the money you get from him would then be used to pay your downpayment and you I hope this works its a shot in the dark try it and see what happens keep on trukin!

downpayment for REO - Posted by Lette

Posted by Lette on December 09, 1998 at 13:02:28:

I have found an REO that’s in desperate need of TLC. I’ve also found an investor who loves doing handyman specials. But I’m having a little problem understanding how to work with banks as far as downpayments. Okay - I understand that as soon as the bank accepts an offer, that means that the property is now tied up by me. They require a 20% down payment. But since I plan to assign (flip) my contract anyway, wouldn’t my investor/assignee be the one to pay the down payment? If so, does he do this before I tie up property or when? I’m confused because I think that I would need the downpayment before I sign a contract with the bank, correct?

Could anyone just give me the steps to take as to how to assign/flip an REO without using any of my own money.

Thanks much.

Re: downpayment for REO - Posted by SCook85

Posted by SCook85 on December 10, 1998 at 16:36:19:

This was something that I have done a lot of so I feel that I can speak intelligently about it. There are many creative ways that I have heard of doing this but I have done it only one way so it is the way that I will speak of.

I always put an earnest money deposit down. My first deposit was $200. That is all I needed to do my first deal. When I assign them I get the new buyer to refund my earnest money deposit (now you have no cash into the deal). Then I get paid my assignment fee at settlement. Lately after being burned a couple of times I am trying to get the assignment fee upfront, and not wait till settlement. When I started doing a number of flips in a short period of time, I negotiated the deals, found the investors to buy them and got them to pay me and sign the contract all at the same time. I never did anything but get paid. My name was never on the contract. This is more of a bird dog fee then an assignment but still put money in my pocket.
As far as banks go and assignments. I buy 75% of what I do from banks. They always let me assign them. In the past I did not cross out the non-assignability clause in the contracts and I had to go back to them for there permission. They himmed and hawed a bit but always let me do the assignment. I always cross the clause out now, and no one has ever questioned it. The bottom line is the bank wants the property sold and they couldn’t care less who is buying it.

Last thing. If you are going to be making multiple offers, you can set up an escrow account with your attorney and put an earnest money deposit into that account. I used to write checks for every home that I put contracts on and at one point had 12 checks written at $500 each. I didn’t feel comfortable with that. So now I have $1000 with my attorney and I tell everyone who I make offers to that my funds are there. I have to add to it if I have many offers accepted but I don’t have a bunch of checks on the street.


Re: downpayment for REO - Posted by Rob FL

Posted by Rob FL on December 09, 1998 at 20:29:22:

Most banks I have dealt with won’t allow you to assign the contract (They usually have their own addendum that you must agree to, and the addendum prohibits it) You will probably need to do a double closing.

Re: downpayment for REO - Posted by Dave T

Posted by Dave T on December 09, 1998 at 18:17:19:

Are you confusing the down payment with an earnest money deposit?

What the bank is really saying is that they will provide financing for only 80% of the pruchase price. At settlement, you will have to come up with 20% of the contract price plus closing/settlement costs.

If you assign your contract, you collect an assignment fee and the new buyer now comes up with the 20% down at the settlement table. If the purchase contract specifies a settlement date 30-45 days out, then your investor has that much time to come up with the down payment and settlement costs.

The bank will probably accept a $500 earnest money deposit when your purchase offer is submitted for the bank’s acceptance.