Posted by Kristine-CA on August 02, 2004 at 12:17:11:
Thank you for your post. However, it is not very clear.
I have double-closed and continue to do so USING ONLY MY END BUYER’s FUNDs with full disclosure to all parties using First American Title, Fidelity National Title and Ticor Title (formerly American Title). If it’s “illegal” as you say, then all the legal departments at these companies are choosing to ignore this illegality?
If I’m purchasing and I sign disclosures that state that I agree to have all or part of my purchase money used to fund the purchase of another escrow; or if I am selling and I agree to a re-sale involving another escrow how is that illegal??
Just because some title/escrow people get all hot and bothered by double escrows or refuse to do them doesn’t make them illegal. That’s like saying because insurance companies won’t insure two layers of shingles that two layers is illegal.
When using the word “illegal” it might be a good idea to try to be exact. There is no proven illegality here. You are repeating hear-say information. Also, oftentimes this kind of issue is state specific.
So, again, if you can cite a law or code that says using end buyers funds to fund a purchase with a seller is illegal, I’d be interested in reading it. I think the escrow companies would like to read it as well. Kristine
What real estate salesmen don’t like - Posted by Able Learner
Posted by Able Learner on August 01, 2004 at 11:32:55:
I am starting a new search for properties and am going to start using the skills of a salesman.
These are always low low priced properties and I will be making several offers a week.
My problem is I need to flip the first few, preferrably by assignment.
Should I share my assignment plans with the realtor?
Should I wait til the closing, have my buyer ready to close and have a formal closing with the closing agent monitoring the assignment?
If the assignment is made independently of the closing I want to preserve my relationship with the saleman. If the salesman is not intolerant, what will be the salesman’s broker’s reaction, and what kind of pressure on the saleman can he bring to bear?
Posted by John Katitus on August 02, 2004 at 01:29:54:
Pay no attention to the other posts, they’re wrong.
Flipping is neither illegal nor immoral. Do a search on flipping and you can read all the analysis. As far as telling the agent, if it’s an agent you expect to work with, just tell them. If they have a problem, find another agent. After all, they will find out what you are doing when you close on the first one. I would probably tell them you might assign it - after all that’s your intention. All a realtor should really care about is you will close. And about disclosing - possibly, if you had no possible ability to fund the transaction, they might have some remote obligation to tell the seller. But since hard money lenders exist who will finance almost any good enough deal for any buyer, they don’t know that you couldn’t close. The buyer’s agent represents the buyer and is obligated to act in the buyer’s best interest.
Don’t be ashamed or feel you have to sneak to wholesale houses. You are finding owner’s distressed properties and passing good deals to your buyers, helping them both and yourself in the process. Nothing wrong with that.
In most states, a buyer’s agent (I assume this is what you mean by
“salesman”) has a duty to disclose to the seller, any adverse
information regarding the buyer’s financial ability to perform per
the terms of the contract.
In other words, if you are making cash offers, and don’t have
sufficient funds to close, and your buyer’s agent knows this, he or
she must disclose this to the seller. If your ability to close is
contingent upon you finding someone to assign the contract to,
then that also needs to be disclosed in your offer.
If you are representing yourself as a cash buyer, when in actuality
you must find an assignee before you can perform, and you fail to
disclose this, you are being dishonest and unethical. There’s no
other way to say it. The seller, and the brokers involved in the
transaction for that matter, have a right to know what they are
getting into if they enter into a contact with you.
Personally, if I am on the buying side of a cash transaction, I will
always provide proof of funds with the offer. If I’m on the selling
side, I will usually require the same documentation from the
buyer. The exception to this is when the buyer’s offer is
accompanied by a large, non-refundable earnest money deposit.
Re: What real estate salesmen don’t like - Posted by M. Osterman
Posted by M. Osterman on August 01, 2004 at 14:56:01:
What business is it of the salesperson whom you are working with to know where the money comes from? The important point that you may or may not understand is that you are a performer who know’s what he’s doing and can get an offer closed. No hmm and haass
You can rationalize it any way that you want, but the fact remains
if you lie about your ability to perform, or fail to disclose the
terms and conditions under which you can perform, you are being
inherently dishonest and unethical. It’s the moral equivalent of
agreeing to marry someone, who desperately wants children,
knowing that you are sterile.
Additionally, an agent doesn’t have possibly “some remote
obligation” to inform the seller of the buyer’s inability to perform
contractually - he has an absolute duty. Any failure to do so,
especially in the context of this discussion, would be grounds for
having his license revoked. The obligation of a buyer’s agent, to
the buyer, does not include lying, or purposely misrepresenting a
material fact. If the buyer can’t perform without assigning the
contract, or obtaining a hard money loan - it needs to be
disclosed in the contract.
It absolutly makes a difference where the funds are coming from. If the funds come from the final end user and none of your own money or credit was used or you did not take title yourself it is an Illegal Flip.
You may not use the funds of the end user to fund your deal. You must first take title either by financing or cash. You can’t find a seller one day at $100,000 and a Buyer the next at $110,000 wihtout first purchasing the property yourself.
You may however get and sell an option on the property. The property may be worth $125,000 and you can buy an Option on it at $100,000 for only $2,500 and then sell your option to the next party for $5000 or even $10,000. Much cleaner anyway in my opinion.
Even if you do purchase using your money and credit and take title you may still have to deal with “seasoning” issues. Lenders may require you to hold the property for 90 days to a year before your allowed to sell it. Of course you can just rent it out or sell it on a Lease Option but then the financing stays in your name and it could prevent you from being able to fund another property because your DTI (debt to income) is too high.
Again, I either like the Option approach or better yet use a Land Trust Instrument and a Triple Net Lease Agreement. Even though you remain on the loan, most lenders will give you 100% DTI on the subject property if you know how to draft the proper documents.
A contract is generally assignable unless explicitly prohibited in writing in the contract. A person’s ability to perform is usually secured by earnest money. Yes, the person who defaults on the contract can be sued for specific performance, but that is rarely an option in these types of assignments, mainly because the seller doesn’t have the resources to begin with, which is why he/she is considering selling to Able Investor.
Unfortunately your analogy of moral equivalence is inaccurate because it’s not lying if it’s stated in the contract and only items in the contract are enforceable. You can’t enforce things that aren’t present in writing due to statute of frauds.
Flipping is NOT illegal. Try not to listen to many of these news reports written by “reporters” who like to only focus on bad news instead of all news. Flipping schemes usually occured when a real estate agent, a mortgage broker and a crook were colluded to purchase property over the fair market value and refi to take money out only to have the property be “upside down”. In other words, it was loan/mortgage fraud. Flipping mainly involves selling a person’s right to perform in a contract. In essence, you’re selling contracts.
Your analogy is over-the-top–where’s your sense of proportion?
Did you read Able’s question? He has a good plan. He says nothing about lying to his agent. Not disclosing that he intends to assign his position rather than taking title is not the same as lying. He does need to be able to close if his buyer backs out- if he fails to close he will lose his earnest money and credibility with the agent.
You’re assuming facts and imposing duties merely to discredit his plan–that’s lame.
Too much technical mumbo jumbo. The option you described is flipping. Nothing illegal at all. Assigning a contract or purchasing an option is VERY similar. The option money you mentioned could be equivalent to earnest money. Assigning contracts, real estate or other wise is completely legal. Seasoning is never an issue because you never take title to the property. You basically sell your right to purchase the property to another buyer, WHO WILL CLOSE. You receive your fee either in advance from the buyer (ideal) or by recording a performance mortgage which will pay you your assignment fee upon closing.
I’m not entirely sure they teach that when you study to get your realtor license, but it’s the truth nonetheless. You can consult your local attorney, or your friendly neighborhood CPA.
WAREIA,
Why the goofy screen-name/signature for here?
It makes you sound like someone who knows what they are doing, when clearly in this thread, you’ve demonstrated you don’t.
PLEASE STOP giving advice here, because this is not the only post you’ve made with outright incorrect info.
Might be time to buy a course and get up to speed.
Wholesale deals are double or simultaneously closed all the time, in addition to contracts being assigned.
A wholesaler NEVER has to be on title or use ANY of their own cash.
Nothing illegal about it, and its people like you, saying things like that, which make people misunderstand REI.
A confused mind ALWAYS SAYS NO!
Posted by Kristine-CA on August 01, 2004 at 23:37:06:
WAREIA: why do you say that you can’t use the end buyer’s funds to fund one’s purchase? I do it all the time–with full disclosures to both seller and buyer in my contract and in the escrow instructions per the title and escrow companies’ requirements. The seasoning issue doesn’t come up because my buyers have all cash or hard money.
And while I’m totally enthusiastic about the idea of options, I haven’t yet been able to get a seller to go for it. I feel that that the reason I get deals is because I cash the sellers out. There is more competition where I am now, more investors doing mail marketing. More than one seller has told me that they are selling to me because I made a cash offer with relatively quick close.
Can you support your comment that using end buyer’s funds is illegal? I know there is varying opinion on this. But I don’t believe that my title/escrow company would be taking any chances on this. And their legal department ok’s flips with disclosures.
The overwhelming majority of real estate contracts are specifically
non-assignable, without the prior written consent of the seller.
My analogy was made in the context of withholding or failing to
disclose material information. The point being, you cannot
pretend to be a cash buyer. If your ability to pay cash is
contingent upon assigning the contract, or obtianing financing,
those facts need to be disclosed in the contract. Anything short
of that is in effect lying, just as failing to disclose your
reproductive abilities to a prospective spouse would be.
20 FBI agents were just assigned to my area to put a halt to “Illegal Flipping”. I understand the double or simaltainious close very well. Did it for years. Most of this stuff came about as a result of shady appraisers, lenders and investors etc. but the bottom line is, and this is what I am told by my Title Co. and State Authorities and the agents that were in my Title Company, YOU CANNOT LINE UP BUYER AND SELLER AND USE THE BUYERS FUNDS TO FINANCE YOUR DEAL WITH THE SELLER. YOU HAVE TO FINANCE OR PURCHASE THE PROPERTY FIRST (take title). You can double close if you wish if there are not seasoning issues but not with just the end buyers funds.
I also understand that if you use the end buyers financing there is no season issue. What I’m saying as a Mortgage Lender myself is that most Lenders will require a 90 to 12 month seasoning of the new loan. This could prevent an investor that took title first from reselling the property for a few months. And yes there are plenty of lenders out there that only require as little as one day seasoning.
Actually, you’re sort of wrong this time. Contracts are generally assignable, UNLESS there is a clause in the contract that prohibits such assignment. There does not need to be “prior written consent from the seller or anyone else”. It’s basic contract law that most lawyers and CPA’s have to know. It’s not something I just made up. Your contract can be whatever you want it to be, and it’s legally binding. It’s not lying if you assign your position to another person. On the other hand, flippers don’t use the standard realtor’s contract b/c it’s not flexible.
In a nutshell, you usually can’t. Most of the REO (real estate owned) or bank owned contracts usually have an “anti” assignment clause. Mainly because they are already losing money, they don’t want too many people profiting from their misfortune. More importantly, they want to make sure who ever’s name is on the contract is capable of closing.