Contract Assignment
I would like to ask a question about Assigning Contracts. I have a deal where a purchase contract has been secured by my LLC (and/or assigns), and I have a buyer in place to purchase the property using bank financing. 1) How do I open escrow? 2 ) Can I collect assignment fee from the borrower'sloan proceeds?
Thank you in advance for your assistance.
Derrick Mark
Derrick,
You open escrow by contacting a title company or title attorney. The assignment fee is normally collected at closing (at lease when I wholesale a property) as part of the closing costs. It will state on the HUD-1, "Assignment Fee" and the amount. Generally you collect the same amount in earnest money from your buyer that you put down when you signed the contract up front.
Off topic slightly...
If the documents show an assignment fee, some underwriters will refuse to approve the loan for the end buyer.
Hence the deal might go south. Be prepared with a plan B. See if you can early in the deal find out from underwriting if they will kick out such a deal.
John
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I guess active_re_investor is correct, although I have not had any trouble in this regard. Most of your end buyers are going to be other investors using cash or hard money. The few who have used a conventional lender have had no trouble. But I have heard of others say there was a problem. Your plan B should include helping your buyer shop another lender.
Thanks for the help.
In order to avoid lenders disapproval of an "Assignment Fee", can I convert the fee into a promissory note between my LLC and the buyer and have them pay that note off at closing using loan proceeds?
A few thoughts:
Postcards statistically don't yield many results so the number of mailings is key. Here you have aleady targeted a particular property so a phone call or direct letter is recommended.
You can use www.deadleads.com to get more information about the owner than you ever wanted.
Neighbors are by far the best way to find out the history of a house. Find the gossipy ladies in the neighborhood.
Frogger-
Thanks for the input. I think another question would be:
If these houses have been listed three times already and no one wants them, is it even worth my while to go all over the place trying to find out information on them? I don't even know how motivated the seller is, for cryin' out loud! :-o
In short; this is will be my first deal, and I don't wanna go three months spinning my wheels all for nothing. That wouldn't make me very happy. :-x
I WILL however check out that website just to see if I can find anything I can use in this deal, because all in all, I still thik it sound like a keeper!
Thanks again!
Now let's go get this money!!! 8-)
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Are the homes in neighborhoods where the vandalism may occur again? If so, once you own them...there is another round of repair costs.
Well, I only plan on "owning" then for a few minutes. I'm gonna do a double closing, collect an assignment fee, and go about my business.
As for the vadalism; the houses aren't in the ghetto! I know, because I grew up in the ghetto. It's actually right next to a fairly new developement. I think these houses just happened to be good tagets for the graphitti artist at the time.
I don't think they will take much to sell once they're repaired and put back on the market.
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It seems that you have an idea of what you want to do, but not really a plan of action.
You said that you don't know if the seller is even motivated, and you don't want to "waste your time" looking for him if he isn't. Well, that's the nature of the business. You're not going to know how motivated he is until you speak with him and you won't get to do that until you at least get a phone number from him. Of course, if they are MLS listed, then you can just take the lazy investor's approach and make an offer.
You say that the asking prices are "okay" for the area. Does that mean FMV, and does that mean in their current state of disrepair or fixed up? You don't mention what the estimated repair costs will be but they are very important. Most rehabbers will not buy anything above 70% of FMV, and they will minus out the repair costs on top of that. Using your figure of $225K, a rehabber would pay $155-160K MINUS repair costs. As you can see, an accepted offer of $150k may be too much. However, you should know what your investor/buyer likes and contract accordingly. If this is not something that you will be able to flip to them, then don't buy it or make another exit strategy.
Roger
I would take pictures of the houses write a brieft to the point letter and fedex it and some pictures to the owner.
Post cards and letters get thrown away but a fedex letter will get opened and read.
why do a double closing?? submit an offer in writing when you do find the person. the worst they can do is say no.
if you already have an investor to assign it to, then you've got yourself a good deal.
if not, put a clause in the purchase contract that allows you 21 days to show the house (find an investor). Also that the deal is pending your parter's (wife, brother, whatever) approval.
just some escape clauses to have, and to give you a little time to put the deal together.
shoot for the longest closing date possible (60 - 90 days)
I havn't personally done one of these deals, but our property value around here is on average at 115k....so not much to work with.
hope this helps....
ASSIGN THE CONTRACT......it's a whole lot less hassle.......
Thanks for the info-
From the looks of it, I need to get more information. Like I said before, this is my first deal and I don't wanna mess it up.
With that said: I found out today from my RE agent that both houses have been listed since 04/20/2004. So this guy wants to get rid of these houses and get some cash. He actually bought both pieces of dirt for $23,500, and it appraises for $30,000.
As for the houses: I got 4 comps from as low as $210K up to $270K in livable condition. The lowest priced home sold on 06/29/2004. So, the prices are pretty fair provided the seller does all of the repairs.
In addition to all of this, I got the guys phone number. The downside is, when I called, I got a girl who didn't speak English, and I can speak enough Spanish to ask for the bathroom and maybe get into a fight in a bar. So, I think I'm gonna call him back later on tonight.
Now, as for my investor: He sound excited about the properties from what I've told him. I haven't given him a lot of information, because I don't want him to go around me and just get them without paying my fee. But I've told him enough to get him interested.
As soon as I get in touch with the seller, I'm gonna start negotiations. My question is, what would be a good starting point and how do I tell my investor I want 2.5% of what he buys for without getting the short end of the stick?
I hope this is enough information to get some more great answers like the ones i've been getting. I love this website!!!
Now, let's go get this money!
8-)
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I would definately not let your investor control the deal. If there is a deal here I would strongly urge YOU to put these properties under contract. Then assign the contract to your investor. If you bring your investor to do a contract with the owner you run a very high and very real risk of being cut out. I have seen it happen. Also, why only 2.5%? That is not very much for all your efforts. You should be making st least 5-10K on each property as long as there is room for your investor to make a good profit after he does the repairs.
That's not a bad idea! I wouldn't mind making $10K or $20K for being a middle man! I think I might do that. I may not be able to do it on this deal, because I've hinted at this dollar amount to my investor already. So, I'll go that high on my next deal and see what he says.
Thanks for the input!!!
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