Escrow? What The Crap?
Okay, so I have an idea of what escrow is. Basically, it's a third party, like a title company that holds the money until close, right?
Well, I'm looking to do wholesales, lease options and sub2 deals. Now, I hear people say when you give the person earnest money it should be in "escrow." Who the hell am I giving this money to? A title company? My mother in law? If I'm doing a wholesale deal why wouldn't I just write the seller a check right there? Basically, what it boils down to is I don't understand how "escrow" works. So, please, expalin.
Thanks,
Mitchell
In layman's terms, escrow is "good faith" money you commit to the purchase of the subject property. If the deal falls thru due to certain reasons caused by the buyer, the seller has a claim to that money even though the sell never occured. For example, if you wake up one morning and decide you do not want to go thru with the purchase, you will propably lose your good faith money. If you have contingencies for financing and inspections in your contract and you can't get loan approval or the home doesn't pass the inspections to your satisfaction, then you can walk and get your money back. Normally the money is held with a third party, ie realtor's company or with a title company/lawyer (whoever is handling the closing. Ask the seller who he is using and who to write the check out to (Word of advice, don't write it out directly to the seller.)
Or, if the seller hasn't specified a title company then use one that you like and suggest that to the seller.
My advice would be to find a title agent before contracting a property. As a buyer, always insist on stating the closing agent/entity in the contract, or at least reserve the right to choose who will perform the close. By doing this, you will know where the money is going, and the back end of the deal, your sell, will also be handled by that agent.
You can use a title company or a real estate attorney for holding your earnest money deposit in escrow. As previously advised, do not hand the seller the deposit because you will have a hard time getting it back if the deal falls through for whatever reason.
Tanya
Kingmonkey:
If you are going to wholesale, there are a
couple ways to do it, let me explain:
#1- You have an offer accepted on a property. You open up escrow as an
"assignment". You contact your wholesale buyer. He brings you a check for your fee you are charging. You then contact escrow and they will draw up an amendment stating you are assigning the escrow to your new buyer. It is better to tell escrow and the seller you are going to close in your partners name for tax reasons. Your new buyer closes the deal with cash, hard-money loan, credit line, etc..
#2- You have an offer accepted. You open up escrow. You close the deal paying all cash, private money, hard money loan, etc... You then grant deed the property to your new buyer and collect a check for the difference. Your new buyer then assumes your private financing or hard-money loan or pays cash. Done deal.
One thing I would like to empasize is as follows. In California, all the wholesaler I know including myself do not let the new wholesale buyer close with a normal institutional type loan. The reason is simple. When the appraiser goes out to the property, the will note down all the rehab that has to be done to the property. When this goes to the underwriter, they tend to freak out and ask for all kinds of conditions such as a
termite, roof cert, etc.... So you dont want to blow the deal by going this route. You need to hook up with a private source, hard money or someone who can pay cash for your wholesale deals. If you have a nice house tied up and you are going to wholesale, that is a different story. In that case, I call it "Wholetaling".
The price is in between wholesale and
retail and the buyers are still happy!
Best Riches,
Jeffrey Adam
P.S.- Let escrow handle all the paperwork and build a repore with a company so your file gets pushed to the top. You can also negotiate a discount for repeat business.
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