First "Flip?" Gone Bad!
I'm not sure where I went wrong! But I need to find out quickly because I have 9 others lined up.
Here's my situation: I advertised a flyer about helping others become homeowners. A woman (Pam) responded. I helped her get her credit and budget together, sent her to a home buyer education class, she got a pre-approval letter from the bank for $92,000, then I took her out to look at houses in that price range & meeting her specifications: certain part of the city, 3BR, brick ranch, no basement. She picked one in particular, it was listed at $99,000. I negotiated with the seller for only $88,000. I signed the purchase agreement and had Pam sign an Assignment agreement for $92,000 (her approved amount) but the bank wouldn't go for the assignment contract. They said they've never seen or heard of such a thing (in Ohio), so as of today the deal is off per the bank's attorney....
The $4,000 difference ($92,000-$88,000) we had agreed to split: $1500 my fee, $2500 to her to buy new doors and carpeting for the house. It wasn't a problem, wasn't trying to get rich, just pay some bills. Would have donated the $2500 to my nonprofit to get the tax deduction, then the nonprofit would have given the $2500 to Pam as a downpayment gift (allowed by the bank).
I thought I had everything worked out..but I must have missed something somewhere!!!
Any advice and/or suggestions or corrections to my error (can you tell me what that might have been?) would be greatly appreciated....as I mentioned, I've now got 9 other people who are finishing up their home buyer education classes tonight and getting their certificates (with which they're entitled to $800 off closing costs and .25% off APR, offered by the same bank as mentioned earlier) and they'll be coming to me this week looking to do the same thing I tried to do with Pam. PLEASE HELP!!!!!!!!!!! 
Well,
I think where you went wrong is that you were supposed to call a title company and ask them the best way to close on deals like that, because I am pretty sure you have to go to closing with the seller, you, and your new buyer. Then at closing, the title company puts into the HUD statement your assignment fee of whatever amount.
If the bank decides to go crazy over this, remind them that it is exactly the same as them paying an agent's commission so there shouldn't be any difference.
And by the way, I love your idea.
Christian "The Solutions Kid" Beebe
[addsig]
Best of luck getting that cleared up, and what a creative idea! Do you mind giving a little more detail on how you found out those particulars about that lender (i.e., that they give X discount for completing a "homeowner prep" course, etc.)?
I've heard of the non-profit before - were you planning to use AmeriDream?
And if they give you any bulls$#@ about brokering without a license, tell them that you are a principal in your transactions, and that your sole intent is to make a profit for yourself as an investor. Period, end of story.
You guys are great! Thanks for the advice...you've really shed a lot of light on the situation. I won't give up on this deal yet...I'll call the title co. first thing in the morning and see if they can add the fee as my nonprofit (tax-exempt) so as not to put the taxes on me personally.
I bought my first home last year and had miraculously heard about the bank's program.....those of you living in Cincinnati and Florida might want to look into it (send me a private note and I'll tell you the bank's name)...I had talked with the guy at the bank that runs the "Community Partnership Program", where they give home loans to those with not so good credit that can either go through a 4 week home buyer education course (2hrs/week) or either get a letter of character reference from their pastor. So I put a flyer together through my nonprofit and sent them to local churches. I got TONS of calls...the pastors are eligible for the program too, up to $150,000! I've got 26 other clients lined up, all at early stages with the exception of the 9 that just finished the 4 week course today. It seemed like a sweet idea to me, to have pre-approved buyers lined up and then help them buy the home THEY pick out!!!
Thanks to you guys, I now know how to correct my mistake.....I can't tell you how much of a relief your advice brings to me!
Thanks again!!! and I'll keep you posted on my progress!!
I'd have your lawyer look over your paperwork (if he hasn't already) to make sure that everything is written up how it should be. Upon his approval, go to the bank and encourage them to have their lawyer look over the deal. Just because they haven't seen it before does not mean it can't be done or that it isn't legal. It just means that they're inexperienced in this area. Ensure them that it is legal and ethical and then kindly remind them, frequently, that they'll loose 10 loans to competing banks by NOT having their lawyer look over it. Climb the ladder to the bank president (or beyond) if you have to.
sigh...I hate working with banks....
Ok so here's today's news:
I called the title co. and talked with the escrow agent about getting my fee added to the hud statement. She said there was no standard form to submit just send in a letter on company letterhead with the specifics and get my buyer to sign it then send it to them......
now my question is this: by adding my fee to the hud statement, will it then be a fee that my buyer would have to pay "out of pocket" at closing or would it be added in to her loan??? (I asked the escrow agent this question and she said she couldn't give me a definite answer or either she wasn't sure).
Thanks for any input!!
In the settlement statement the fees are tacked on to the mortgage. Remember, she's getting the loan for 92K, the settlement statement just shows who gets paid what out of the 92. You seller would get 88; you 4; all from the originating 92K loan. I want to ask-How are you finding your deals? Does your method only work for FSBO's?
I am interested in this buyer education program, could you tell us how to contact them? I'm in Cincy area.
Thanks
Sam
I met with my buyer and real estate agent today. I had originally signed the purchase agreement and had my buyer sign an assignment agreement, but the bank said "NO WAY!" so I just signed an addendum taking my name off the purchase agreement, putting my buyer's name on as sole buyer, and trashing the assignment agreement. So my buyer now has a purchase agreement for $88,000 sale price minus her 3% downpayment which left $85,360 to be financed from the bank (plus she has to pay closing costs aprox. $1200). So how will me adding my fee to the hud statement affect the loan amount? will my $4000 fee ($1500 for me & $2500 I'm giving to the buyer) be added to the $85,360 or will she technically have to pay the $4000 as a money order or cashiers check due at closing?
I'm still confused! and want to be certain either way...buyer doesn't mind whether she has to pay monthly loan payments on eith the $85,360 or $89,360 ($85,360 + $4000) because she had expected to pay monthly loan payments on the $92,000 - so she can still afford either payment....right now the concern is will this be an extra cost for her to have to pay out of pocket at closing or not?
Thanks!
mzmitchell....does your purchase and sales agreement that you signed with the seller say "and or assigns"
If so you shouldn't have any propblem with assigning your rights over to your buyer and getting an assignment fee for doing so (especially if your buyer is aware of the fee) and has signed the agreement. Plus, I don't know why the bank made such a fuss, they are getting their money and the seller is getting their money...the buyer agreed to the deal, the value is there so there was no shady dealings.
In my belief you are getting a contract with the seller and then going out and finding someone to take the deal from you. If you are buying at $88,000 and selling at $92,000, the buyer moves into your position and now is buying the house for the $92,000 and you get the difference and the seller gets his/her $88,000.
As far as your buyer bringing funds to the table, I would check with the lender to see if that is the case. Some, not all lenders may want the funds brought to the table (if they don't mind gift money there will be no seasoning rquirements with the down payment and the seller may not have to show where the money came from)
Ask the title company how they will roll in your fee and how you will get paid. I would think they would raise the sales price to cover all fees and costs to make sure the seller gets their initial $88,000(not sure)
Keep us posted....
I know you guys may get away with doing this all the time, but you are essentially acting as an unlicensed real estate agent, especially when you talk about adding your "fee" to a closing statement. Your description of prequalifing buyers, showing them homes based upon their criteria, and expediting financing sounds an AWFUL lot like the description of an agent.
You may be able to get around licensing requirements depending on the local practices in your state, but I'd guess it's only a matter of time before you get called on it.
Agents and brokers have to undergo certain mandatory training and vetting, and it's obvious from a lot of the comments on this board that a lot of you have no clue either to the mechanics or the legality of these types of transactions.
In a legal action between your state real estate commission and you as an unlicensed broker, I'd put my money on the real estate commission any time.
Be careful guys. Just because people get away with these types of borderline transactions doesn't make it legal, Anything can happen in a deal, and the courts are full of people who thought they had a way around the laws. Brokers don't buy errors and ommissions coverage just out of the goodness of their hearts.
Joe Lumbley
****Must Reach Freshman Investor status before posting URL's***
I agree this makes you sound to much like a real estate agent. Need to talk to a lawyer make a few changes to make you sound like a credit repair agent or investor.
Maybe you need to buy and resell with a double closing or team up with a real estate agent and reduce there fee since you are doing all the work. I think you have a great idea just need to fine tune it a little. Or even get a real estate license.
Teaming up with a real estate agent may not be the solution either (didn't he say earlier he was talking to his own agent, anyway?). The problem with this idea is that (at least in Texas, which is all I can address with any specificity) an agent is not allowed to split his fee with a non-agent other than an attorney or a principal. He's trying to straddle the line between being an agent and a principal, and I fear it may trip him up. Myself, I'd structure it to look more like he's an investor.
Or just get licensed (which has fiduciary duty drawbacks in itself).
Joe Lumbley
I was an agent for twenty years in Texas. I gave it up. All the new laws and errors and ommissions lawsuites scared the heck out of me. I buy and sell for my own account and stay away from collecting fees etc for doing deals.
Ted Jr
I guess I'm trying to wear too many hats! Acting as an unlicensed real estate agent, I think is a good description but not a complete one, at least not in my case. I do far more than a real estate agent could/would do for a client. The similarities are that I'm with them looking at houses, pull comps, help negotiate the deal with the seller, find down payment assistance programs (not all agents do that) and charge a fee, but I also work with them in developing a budget and restoring their credit, I put together an actual plan of action for them, some clients go through the process a little quicker than others, but I develop more of a rapport with them, plus I can (or at least I'm trying to) get them money out of the deal (that they know is included in their loan amount that they DO have to pay back - instead of, as a loan officer told my client the other day, get an equity loan, which my client did not want a seperate loan...her mentality was, the bank said they'd give her $92,000 and she wants to buy the house for $88,000 and still get the $4000 too, she feels short changed that the bank wouldn't do it that way) for whatever use they see fit: buy new furniture, paint, new carpet, etc. etc.....an agent's not going to do that....that's why I have so many clients lined up......but I was told that you can sell your home without having a real estate license, therefore the purpose for signing a contract and then assigning it, I'm selling my own property that I don't need a license for because I have an invested interest in the property.....but hey, I'm still learning!!!!
I agree, we're getting pretty well loaded down with regulations and frivolous lawsuits.
For example, I wonder how many participants in this forum are aware of federal requirements to notify buyers of the possibility of lead-based paint in properties built before 1978? Agents in Texas have to undergo mandatory continuing education every two years, and each time I go, I learn of new regulations, pitfalls, and opportunities to lose your license.
I'm pretty sure that someday in the future we'll have to include a form warning parents not to allow their children to play in the street due to the danger of auto accidents.
The fact that you may do more than an agent isn't really relevant with regard to licensing. If any part of your activities fall within the legal requirements that require a license, performing those activities without a license is risky to your legal health.
For example, as an agent, I'm required to tell my clients not to rely on me for legal advice, and if I even go too far in marking up a commission-approved contract, I could be hauled up on charges of practicing law without a license. So my best advice in your case would echo what someone else already suggested....talk to your attorney.
Your basic premise sounds good, and the fact that you've already got 9 potential clients lined up validates it. A lot of agents could learn from the way you're working. If you have the interest, time, and wherewithal to get licensed, you could make a good income as an agent, restrictions and all. And your commissions would be lots more than $1500.
Joe Lumbley
Thanks!
I'm actually considering taking an online course Hondros College is offering....I just didn't want to be restricted as an agent....I was asking my agent about going out to look at houses on a particular day/time but she couldn't because she had to be in the office answering phones, etc. I'm used to being self-employed and not having restrictions on my time and whereabouts....but I'm seriously considering getting licensed now, or at the very least take the classes just to educate myself more thoroughly on the entire process and legalities, etc.
Thanks again!! I'll keep you posted as this saga unfolds!!
Mzmitchell,
I went back and re-read your original question, and I have a suggestion as to how you might get around the issues I've brought up.
You're already working with an agent, you didn't say whether it's a sellers agent or a buyers agent (do you have buyers agency in Ohio?) This idea really wouldn't cut it working with buyers agents unless you can convince them to cut their commissions a bit to make room for yours (make an argument for lots of essentially free volume, maybe?).
But it should work with your typical sellers' agents.
Simply rephrase your actvities from "I find and show homes to my clients" to "I locate deals and then accompany my CREDIT/FINANCIAL/WHATEVER clients on property visits WITH THE AGENT. That way, the agent is doing the agent's job, and you are doing yours, whatever it turns out to be.
The trick is then to negotiate a reduction in commisision by the agent(/s), since there's no buyer's agent. You may run into hassles with listing agents if you don't have a buyer's agent because if you want them to show the property, they might feel entitled to the full commission because essentially they are doing all the brokerage work. But if you can get around that issue you can then structure your fees on the lender side, which may be less regulated than on the brokerage side.
Joe
This "Bank" program might be a HUD program. The bank may be acting as the lender and selling the loans to HUD.
HUD does not allow the asignment of a contract.
More and more lenders are adopting the new HUD rules. Including the no asignment of contract.
Some are verifing that the seller is the owner of record. This prevents a double close.
Hey mzmitchell,
Awesome idea you have there. Shows that you haven't been brain washed like dallasincomeproperties, into believing that you have to go through an agent to get everything done. I'd love to see if that would work here in NC. The service you provide is no different than that of a wholesaler or bird-dogger, who goes out and finds deal and then sells their position in the deal. As far as I know, that activity is not a licensed position in any state ( tx included). You might consider in the future to do simulataneous closes (double closes as referred to earlier). If you're not familiar with the concept, check out some postings on this site or research it on the web. It allows you to buy a house and resale it at the closing table to your buyer without you having to pay anything out of pocket. However, the fees of the first close do go to the buyer so your overall fees do go up (unless you can negotiate with the title co. or closing lawyer).
Best of luck to you!!
dominion