Is This Legal?
Have seen a group looking for Passive Investors to provide their good credit in order to secure mortgages for homes, using stated income, or no doc.
In other words if you have good credit they use your good credit to buy homes under your name.
Passive Investor then gets half of proceeds at closing, which looks to be decent.
Comments????
Sounds good as long as the deed stays in your name. There are crooks out there persuading people to use their credit. When they buy a property they have the unfortunate victim sign away his or her beneficial interest, leaving them stuck with the payment while they have control the property.
I suppose those (the real buyer and the passive investor) who get involved in such scheme could be sued by lender/creditor for fraud. [ Edited by landairsea on Date 07/17/2004 ]
TCI45,
Glad to meet you.
If you feel handing someone 7 years of your life is worth a few dollars then you should think about this one, because if things go bad that's how long it will show up on your credit.
The odds are against you on handing someone your good credit whether you know them or don't know them.
John $Cash$ Locke
[addsig]
Appreciate replies . . .
I have the email and other details that this guy sent me. Suppose if I post it here ... you, John Locke ... or some other forum mod will delete it.
If not ... let me know and I'll post it . . .
Post it, let's take a look. You may withhold/delete any privat information, such as individual name, etc.
I have two such outfits trying for my credit score. It does sound too good to be true. However, one of these is withing driving distance (in CA) so I can see him face to face and get references. The other deal is a few states away (TX). The one in Texas has several plans. They say that there is a seller in CO that is buying up 500 homes in the Denver area in the next 12 months and that the houses will go to parolees who have been pre-screened, which has already been arranged.
The name of the entity is DFW Capital Group. They anticipate closing 70-80 houses per month. The houses are all in move-in condition (so they say).
What I don't like is that I as investor have no beneficial interest in the house, which will be in a land trust.
If they structured it better, I think I would feel that I could do this: split the beneficiary in the land trust. It would also give me tax incentives, I think.
Sample: $200K house bought for $160K from seller to DFW. I would buy house for $200K at appraised value and the seller gets $160K up front. Then I get 100% stated income loan at 6.5% (I think they have sources). They save 3 months payments in escrow, there is $36K left to split and the split is paid at closing. The property goes into a land trust.
The new buyer buys at plus 10% of appraised, because they can't get a house otherwise. They have beneficiary rights and a Right of Occupancy, which is like a lease. This is what I don't like: Their beneficiary rights.
They have a purchse price of $220 at 8.5%, which give a monthly cash flow of 2% (which I get). They refi in 12 months, and I get the back end profit of $20K.
Total profit: $47K.
So, does that sound fishy and too good to be true? I am in the process of checking out their references, how long they have been doing this, and how many they really do per month. Who is their lender. What is their record (from a 3rd party)
There is another firm doing this, locally to me, and I can actually go see in person.
Thoughts???
Conz,
I received an offer like this from Texas, I think, also. Please let us know what you find out.
commercialking is confusing this with a "fraudelent flip" in which the straw buyer and eventually the bank are left holding the bag. Unfortunately some pencil pusher in Washington decided to call this "flip" thus giving the ethical flips that we do a bad name. I call them "Quick-Turns" now.
Using your credit to help someone else buy a house seems more like a wrap, wouldn't you think? Again, would really like to know more.
JohnCl
Conz --- what a great name. Especially if you only post once on a topic of whether something is a scam or not.
JohnCl-- I grant you that there is a Legal flip in this business. The trick is that TCI45's deal doesn't strike me as one. Here's the difference:
1) DFW capital is offering to find the back-end user (i.e. the tenant). Now, if you had a tenant buyer why would you need somebody to take the slot they are offering TCI45? That kind of lease option deal is one investors here are doing all the time without "passive" investors. So using TCI45's credit wouldn't be necessary.
2) TCI45 says "Passive Investor then gets half of proceeds at closing," i.e. the initial closing when you buy. Now I know the oldest cliche in the real estate biz is that you make your money when you buy but this is not usually what they mean. TCI's guy is going to pay him cash at the closing-- but he is going to stay liable on the note. In other words its sorta a sub2 deal with TCI on the wrong end of the Sub2. And who is checking out the creditworthiness of the tenant buyer? Right-- DFWcapital. so TCI has no way of knowing if they are actually any good or not.
3) DFWcapital is (or was last time I checked) a member here. Yet he has not jumped forward to answer my objections. While silence is not proof of guilt in a court of law, in this circumstance I would think that if DFW were on the up and up he would respond.
Sorry to be so long weighing in on this thread again-- I was off camping with the boy scouts and somehow lost track of this one.
100% Investor Loan stated? That is what is too good to be true. They will be more like 9.5 to 11%.
Look on the articles section http://www.thecreativeinvestor.com/News-index.html
Look for the one A Good Reason Not To Let Others Use Your Credit!
Just to add something to the mix. I was looking at an opportunity such as this, and was emailing DFWCapital aka Dave Hamman. For awhile now my emails go unanswered and his phone number is a voice mail line, which messages never get returned.
Scam or not, I don't know. My situation is thus that I am heavilly looking into it, while knowing the downside.
SCAM SCAM SCAM.
Commercial King must be rolling his eyes at this one. REPEAT - There are very very very few instances where it is worth someone using your credit.
TCI,
please post the letter.
I've also found a site http://www.homesncc.com/
that does something similar. Can any pros comment?
I do not understand how folks who are leery about using their credit themselves on real estate deals would even contemplate letting other people use it.
I have one motto regarding credit and I coined it the hard way.
"No one messes with my credit but me" meaning the only one I let use it is myself. That way I have only myself to blame for anything. It is easier to beat myself up than have to get a hit man for some other guy (just kidding - hehe)
I say beware. It might be harder to turn deals for $47K profit on your own but it is infinitely preferable to ending up with mortgages and nothing to show from them. A contract is only as good as can be enforced and if this guy is a conner on a big scale no contract will deter him in his cons and they will not protect you either
DFW CAPITAL IS THE BIGGET SCAM AROUND. I KNOW I BOUGHT FROM THEM. BEWARE!!! ANYONE HAVING INFORMATION, PLEASE CONTACT.
I only just noticed your last posting (11/24/04), ayerish. Let me try again to explain why this won't work.
Using your Homesncc (I assume ncc stands for No Credit Check) as an example. "The cost to the Client is only approximately $75 per month more per $100,000 than if they had good credit."
Or, for 1% per year we will waive all credit issues. Now if you could absorb all the bad credit loans for only one percent a year don't you think some bank would be out there pitching that product? They wouldn't need you.
Clearly the risks involved in these deals would need a much higher rate of return to compensate. So since these guys aren't getting that rate of return what is the most likely scenerio? That they will pass the costs of their high default rate to you in the form of trashed empty houses that you owe more on than they are worth.
It is possible to do deals like you describe (I've got two in the pipeline right now with different investors) but my guess is that anybody claiming to do it on more than an occasional basis is running a con.
Thanks Mac, for showing how this sort of thing comes out.
I happened upon this thread while searching for something totally different.
Everyone who posted has valid opinions. Some of the companies pitching these deals ARE scammers, and here's why: 1) they take $thousands from good-credit investors for sign-up fees, and deals never materialize. 2) The deals aren't structured the way they are purported, so the investor doesn't make the money they expected to make. 3) No one looks at the tenant-buyer to protect the investor. 4) The Trusts are not structured properly.
BTW, the 1% claim is ridiculous. It costs a lot more than that for a bad-credit buyer to use this program.
The SCAM company aside, the deals themselves are legit, when set up right, with an ethical company.
There is risk, just like ANY OTHER DEAL.
The risk a good-credit investor is assuming is that of a bad-credit tenant-buyer. 1) However, the investor has put NONE of his/her own money into the deal. 2) Preferably, the home has been purchased under-market. 3) The home AND the tenant have been found AND QUALIFIED on debt-to-income FOR you, and all of this info is available for you to review. 4) The money to purchase the home is coming out of the pocket of the tenant-buyer, and if it's not (e.g. equity contribution, gift), this is disclosed to the investor. 5) The good-credit investor pockets about 5% of the purchase price at closing. 6) The investor makes residual monthly income. 7) The investor makes back-end profit when the tenant exercises their right to purchase. 8) In the Trust, the investor is the 100% beneficiary.
In most respects, this is no different than if you found your own property, found your own tenant to put in it with an option fee - who can't buy otherwise - and you bought the property on your own credit.
Worst case, you have a property that you paid nothing for (made money), you have to evict and find a new tenant or buyer.
Although this is hands-off compared to conventional landlording, if you are extremely averse to holding/leasing properties, this is probably not for you.
I will discuss the structuring of these transactions by a legitimate, ethical company with anyone interested.
I happened upon this thread while searching for something totally different.
Everyone who posted has valid opinions. Some of the companies pitching these deals ARE scammers, and here's why: 1) they take $thousands from good-credit investors for sign-up fees, and deals never materialize. 2) The deals aren't structured the way they are purported, so the investor doesn't make the money they expected to make. 3) No one looks at the tenant-buyer to protect the investor. 4) The Trusts are not structured properly.
BTW, the 1% claim is ridiculous. It costs a lot more than that for a bad-credit buyer to use this program.
The SCAM company aside, the deals themselves are legit, when set up right, with an ethical company.
There is risk, just like ANY OTHER DEAL.
The risk a good-credit investor is assuming is that of a bad-credit tenant-buyer. 1) However, the investor has put NONE of his/her own money into the deal. 2) Preferably, the home has been purchased under-market. 3) The home AND the tenant have been found AND QUALIFIED on debt-to-income FOR you, and all of this info is available for you to review. 4) The money to purchase the home is coming out of the pocket of the tenant-buyer, and if it's not (e.g. equity contribution, gift), this is disclosed to the investor. 5) The good-credit investor pockets about 5% of the purchase price at closing. 6) The investor makes residual monthly income. 7) The investor makes back-end profit when the tenant exercises their right to purchase. 8) In the Trust, the investor is the 100% beneficiary.
In most respects, this is no different than if you found your own property, found your own tenant to put in it with an option fee - who can't buy otherwise - and you bought the property on your own credit.
Worst case, you have a property that you paid nothing for (made money), you have to evict and find a new tenant or buyer.
Although this is hands-off compared to conventional landlording, if you are extremely averse to holding/leasing properties, this is probably not for you.
I will discuss the structuring of these transactions by a legitimate, ethical company with anyone interested.