Question about the legality of wholesaling/flipping
Okay here goes,
About a week ago I walked into a local Title Insurance company in the Chicagoland area and I sat down with the Vice President in order to ask some Wholesaling questions. I started describing a simultaneous closing scenario to her like when I have a purchase contract and the buyer has a purchase contract for more and we both go to closing and I get the difference. She immediately said that what I was describing is illegal and its called a "Flip". She also noted that she recieves memos about "Flips". I said okay and politely stepped right out. Now here are the questions. What exactly makes a transaction a "Flip". Is it actual law or just a policy of RE "professionals" not to consider a transaction like im describing. Also how can I get around this annoying road block.
All responses are very greatly appreciated
Bill
driven247,
Bill, it is very confusing to the conventional thinking Title Companies when we say things that they assume are "flipping" in the unlawful sense. I am sure she has received warnings about unlawful flipping.
What you described to this person in her mind was a "flip" in the unlawful sense when in essense it is not, the way you are doing it.
I have long said do not use the term 'flipping' because of the Government stand on this.
This is the unlawful way it is done, Investor A purchases a property for $100K. Investor A has an Appraiser appraise the property for $200K. Investor B purchases the property for $200K with a new loan. Then every one splits the profit. Investor B walks away from the property.
This type of a transaction was done in a very short period of time. Actually in some cases it did not stop with investor B, there was a C, D each time the property increased in value do to the crooked appraisals.
This type of scam was termed 'flipping' by the government.
This is why today you have the 'seasoning' issue where most lenders will not lend unless the loan is one year old.
You basically need to sit down with a title company that understands what you are doing is perfectly legal, a double closing or 'wholesaling' would be a better way of expressing it.
I am no expert on wholesaling, but if I wanted to do it, I would have my buyer sign a "Cognovit Note" with me for the amount of money that I would normally have gotten at closing. I would secure this type of note with the buyers personal property. No requirement to record the note so it will not show up as a cloud on the title.
This note is a self confessed judgement note, so it is very powerful in its own right, your buyer will be more than happy to redeem this type of note immediately after closing. The buyer in essense gives up his rights and must do exactly what the note states. All that is required is a Judges signature then the note can be enforced so no long delays.
John $Cash$ Locke
Thanks for the timely response John.
Unfortunately I am not familiar with the "cognovit note" or how to aquire the legal paperwork in order to use it. I suppose I am going to have to talk to my attorney and decide what the best plan of attack for the crucial moment when I sit down with the motivated seller. Also thanks for the clarification on "Flips". I am going to seek out a Title company that is familiar with our terms and techniques in the CRE business and go from there.
Thank you again and Take care John
Bill