Simultaneous Closing Strategies???
I have been taught that the best way to "flip" a preforeclosure is by doing a simultaneous close or a "sandwhich" close with two Huds, the trust being in the middle of the transaction and the trustee getting paid the money at closing.
By doing a closing this way it appears that there are no chain of title issues and my name personally would not appear anywhere, therefor there is a low risk on my end. I have spoken with MANY title companies and lawyers involved in real estate to find someone that would do this type of transaction. My response was that these types of closings were easy to do up to about 1 1/2 years ago, which doesn't help us now! They aren't being done very often now b/c of the threat of loan fraud, which it isn't, but the title companies still won't do it. I am still searching for a title company that will close this way but it is holding me back from doing any transactions.
So for now, I can not close on a transaction in this manner. What is the next best way to close on a quick turn preforeclosure with a new buyer that has the least amount of liability, will not likely throw up red flags, and with the discounting bank not seeing/knowing the profit that I am making? Realizing of course, that the more complicated a transaction the more likely that something will go wrong!
Any strategies will be greatly appreciated as it is this last part of the whole preforeclosure business that is really stopping me from going out and making a success of it!
Thanks!
When I'm helping speculatve investors set up (and implement) their business plan, I ask that they consider an LLC.
To my thinking, it solves the riddle of "how to disguise the assignment"
Setting up an LLC with a forward thinking operating agreement is worth the several hundred dollars for legal and accounting consultation fees.
Once you have the boilerplate format, cookie cut the process for each acquisition.
Thank you for your reply. I am looking for that cookie cutter closing process that will work for me in my area, so your recommendation is greatly appreciated.
Could you please tell me what you mean specifially by setting up the LLC? I already run my business out of an LLC and am going to establish an S-Corp within the next two months.
As for the simultaneous closing... do you mean that you have a purchase agreement to buy the property in the name of an LLC and then make the new buyer a member of the same LLC?
That seems as if there would be complications as well, but since you do it, I'm sure you have it figured out and I just don't understand it yet. Where then, would the profit go? And would there still be two HUDs? Title companies here just like to do what is ordinary and customary. I have yet to find one that works "out of the box" as many other new preforeclosure investors are finding out as well.
One lawyer advised to get a line of credit or to use private money on the first side of the transaction. He said that is what most of the investors that he knows are doing, and that I am trying to make it more complicated then it needs to be, and trying too hard to make a lot of money with no risk attached to it. I am not against doing this. But, does that mess with the chain of title at all or throw up any red flags? The benefits would be that there are still two huds. On the first side of the transaction there are no surprises b/c you always know who you are selling to and on the second side of the transaction the buyers don't see what you made. Are there any negatives that I am missing here?
Thank you for your reply!
"Could you please tell me what you mean specifially by setting up the LLC? "
Specifically? Absolutely not. I suggested that you bring your bundle of needs to an attorney and a CPA who will advise you as to your specific needs, and devise your LLC's operating agreement accordingly.
I spent a few thousand on my prototype.... for my specific needs, and it works for me.
One size does not fit all.[ Edited by TheShortSalePro on Date 02/09/2004 ]
Short Sale Pro - it is terrific that you have been able to become so successful with short sales. I'm glad that you have your system figured out and I plan on someday being just as successful as I deem successful to be.
After studying other real estate forums it was obvious to me that The Creative Investor was the best place to go for real estate advice on preforeclosures. It appeared to have the most knowledgeable, helpful, unselfish people actively involved in the forum. Because of this, I believed that this was the best forum to post my questions on, never expecting that I would be made to feel, well, like an idiot with a “bundle of needs”.
On that same note, I am very proud of myself for all that I have accomplished so far in my real estate career - as well everyone else should be who has gotten over a hurdle in this business! All I have to do is look back and think of how hard it was to get over any one particular hurdle and how easy it is now to talk to a seller, sign the documents, make cold calls… I have learned how to find preforeclosures, how to talk to sellers, how to fill out paperwork, how to put a short sale package together, and how to speak to lenders. I am confident in all of these areas. Each of these are, what I consider, to be major hurdles that I had to jump over in order to make my preforeclosure business a success.
Many times someone gets to one of these hurdles and doesn't make it over though. It might not be the right time for them in their lives, it might be that something else comes up that they decide to focus on, or it might be that they get so frustrated with negativity that they just have to stop trying. I am not one of those people. My hurdle right now is one that I will get over with or without your help. I asked for advice on how to close on a “quick turn” preforeclosure and, honestly, expected to receive a knowledgable, helpful answer back. Your response was vague and I asked you to expand on it, in which case you did and made me to feel insulted simply b/c I don’t have this whole thing figured out yet. I’m positive that I am not the only one on this forum that is having trouble with closings. As for my “bundle of needs”, I have already brought them to attorneys in my area, and wasn’t convinced that their advice was the best to take so…. I brought them to the people who were actually out doing this business – the people at The Creative Investor.
Is there anyone else out there who has good, helpful advice on simultaneous closings, someone that has already gotten over the hurdle of simultaneous closings that is really willing to share their knowledge with the rest of us?
"As for my “bundle of needs”, I have already brought them to attorneys in my area, and wasn’t convinced that their advice was the best to take so…"
Didn't mean to imply anything derrogatory. In my experience you need an experienced attorney, and a well informed CPA to help devise your LLC if you want it to properly address your own particular needs, present and future.
What works for "Fred" or anyone who posts on this or other boards probably won't work for you since your investment objectives, resources, and bundle of needs will be different than his, or anyone elses.
It's best to get off on the right foot and not be forced to revist your operating agreement.
To get it to work exactly as you need it to work... have a professional devise it.
You won't regret it.
That's the best advice anyone can give...
Short sale pro is right on this subject! The money I spend on my attorney and accountant is well worth the "bundle of money' they save me! And it's true, one size does not fit all.
As for your question, is it possible to find a title company that understands what you are doing? I work with one that deals mostly with investors and that has made all the difference.
Keep up the good work!
Short Sale: I want to start out on the right foot for sure! That is why I am looking at all of my options, listening to the advice of others who are succeeding in this business, and then evaluating what would work best for me on closing these transactions. The more knowledgable I am about different strategies for closings the more likely I am to succeed.
Thank you both for your replies. I agree with going to accountants and attorneys. I have a great accountant already, and I have only spoken with lawyers that have been recommended by other real estate investors in my area. The last lawyer I went to said to use private money or a line of credit to fund the first half of the transaction and then sell it to the new buyer. Is there anyone out there that does this or doesn't do this for any specific reason? Any positives or negatives doing it this way? I would like your input and I am sure others would as well.
Ask your attorney how an LLC can work to disguise the assignment and eliminate the need for a double close, or the need to use your own funds...
Therein rests the answer to your question.
[ Edited by TheShortSalePro on Date 02/10/2004 ]
Thank you Short Sale Pro. I will ask him this week.
Kevkarb,
Hopfully, you will find your solution System to closeing.
In addition to the "fix" suggested here, for a real System, there can be a conversation with the Attorney for the Title Company's Insurance Underwriter, demonstrating to them that there is no need for their concern on their Fraud issues.
With everything disguised, however, there will be no need and this is not something you'll bring up.
The "scare" that's been put into everyone, the last couple of years, involves;
1. Blowing up the Appraisals.
2. Saying repairs were made, that weren't.
3. Otherwise "doctoring" documents, on fake seconds, homeowner income and/or tax statements, etc.,etc.
If you were the investor purchaseing the mortgages on these home loans and they went into default, how quick would you get tired of these properties not being able to bring the value, you thought you had, to recoup your investment ?
Again, this is the reason for their being touchy on these transactions. You can demonstrate you are making a profit, without it being fraud and the Attorney mentioned would be the one to calm their fears, but
NOT if you've got your System that avoids this headache.
You already know, that's what you want.
Alan
Thank you, Alan for your reply.
We do not even bother with the "front desk" workers at title companies any more because in one case they said we could do a transaction but a few days before the closing was scheduled we received a call from the lawyer saying he wouldn't do the transaction b/c of the underwriters. We did manage to pull the transaction off but it was not how we originally planned on doing it. We now speak directly to the lawyer that owns each title company and bypass all of the employees. We will eventaully find the process that we are comfortable with and that some (doesn't have to be all!) title companies are willing to do as well. We have been told that we are making it more complicated than it has to be but b/c of the large amounts of money involved we want to protect ourselves as much as possible.
kevkarb-
I am struggling through this same issue, but have decided to keep pushing on. I haven't yet found the "nice clean" closing process I want, but here's what I was able to work out on the first couple of deals. On one house, I bought the note on the 2nd and then had the homeowner sell the house to another investor, for a price negotiated by me with the investor. That paid off the first, and paid me off, without my having to even take title.
On the second deal, I had to pay cash for the house because the end buyer was getting a loan and the lender needed my name to be on title, before they would accept his loan package with the contract between him and me.
I think both of these would have been smoother if the end buyer had cash. But I'm finding that people will pay more when taking out a loan than paying cash, so perhaps it's worth it.
Good luck to you in your REI endeavors.