Realtors buying SFH "subject to"

[Alan Daniels]

BP,

Hope everyone is gearing up to have a great, happy, and non-political :) Holiday season!

I wanted to get everyone's thoughts on being a Realtor and what the "status quo" (for a lack of a better word) is regarding buying a property "subject to", using an LLC as the Buyer, as well as giving the Seller a Promissory Note paid out over 5 years. I want to make sure I do the right thing, as I've received some advise that seems a bit "sketchy". I know that to some extent, this is a Broker to Broker policy, but wanted to get more educated and tenured perspectives and if there are any considerations that I am likely not accounting for, as this is my first subject to transaction. Also, I live in GA and realize that this is a variable in this equation. I am buying this property thru an LLC I already have established, but does not hold any other properties under it. The seller is fully aware of all of these variables and is 110% cool with it all. I plan to keep this as a rental.

 To be more specific...

• -Contracts... Is there any liability exposure if using a non real estate commissioned P&S Agreement? It's still from an Attorney.. Basically, not using what the State RE Commission publishes for realtors to use.. Again, if you are currently a Realtor, but not a Realtor in this transaction. It is noted in the special stips that "Buyer is a licensed Real Estate Agent". My concern is sending this attorney's P&S contract to my broker and it getting ripped apart. Not that it's relevant, but I am just not a fan of the lengthy Realtor contracts, when there are no Realtors technically involved as representing anyone. They buy will be... Me - Manager, LLC
  
• -Do you have to go thru strenuous regulations regarding setting up bank account with visibility and access to the Broker and RE Commission?
• -Do I treat this transaction as a Realtor would (even though I am not a "Realtor" in this transaction) and complete a Distribution Auth. for commission that I am paying myself?... again just looking for perspectives, as I know I will work this out with my Broker.
• -If/when we put this under contract, what does it look like to use the seller's insurance to fix water damage that currently exists. Sorry, this one might should be a separate discussion. Can the seller give me something like a POA to work directly with the Insurance Company & Mortgage Company?
• I feel like I am somewhat playing both sides of the field and again, want to ensure I do the right thing.
• Lastly, I was given some advice to just not tell my Broker since there are no realtors involved and I'm buying it with an LLC... but I'm not sure that would be the right thing to do, even tho my broker would really only get about $700 in commission from the transaction.
• I also wanted to get this community's  perspective b/c I am also weighing out if I should renew my license or not...  I am not marketing myself heavily at all as a Realtor - I just wanted to get the education and access since I'm new to RE.
• As always, this communities time and willingness to share knowledge and experience is deeply appreciated!
• Thank you all!
• Alan

[Bryan Scott]

@Alan Daniels  I thought it easier to answer by first copying your post, then answering each point in turn, in CAPS (not "yelling," just want to separate your question/concern from my answer):

I wanted to get everyone's thoughts on being a Realtor and what the "status quo" (for a lack of a better word) is regarding buying a property "subject to", using an LLC as the Buyer, as well as giving the Seller a Promissory Note paid out over 5 years. MOST ANY COMPETENT REAL ESTATE ATTORNEY WOULD LIKELY & STRONGLY ENCOURAGE YOU TO NOT PURCHASE A PROPERTY "SUB TO" BECAUSE OF THE GOTCHAS THAT CAN OCCUR, NOT THE LEAST OF WHICH IS VIOLATING THE TERMS OF THE SELLER'S MORTGAGE OR DEED OF TRUST. AS COMPARED TO A CONTRACT FOR DEED / LAND TRUST, SUB-TO'S PASS LEGAL TITLE, WHEREAS THE LATTER HOLDS TITLE IN ESCROW VIA A QUALIFIED INTERMEDIARY. I want to make sure I do the right thing, as I've received some advise that seems a bit "sketchy". I know that to some extent, this is a Broker to Broker policy, but wanted to get more educated and tenured perspectives and if there are any considerations that I am likely not accounting for, as this is my first subject to transaction. NOT SURE WHAT YOU MEAN BY "BROKER TO BROKER POLICY?" THE LAWS IN YOUR STATE WILL DICTATE AND GOVERN HOW SUCH A TRANSACTION IS DONE, FROM START TO FINISH. AS A LICENSED AGENT, YOU AND/OR YOUR BROKER, SHOULD CHECK/VERIFY COMMISSION RULES ON SUCH A TRANSACTION TO MAKE SURE THERE ARE NO LICENSE LAW VIOLATIONS AS A RESULT. Also, I live in GA and realize that this is a variable in this equation. I am buying this property thru an LLC I already have established, but does not hold any other properties under it. The seller is fully aware of all of these variables and is 110% cool with it all. I plan to keep this as a rental. AS WITH ANY OTHER REAL ESTATE TRANSACTION, THE BUYER'S FORM CAN BE ANYTHING LEGAL, WHETHER A CORP, LLC, INDIVIDUAL, ETC.

To be more specific...

• -Contracts... Is there any liability exposure if using a non real estate commissioned P&S Agreement? It's still from an Attorney.. IF SOMETHING GOES SOUTH BETWEEN YOURSELF/LLC AND THE SELLER AT SOME POINT IN THE FUTURE, THE PARTY THAT BRINGS A SUIT WILL USE THIS, AND ANY OTHER NON-STANDARD DIFFERENCES BETWEEN THIS TRANSACTION AND A MORE "MAINSTREAM" TRANSACTION IN ORDER TO REPRESENT THEIR CLIENT. NO QUESTION THAT ATTORNEYS MAY WRITE CONTRACTS AND REAL ESTATE AGENTS MAY NOT, BUT IF THERE IS A STANDARD CBS, INCLUDING ACCOMPANYING ADDENDA AND DISCLOSURES, BEST TO JUST STAY WITH MAINSTREAM SO IT CAN'T BE USED AGAINST YOU LATER. Basically, not using what the State RE Commission publishes for realtors to use.. Again, if you are currently a Realtor, but not a Realtor in this transaction. It is noted in the special stips that "Buyer is a licensed Real Estate Agent". My concern is sending this attorney's P&S contract to my broker and it getting ripped apart. Not that it's relevant, but I am just not a fan of the lengthy Realtor contracts, when there are no Realtors technically involved as representing anyone. SAME EXPLANATION AS THE ONE IMMEDIATELY ABOVE THIS TEXT. They buy will be... Me - Manager, LLC
  
• -Do you have to go thru strenuous regulations regarding setting up bank account with visibility and access to the Broker and RE Commission?  IF YOUR STATE SAYS SO, YES, BUT GENERALLY-SPEAKING, I AM NOT SURE WHY THIS WOULD BE REQUIRED ANY MORE OF YOU AND THIS TRANSACTION THAN ANY OTHER.  IF YOU HAVE A REAL ESTATE ATTORNEY CLOSING THIS TRANSACTION, IN CONJUNCTION WITH A TITLE COMPANY, I WOULDN'T WORRY ABOUT THIS UNLESS A PARTY TO THE TRANSACTION HAS ISSUES WITH IT.  JUST BE SURE THAT EVERY DIME, NICKEL AND QUARTER, CONCERNING THIS TRANSACTION, APPEARS ON YOUR CLOSING DISCLOSURE DOCUMENTS.  NOTHING, AND I MEAN NOTHING (MONEY OR TERMS, ETC.) SHOULD BE DONE OFF-BOOK (POC - PAID OUTSIDE OF CLOSING).  NO PRIVATE TRANSACTIONS, MONEY RECEIPTS, OR OTHERWISE.  TO MAKE A CONTRACT FORMAL AND LEGALLY BINDING, MONEY NEEDS TO BE EXCHANGED IN THE FORM OF EARNEST MONEY.  THIS MONEY SHOULD NOT GO TO THE SELLER, BUT RATHER THE ATTORNEY OR THE TITLE COMPANY.
• -Do I treat this transaction as a Realtor would (even though I am not a "Realtor" in this transaction) and complete a Distribution Auth. for commission that I am paying myself?... again just looking for perspectives, as I know I will work this out with my Broker.  I'M CONFUSED, I THOUGHT YOU MENTIONED YOU WERE A LICENSED AGENT?  IF NOT, NO BIGGY, BUT IF YOU ARE, YOU ARE HELD TO ACCOUNT WITH YOUR REAL ESTATE COMMISSION AND THE STATE, JUST LIKE ANY OTHER LICENSED AGENT.  THIS MEANS THERE IS A VERY BIG AND BRIGHT SPOTLIGHT SHOWING ON YOU AND EVERYTHING YOU DO IN REAL ESTATE. WHEN IN DOUBT, DISCLOSE AND GET THE SELLER'S ACKNOWLEDGEMENT AND AGREEMENT IN WRITING.
• -If/when we put this under contract, what does it look like to use the seller's insurance to fix water damage that currently exists. Sorry, this one might should be a separate discussion. Can the seller give me something like a POA to work directly with the Insurance Company & Mortgage Company?  IF THE DAMAGE HAS BEEN DISCLOSED VIA FILING A CLAIM WITH THE SELLER'S INSURANCE CARRIER, PERFECT.  IF NOT, IT SHOULD BE, THEN THE SELLER'S INSURANCE SHOULD COVER THE CLAIM, UNLESS NOT COVERED IN THEIR POLICY FOR SOME REASON.  THIS SHOULD SURVIVE YOUR CLOSING AS WELL.  WHEN IN DOUBT, CHECK WITH THE SELLER'S INSURANCE BROKER TO BE SURE.  BTW - YOU CAN ALSO PUT THIS INTO YOUR CONTRACT TO PURCHASE IN THE APPROPRIATE LOCATION, THEN MAKE IT PART OF CLOSE.  MOST TITLE COMPANIES WILL STAY IN THE DEAL UNTIL THESE THINGS ARE COMPLETED.  THEY CAN EVEN RECEIVE MONIES, PAY CONTRACTORS, THEN DISTRIBUTE FINAL PROCEEDS IF NEEDED.
• I feel like I am somewhat playing both sides of the field and again, want to ensure I do the right thing.  NO ISSUES PLAYING BOTH ENDS, SO LONG AS BOTH ENDS DOESN'T INCLUDE YOU REPRESENTING ANYONE IN A WAY THAT IS NOT CONSISTENT WITH LICENSE LAW.
• Lastly, I was given some advice to just not tell my Broker since there are no realtors involved and I'm buying it with an LLC... but I'm not sure that would be the right thing to do, even tho my broker would really only get about $700 in commission from the transaction.  NO BROKERS INVOLVED?  I THOUGHT YOU MENTIONED YOU WERE USING A BROKER (ABOVE)?  ALSO, I THOUGHT YOU ALLUDED THAT YOU ARE A BROKER (BELOW), BECAUSE OF YOUR MENTION ABOUT RENEWING YOUR LICENSE?  REGARDLESS, THIS CANNED STATEMENT IS OPERABLE EITHER WAY:  THE ONLY WAY YOUR BROKER AND, IF USED, YOUR REAL ESTATE ATTORNEY CAN HELP PROTECT YOU, IS TO DISCLOSE EVERYTHING.  THERE IS NO FUTURE IN LOOKING OVER ONE'S SHOULDER AFTER A CREATIVE TRANSACTION IS CLOSED.  IF YOU CAN'T DISCLOSE EVERYTHING BECAUSE YOU BELIEVE IT MAY NOT SURVIVE CLOSE SCRUTINY, THEN YOU SHOULD QUESTION DOING THIS TO BEGIN WITH.
• I also wanted to get this community's perspective b/c I am also weighing out if I should renew my license or not... I am not marketing myself heavily at all as a Realtor - I just wanted to get the education and access since I'm new to RE.
• SEVERAL FINAL THOUGHTS CONCERNING MANAGING THIS TRANSACTION:
• 1) KNOW THAT WHEN YOU CHANGE INSURANCE FROM THE SELLER TO YOUR LLC, UNLESS DONE IN A REVOCABLE TRUST, WHICH MAKES THE TRANSACTION LOOK LIKE THE SELLER IS DOING SOME ESTATE PLANNING, THE MORTGAGEE COMPANY WILL RECEIVE THIS NOTIFICATION AND QUESTION IT. THIS IS NOT THE SAME PROBLEM IF YOU DO THIS TRANSACTION AS A CONTRACT FOR DEED / LAND TRUST, WHERE INSURANCE STAYS IN THE SELLER'S NAME. IF THE RATE OF INTEREST ON THE SELLER'S NOTE IS LOWER THAN THE MARKET RATE, THE MORTGAGE COMPANY MAY CALL THE NOTE. 2) FOR FULL TRANSPARENCY, IT IS BEST TO USE A QUALIFIED INTERMEDIARY, IF REQUIRED BY YOUR STATE, OR SOME SORT OF ESCROW COMPANY TO COLLECT YOUR PAYMENTS, THEN PAY THE UNDERLYING MORTGAGE PAYMENTS AND HANDLE YEAR-END REPORTING, WHICH BOTH YOU AND YOUR SELLER GET PERIODICALLY. DO NOT PAY THE SELLER ANYTHING DIRECTLY - PAYMENTS SHOULD ALWAYS GO TO A QUALIFIED, NEUTRAL PARTY. THE QUALIFIED INTERMEDIARY WILL HOLD ALL ORIGINAL, SIGNED DOCS RESULTING FROM YOUR CLOSING AND WILL ENSURE ALL TERMS ARE KEPT AND ENFORCED. 3) MAKE SURE THAT YOU, AS BUYER, ORDER UP A FRESH MARKET APPRAISAL TO ESTABLISH VALUE AND ASSIST IN PRICE NEGOTIATION AND PROVIDE THIS TO YOUR SELLER DURING THE TIME FRAME STIPULATED IN THE LONG FORM CONTRACT, WHICH INCLUDES DATES AND DEADLINES. THIS WAY, IF THE SELLER SELLS TO YOU AT A PRICE LOWER THAN MARKET, HE/SHE DOES SO WITH FULL DISCLOSURE. CONVERSELY, IF YOU BUY AT A HIGHER PRICE, YOU ALSO DO SO KNOWINGLY.

THERE IS ALWAYS MORE TO IT, BUT THE SHORT STORY IS TO USE AN ATTORNEY AND/OR TITLE COMPANY, ENGAGED AND PAID FOR BY YOU, WHO HAS DONE LOTS OF THESE TYPES OF TRANSACTIONS AND DO NOT SHORT-CUT THE PROCESS FOR ANY REASON.

GOOD LUCK WITH IT.