FLIP FHA-REVERSE ASSIGNMENT???

Question

A real estate attorney who is a type of person who is "solution" oriented and thinks out of the box, told me that I could do a "reverse assignment" to alleviate the seasoning issue when flipping to an FHA end buyer.  Here's how it works, and I'd like to hear anyone's input on the possiblity of the end buyers FHA lender doing this also.  The investor offers to buy property for "X" dollars, lets say 200k.  The appraised value is 250k.  The Investor then finds a end buyer to purchase for 240k.  The Investor does one of 2 options: 1. Backs out of transaction, due to financing or inspection addendum., or 2. offer's to "assign" his buy contract from the end buyer to the seller where the seller would get 2,000 dollars more but pay the Investor a facilitation/finders fee (whatever name you want to put to it for fee) and allow the seller to close directly with the end buyer.  Reverse assignment.  So the seller receives 240k but pays the investor $38k facilitation fee and received 2k more in the end.  Would a FHA lender allow this?  Also, If limits are put on real estate commissions, and seller carry backs, or seller paid closing costs, what "fees" are allowable under FHA guidelines that allow larger fees or fee's over 3 or 6%?  Of course this is assuming the property has a legitimate real appraisal that is approved by the lender.  Thank you.
cj

Scott Hubbard · Answer

Christopher-
            
            I have spent the better part of my investing career thinking about how to maximize profits by marketing to FHA/VA buyers.  Now, it is more critical than ever to be able to include them in your strategy.
            
            The process you described might work in theory, in practice, it will simply not work. 
            
            Here's why: An FHA approved underwriter's will review all the fees issued on the HUD1.  A lowsy $2000 unapproved fee will make the underwriter's heart to skip a beat and a $40K fee will melt their face.  
            
            You got to realize these underwriters that are FHA approved are placed under such scrutiny that they will simply refuse to fund any fees that are not approved.  
            
            If there is equity in the property and the seller is willing to make a deal, you could create a promissory note where the sale proceeds are made into a promissory note.  You file lien on the property prior to closing.  
            
            The note will have a sale contingency, so if the buyer fails to close, then the lien is released.  Sell the home to a FHA buyer and you will be paid off at closing less a little something for the seller.

Dory Peters · Answer

You needn't explain anything to the seller about your end-buyer.  Frankly, that's none of his/her business.

If I were you, then I'd make an offer with an option to purchase the property for $210K (on the buy-side of your deal).  Afterwards, I'd offer to sell  the property to your end-buyer with seller financing with a balloon payment, and have your tenant/buyer to refinance you out of the deal ASAP.  Keep in mind, that you'll still receive your assignment fee out of the proceeds at closing, because you rolled the assignment fee into the purchase price.  Another bonus with this arrangement is that you'll receive a slight positive cash-flow from the interest spread (provided you structure the deal correctly) until your tenant/buyer refinances you out of the deal.

Christopher Johanski · Answer

Scott, I must say, it's rare for me to communicate with someone who is creative in there thinking and solution oriented at the same time...most people would simply say, "can't"...this word should be abolished from the dictionary, anyway, your solutions seems quite applicable, have you ever done this?  I'd like to ask a few more detailed questions please. For example, let say I can buy this house for 210k, it's appraised value is 240k and that's what I can sell it for, to my end buyer, 240k.  Before I "gave up" my end buyers info., would one submit an option contract with offer to seller, then, after offer of 210 accepted, explain to seller the financing obstacle, but also explain the solution. The transactional funding will not go thru without end buyer goes thru.  I'm sure your aware of this type of funding.  So when offer accepted, maybe, for example, offer 240k, and have them sign a Promissary note for 25k, so they, the seller is making 5k more, but how does one "secure" the 25k? Can I make that the promissary note a 1st note or wrap as I don't want to be in 2nd position and maybe get taken advantage of?  I'm sure I can't be in first position, but wrap it some way, or secure with house? How do I file lien on property where the seller is obligated for payment and not the new homeowner, my endbuyer?  I appreciate any light you can shed on your solution...and I must say, I'm impressed with it :) 
cj

Christopher Johanski · Answer

Dory; I really appreciate the input, very usefull, considering my concerns with the legalities of such ventures now a days. My challenge is to attempt to secure a profit of the flip without waiting the 90 plus days, there are some risks that concern me that would make me feel uncomfortable...although client has 2 jobs, one never knows about downsizing and although nothing is set in stone, job stability is always a question...that being said, end buyer has backup with friends that need place and could lease with her residing...NCA?  Want to make sure buyer can't go around, I've heard horror stories :(
Thanks for all your help.
CJ

Dory Peters · Answer

First, you don't want to use the terms finder's fee, or facilitate in any of your dialogue with the other parties.  Facilitate infers that you're an agent or broker, and it's illegal in many areas to "practice real-estate" (a synonym) without a license.  Instead, you're a principal (or a buyer) to the deal.  It's also illegal in many places for someone without a license to collect a "finder's fee," because that is also considered practicing real-estate.

It would easier for you to add your assignment fee to your purchase price, and sell the property for that sum.

You could also sell with seller financing, and have your end-buyer to refinance you out of the deal after having satisfied any seasoning rules.  Also, the loan underwriting criteria is often nicer for a refinance than for a new purchase.

Keep in mind that even with the invoice, your seller could deal around you without a NCA.

Most HMLs I know of only lend in certain areas.  I don't know of any who lend in MN.  I found mine via google and craigslist.

Christopher Johanski · Answer

Dory; You raise the most pressing questions, especially w/ FHA lenders not allowing or considering certain fees, I've seen them not allow a $150 dollar real estate agent marketing or listing fee, something like that, but my point, if they are that picky with a 150 dollar fee, I can only imagine the wrath I would receive on a 30-40k "finders" or "assignment" fee :)  However, to play devils advocate, I would have the seller sign a simple "invoice" for the assignment fee, BEFORE I submitted the end buyer, in addition, the transaction would be null in void if this fee was not paid out of seller's funds. But, I still feel the same way you do, and have more doubts as to the FHA lender still accepting it, even if it meets all requirements.  BTW, is there a FHA limit on assignment or finder fee's?  Does it fall under the same structure as seller concessions at 6%? Is there a private money lender or hard money lender that you know that is competative that can lend money 90-120 days to absorb the seasoning issue?

Dory Peters · Answer

Until you mentioned the term "reversed assignment", I had never heard of it.  Although I understood your explanation, I figured there had to be a terser explanation about how to do a reversed assignment.  So, I did some creative googling, and I found one.

Although it's possible that what you've suggested might work, I suspect the probability of the transaction working out that way is low.  There are too many if's involved:  if the lender will approve the the buyer's loan for the sell-side of your transaction, if the seller will agree to work with--and not around--you, if the property passes a FHA inspection, etc.

Actually, I'd opt to do this deal another way using an option or lease-option of the sell-side of your deal, and using a wrap, conventional financing, or private money to acquire the deal on the buy-side of the deal.

FLIP FHA-REVERSE ASSIGNMENT???

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