Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
Okay first I am writing this in response to a few post I have read. Secondly you must read this post all the way through, and most important I am not a attorney nor giving legal advice.
I hear about transnational funding, they give you money to close for a few hours or so and charge a couple thousand dollars, man this made the GURUS some money.
Better Idea, your buyer knows you are a wholesaler. Explain to him/her that you can save them a thousand bucks if they help you. They wire their money to escrow like they normally would. They have you sign a promissory note and mortgage for 30 days on the property you are about to sell them, so its your money now. You close the property walk to the other room and sell them the property paying off the mortgage. Its basically what the lending company is doing and charging you thousands you then have to pass to your buyer why wouldn't they go for it.
What does a bank do when you purchase a property. Exact same thing.
Well, not exactly. No bank or title company will permit a mortgage to be recorded unless they are assured that their borrower has clean title and a previously recorded deed to the house. In this case, you have neither.
What it appears you have is an improperly recorded mortgage against no ownership (i.e. no previously recorded deed) in the property. I assume you did this yourself since there's not a title company in the world that would participate in such nonsense.
You'd be in a world of legal hurt if I were the owner of this home and you convinced someone to loan you money secured by my property. I don't know whether it would be me or your buyer/lender (blender?) who would be more upset, if they understood this.
Can you imagine what would happen if your buyer chose for some reason to foreclose their lien on a property you don't own? I understand your intentions, but this could easily be construed as fraud.
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
11y
This buyer wouldn't go for it because it is much more risky. If you own the property you do not need transactional funding. If you do not own the property you are not in a position to take a mortgage loan on the property. That note you are asking the buyer to fund is an unsecured promissory note. You are correct, the money is yours the moment it transfers but the buyer might never see it again. What if instead of walking to the other room you simply walk away? Have you closed a transaction this way?
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
it is secured by a mortgage as well. with high interest and due in 30 days, so they could foreclose u off quickly. I have done a deal this way. And how am I not in a position to ask for a loan every deal that includes a loan is done this way. IE a buyer doesnt own a house when the bank wires money for closing.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
11y
That note is Not secured by a mortgage, even if properly executed, until After you are the owner, since you can't mortgage something you don't yet own. So until you take title it's useless, and you could walk with it....the point trying to be made above.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
11y
You're borrowing money from your buyer, C. You, B, don't own the subject property. So how in the world can you place a lien on the property to secure this loan? You might create the paperwork, but its not a valid lien. You can't place a lien on a property you don't own. Only the owner can do that.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
Jon,
You are getting a loan essentially with the buyer's money. He wires it to escrow you sign the docs. What does a bank do when you purchase a property. Exact same thing. Then the lien is released when it is sold to him. Its adds some paperwork to make a legit transaction out of the old double close which is what was done just no paperwork was in place.
What does a bank do when you purchase a property. Exact same thing.
Well, not exactly. No bank or title company will permit a mortgage to be recorded unless they are assured that their borrower has clean title and a previously recorded deed to the house. In this case, you have neither.
What it appears you have is an improperly recorded mortgage against no ownership (i.e. no previously recorded deed) in the property. I assume you did this yourself since there's not a title company in the world that would participate in such nonsense.
You'd be in a world of legal hurt if I were the owner of this home and you convinced someone to loan you money secured by my property. I don't know whether it would be me or your buyer/lender (blender?) who would be more upset, if they understood this.
Can you imagine what would happen if your buyer chose for some reason to foreclose their lien on a property you don't own? I understand your intentions, but this could easily be construed as fraud.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
@Jeff S. Lets walk thru this step by step here. When you buy a property with bank financing you have a purchase agreement with party A. You are party B and the Bank is Party C. Party C (the bank wires money to the title company), you have documents to sign, the money is released to party A, ownership is transferred to you party B. Normal transaction everyday, thus is a major reason why the title company exist, to make sure everything is correct before releasing money. Perfectly legal, yes title company did sign off on this and I have done it several times. IT is two complete separate closings. Which for clarification this should only be used when the contract is nonassignable. Once I own it is I choose to sell it I can, and If party C chooses to buy it, by releasing their mortgage then that's fine too. Your buyer will most likely know your exact profit, but any reasonable investor who is getting a true solid wholesale wont care you are making money if they are good a good deal that leaves them room to make money.
Explain how this would be different? They are getting paid off with the buyers funds, so instead of getting the mortgage paid, they get the property and the mortgage is released. This has been vetted by 4 different attorneys because I had to have this same argument with the title company their in house attorney signed off and they check with another attorney, my attorney signed off and asked a friend his thoughts just to be sure.
Can you fund my rehab project?No, we only fund deals that are closing back to back in the same day. We offer no other financing.
Can my end buyer get funding with you also?No we only offer funding for the 1st transaction (the A to B transaction). Your end buyer must have pre-approval for financing or provide proof of funds as a cash buyer.
Real Estate Investor · Lansdowne, PA · Member since 2013 · 1k+ posts · 656 votes
11y
@Jeremy Tillotson
This is odd because most title companies won't allow for the wholesaler to utilize their cashbuyer's funds to pay the seller for their property. I know that to be true in several housing markets, east coast to midwest. Yet you're claiming that your title company / attorney in Indiana actually allowed this? Well it might be true for your residing housing market but it won't fly in several others.
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
11y
From what Jeremy described above, it's a double close transaction. C is B's lender, and the house is the collateral. After B closed the transaction, B sells the house to C.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
@Mary B. Title company isnt letting you use the buyers money, at least not directly. You have to have the documents in place. @Account Closed You are correct. Useful if ever needed. Again if you can assign the contract do that, but if you cant this is an option.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
@Mary B. So a title company wont let you have a private lender? It is totally legal, legit and creative. The title company would have to honor this, again its about the note and mortgage that makes this different from the old days.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
@JPaul Mills If you cant assign the contract this works. I agree assign it if you can. Many times a reo, can not be assigned. There are a few other times as well.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
@Jon Holdman You are buying it, you just are only going to own it for a few minutes. Mortgages are drawn up before closing in every transaction with a loan. Therefore you are taking a loan of the property at the time you purchase it with there money just like any closing with a loan. Most people getting a loan dont have the money to buy the property and then get a loan, and if they did would they even need the loan.So You now the property but have a high interest rate and 30 day note. The lender essential trades the house for the note at that point. BTW I mean note and mortgage.
@Mary B. So a title company wont let you have a private lender? It is totally legal, legit and creative. The title company would have to honor this, again its about the note and mortgage that makes this different from the old days.
Anything is possible its just that the title cos. that I've come across aren't as lienent as yours. I never commented whether it was legal or illegal; of course it varies by jurisdiction and there has to be a note involved. As you've stated its about the 'note and mortgage' so free and clear property this would not work for?
@Jon Holdman You are buying it, you just are only going to own it for a few minutes. Mortgages are drawn up before closing in every transaction with a loan. Therefore you are taking a loan of the property at the time you purchase it with there money just like any closing with a loan. Most people getting a loan dont have the money to buy the property and then get a loan, and if they did would they even need the loan.So You now the property but have a high interest rate and 30 day note. The lender essential trades the house for the note at that point. BTW I mean note and mortgage.
What happens if your buyer pulls out and doesn't close, is the cost a percentage or flat fee? Is there an additional fee if you should need an extension beyond the closing date that you originally had? Can you give an example of what a transaction like this looks like with monetary figures involved?
Wholesaler · Navarre, FL · Member since 2014 · 252 posts · 86 votes
11y
If it is an REO you are wholesaling then another way to do it is to have your end buyer be an approved signor on the transaction and then at closing you get you cut under the table. Some might say that what if they screw you from your cut well that is why you need to have a relationship with this buyer and make them know that if they work with you you will bring them many more deals like this. Another way to do it is to set up an LLC to buy this REO and then add your end buyer to the LLC as a member and then "sell" that LLC to them after closing. Or basically you are removing yourself off of that LLC and they have the property tied to that LLC there is a great article a guy named Wendell posted about wholesaling REOs
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
11y
Regarding "...and most important I am not a attorney nor giving legal advice." Ditto. I can only share what I know from NC statute and private discussions with a practicing real estate attorney. It's not that you cannot accomplish what you are attempting to do, but your implementation at hand would have consequences. NCGS 45A-4. Duty of settlement agent says:
"The settlement agent shall not disburse any of the closing funds prior to the recordation of any deeds or loan documents... "
And 45A-8. Embezzlement of closing funds by settlement agent says:
"(a) All closing funds received by a settlement agent are trust or escrow funds received by the settlement agent in a fiduciary capacity. (b) A settlement agent in the disbursement of settlement proceeds shall account for and pay the closing funds to the parties or entities identified for payment of the closing funds pursuant to the settlement agreement approved by the parties to the transaction. (c) Except as to such portions of the closing funds representing the settlement agent's fees and expenses, a settlement agent shall be subject to the embezzlement provisions of G.S. 14-90."
The revised (2009) statute 14-90. Embezzlement of property received by virtue of office or employment says explicitly "...or (ii) are closing funds as defined in G.S. 45A-3, which shall have come into his possession or under his care, shall be guilty of a felony."
Notice the date of many of the latest statute updates... just after the banking and mortgage crisis, meltdown, and great recession. Gee. I wonder why? I doubt that you could find an attorney in NC to honor your stated implementation.
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
11y
@Jeremy Tillotson, what you are describing can be done if your Buyer agrees to give you an unsecured loan prior to closing. Things have to happen in a certain order to meet fiduciary duty requirements of handling other peoples money. Example your Buyer's money is used to pay off the Seller, at that point you used someone elses money. If you did not have written consent someone broke the law. If you had written consent you are OK. Technically your written mortgage you gave to the Buyer is not valid, since the deed to you has not been recorded yet. When the deed to you is recoded then you can give a mortgage to another and it is valid. If you were to give another person a deed and it was recorded before your mortgage to buyer it makes your mortgage to Buyer useless. You could argue this could happen in any closing situation I suppose. The big thing is using the Buyer's money for that brief time they are not secured. The title company actually is very much at risk, but again if they agree it could be done. The title company would have to make things good if it went to hell as to an innocent party. Again absent a special consent of the Buyer this act would be illegal for the closing agent.
Rental Property Investor · MA · Member since 2014 · 420 posts · 213 votes
11y
Again, not legal advice.
I was a licensed Division Of Banks LO and I can say without doubt this is EXACTLY what we looked for regarding fraud. I am not saying it is fraud but this is what fraudulent transactions look like. I can respect the "creative" approach but any misstep in the process is going to result in a serious issue.
As you described, the actual "buyer" would loan money to you to close, is this correct? That money will now have to be accounted for from a qualification stand point and seasoning standpoint. Am I misunderstanding this?
Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
11y
The expense of drawing up a mortgage and that it complies with dodd-frank is prohibitive .The title company,you , can be sued It is just cleaner and cheaper and safer to pay the 2% for transactional funding