Assignable Contract?

Question

I have a buyer who is willing to pay $400,000 for a property that I can purchase for $300,000. Before I execute the contract I want to make sur eI am doing this correctly as I know "flips" are pretty much impossible to finance and the buyer will be financing. What is the best way to make this transaction complete and still ensure the buyer can obtain a loan while I make the difference between the 2 prices?

Thanks,

Jeremey

Thanks,

Jeremey

Lou Castillo · Answer

Correct. You would use an Assignment of Contract to pass along your rights to purchase the house under the prescribed terms of the original Purchase & Sales Agreement (PSA) . In fact you don't have to stip in about someone else walking into your shoes in the contract. I just have a one line sentence buried in the legal jargon of the PSA that says "this contract is assignable". With that, I can assign it to anyone with no other approval. In fact, in some states a contract is always assignable unless it specifically states that it can not be assigned.

Be sure to get yourself a great PSA form and an even better Assignment of Contract. The one I give my students is 1 page each, but each have some very powerful clauses.

Jason Salzman · Answer

so the purpose of these alternate methods is to get around the fact that the  buyer is getting conventional financing?

if the buyer were paying cash/dropping hard money--a double close would be   acceptable?

thanks--i'm still learning

Andrew Massaro · Answer

You can do a double-close, but you can also drop a lien on the property, equivalent to your assignment fee.  What you do is have the buyer put the property under contract directly with the seller for $400k.  Then, you attach a lien invoice to the contract for $100k.  Give both contracts to the title company and wait for your enormous check to arrive in your mailbox.

I've done this more than a few times, without even registering the lien officially.  If the title company is easy to work with, they'll take the invoice and your word for it.  A lien invoice can be created in Excel in 5 minutes.  Remember, it's attached to the property, so the seller's name is on the lien, not the buyers, eventhough you are essentially receiving the cash from the buyer.  The title company will work all that out.

Scott Hubbard · Answer

I think what Lou is saying about unethical or fraudulent is that in some states using the double closing where the end-buyer funds are used for closing without full-disclosure to all parties can be considered fraudulent.  In my state, I use the double close to hide the profit margins, but I must disclose to all parties when I exercise the assignment.  I find most lenders have no problem with assignments as long as it is part of the PSA.

Michael Juve · Answer

If that is the case that puts a big monkey wrench in what I've had in mind.

Mike H · Answer

Great information! So to clarify, I got the seller to sign my PSA contract with the legal jargon to make it assignable. I then find a buyer and have him/her sign the Assignment of Contract and I submit both to the title company and they sort it all out?

So I don't need to put the buyers name on the PSA?

Lou Castillo · Answer

No, I said it correctly, and you're right - it is counter-intuitive. The essential problem with the transaction is that you are selling it before you own it and using those funds to buy the property. This used to be common practice, but is now often viewed as unethical - even fraudulent.

Jason Salzman · Answer

when you refer to "the practice of setting up the 'sell' transaction first" is this what you meant to say? or, set up the buy transaction first...then use the funds to "purchase the property from the seller who is the in the next room"

thanks for the help--just trying to clarify--sounds a little counter intuitive the way it's written, but maybe it is what it is.

Lou Castillo · Answer

Correct - except that if the buyer were bringing cash or hard money you could just do a straight assignment of contract and avoid the double close. You want to try to avoid closing on a property any time you can.

Chris Ukachukwu · Answer

My understanding from reading from veteran wholesalers and listening to a wholesaling webcast is that anytime you can do an assignment rather than a double-close, opt for the AoC.

Assignment of Contract is basically a process where you get me to agree to "sell" you my house for $50K (under certain contingencies, such as I you reserve the right to substitute another buyer's name and amount etc in our contract). They have forms for this! You then get your brother-in-law to agree and obtain the means to buy the same house from you for $90K within the period stipulated in OUR original contract. All you now have to do is schedule a closing and furnish me with the name, price and terms of the deal you struck with your bro-in-law and at the closing you get a check cut to you for the price difference and your name appears NOWHERE in the closing papers. Now, which one gives you more privacy and is less expensive, less time consuming and less hassle?

But, I've never actually done this, so wait for confirmation from professionals.  :mrgreen:

Assignable Contract?

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