Can a wholesaler please clear up this closing Question!!!

Question

Im trying to get this right:
 Can the end buyer pay me the full assignment fee of (for an example :4k Money Order )
and I walk away, leaving he and the buyer meeting at the title co. 
Or does he/ she give me a deposit and the title co cut the remaining checks? With All THREE of you meeting at the title co?
If we all meet: then  I, the wholesaler call my title co. set the appt and bring the contracts????
Thanks
Eric

Bill Gulley · Answer

In Mo. you need an active RE license to facilitate a RE transaction, but you do not need a license to assign a purchase contract . The costs in connection with any RE transaction are to be shown on the HUD-1. If there is any expense to a buyer that is paid outside of closing it is to be shown as "POC" or paid out of closing. It shows up on the Buyer's HID-1, not the Seller's form. In some areas and states each party are entitled to see or obtain a copy of the HUD-1 of the other party, if so, they receive it after settlement, after required signatures are obtained by the settlement agent.

If you sell an option, give the buyer a receipt for the amount and they can give that to the settlement agent to include the amount as a POC amount on the Buyer's statement.

Doing otherwise is a violation of RESPA. And, if you don't include the amount, your Buyer will have a difficult time using that as a basis for tax purposes. You will not need to attend closing at all.

As for any refund, it would depend on why it did not close. If your Option has a financing contengency for the buyer, then you may need to return the fee if the buyer fails under such provisions. What I assign is the right to purchase at a specified price over a period of time. It is up to the buyer of the option to know if they can perform. If the seller bugs out, then I did not assign that right and they will get a refund, but the seller better have a good excuse too. While I would have a claim against the seller for default, I have never had to enforce an option and probably would not anyway.

Hopefully, I will selling an option soon and I will give the buyer a reciept to do what I just outlined above.

Rob Gillespie · Answer

I agree on finders fees being illegal in just about all states, but  truly selling a contract to someone should not be crossing any lines at all. You just need to be clear that they are buying a piece of paper that should be giving them the right to purchase something. I would agree with J Scott on checking your state laws, but I would also be sure you got the info from a very knowledgeable real estate attorney, perhaps even one that owns a title company. This is not an area of the law that is crystal clear, and is open to interpretation.

Bill Gulley · Answer

Joel is correct, RESPA only applies to residential, doing an option and not disclosing the fee in a commercial transaction can deprive the buyer of a true cost of acuistion, and will violate IRS rules in reporting real estate closings. Commercial, (small deals can be accomplished on a HUD-1) are closed with a Real Estate Transaction Statement, while it is not required to follow a set standard, it is required to reflect the accountings of the transaction. You'll find the requirements in the IRS Code and ALTA requirements.

Demetrus Gibson · Answer

I read it but it was fuzzy...could you break it down in simpler terms...Sorry.

Joel Owens · Answer

Demetrus -

It looks like you are doing all residential deals. Just remember with RESPA (Real Estate Settlement and Procedures Act) that it DOES NOT apply to commercial real estate transactions.

Just throwing that out there as it wasn't mentioned.

Demetrus Gibson · Answer

Thanks guys! This helps. 
Hey I have made a goal to close my first deal at the end of the month! About 14 days! I been studying on the sideline for too long...

J Scott · Answer

You might want to check your state laws...in my state, this is illegal -- buyers are not allowed to pay finders fees to licensed or unlicensed persons for bringing a real estate deal.  Also, in general, if the full extent of the transaction is not disclosed on the HUD, there will probably be an issue.

I'm not saying there aren't ways around the law (or that you'll even get caught), but it's important to know the laws in your state so you understand the risks you're taking.

Rachel H. · Answer

Hi Demetrus,

Check with Stephani (Steph) Davis here on BP. She's pretty knowledgeable in this area and has been a contributor in the past to the BP blog. Hope that helps!

Rob Gillespie · Answer

Demetrus, 
Good question.You can actually do it either way. If you can assign your contract and get paid in full up front, great! The only problem is if there is a problem with the closing, you may have to return the assignment fee. You can put all kinds of language in the assignment that it is non refundable, but ethically you would want to give it  back. With that said, I would take 1k as a non refundable deposit. 
You can close it at the title company, but that does not mean it needs to be a round table closing. You can all go in separately at different times to sign.

Can a wholesaler please clear up this closing Question!!!

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