Wholesale Hybrid Scenario - Problems and Pitfalls?

[Robert Paxton]

Hi all, I'm new to BiggerPockets. I have a wholesale question I was wondering if you could help me with:

An LLC owner solicits a distressed homeowner who is facing foreclosure. The LLC purchases the home from the distressed homeowner for a below-market price before the house enters into foreclosure, with a caveat. The LLC will front the cost for any renovations on the home and then sell the home and split the profit (if any) with the previous homeowner within a pre-determined amount of time. The profit margin will be an agreed upon number before. The contract would be structured so that if the home didn't sell or there was no profit, the LLC would not be liable.

The initial offer on the home covers the mortgage and any tax liens on the property, so the transaction is not a short sale. The LLC allows the previous homeowner to live in the home for a few months for a credit against the final sale.

What problems or pitfalls do you see in this scenario?

I’m not as familiar with lending laws, as this would fall into a refinancing type deal. I’m also wondering if there are any issues when it comes to soliciting homeowners to refinance.