All Forum Posts by: Randy Thomason

Come visit the Arkansas REIA monthly meeting. This month we are exploring Subject to and lease option deals and structures. Free food starting at 6 pm until it runs out and great networking. Free to first time guest and only $30 for non members.

Anytime title changes ownership, the previous title insurance becomes void, according to two of my title insurance companies.  If you have an issue after you purchase it you will pay all the cost to fix it, if it is fixable.  I've only had one claim in over 32 years but the cost would have been about $20,000 if I had paid all lawyers fees for the year it took to fight the bogus claim.  

Yes, this law passed two years ago.  I was representing the State Landlord Association at the time as the President.  This law clarification was enacted based on a case the RE Commission had been prosecuting previously that today is still in process against a woman from Florida.  She was declared guilty but appealed to the Circuit court and lost but then appealed to the State Appeals court and the court remained it back to the Commission for further clarification/prosecution.  The law mentioned above was to close a perceived loophole the lady was trying to exploit.  During the testimony that I gave and questioned the Executive
Director, who was testifying for the Bill, He specifically stated on record in the House hearing that "Wholesaling" or assigning contracts is legal if done correctly.  The problem is most people who claim to be a wholesaler, don't do it correctly.  

Last month I testified before the full RE Commission and we had a good discussion on this point.  As mentioned in another thread, the Commission hates the word wholesaling.  They understand and agree that assigning contracts is legal.  But their stances is and will prosecute a person if that is all they do.  If your business s assigning contracts and you never buy and close then you are circumventing license law.  You are brokering real estate for a profit without a license, in their opinion.  If you double close they have no problem.  If you buy and hold or rehab and sometimes assign they have no problem because you are acting as an investor and putting money at risk.  But if you always or predominately only assign or cancel contracts because you can't assign then you violate the law.  

Red flags they look for: 

Inspection periods that match the closing date

Weasel clauses that give you a right to cancel up to date of closing without a bonafide reason.

Not having earnest money in the game especially when combined with one of the above  

Unilateral right to extend or do something without both parties agreeing to the change.

Placing liens on properties without the intention of closing and not removing the lien if the contract is cancelled.

This last item was one of the reasons the Commission has gone so hard after the "Wholesaler" from Florida.  

One other point that my discussion with the Commission cleared up for people in this state.  They flatly said that Bird dogging is illegal here.  You cannot pay a person a fee or commission based on getting a deal. You can a company or employee a flat salary or fee per lead but their cannot be any type of bonus paid because you closed a deal.  Example- Paying a company $1 per each lead they send you would be and example of a flat fee.  But if you pay a $250 or $500 fee or bonus because you close a deal you just broke the law.   Look at it like pay per click.  

Violating the law here is a Class D Felony.  Up t 1 year in jail and $5,000 fine per instance.  I have never heard of any jail sentence but fines yes.  But the most important part is with a Felony record you lose the right to have a gun, no hunting, no voting, no passports to travel out of the country, even Canada or Mexico, lose the right to work in certain industries like investments, real estate license, and other security areas that might have to do with bank or credit card transaction.  The pain of that cold change your whole life going forward forever.  

The Commission mandate is , any reported complaint has to be investigated.  Most of their complaints will come from two sources for this item.  A realtor who doesn't like investors/ wholesalers, or more often a consumer who thought they had their house sold but a wholesaler cancels at the last minute.  If that seller has already moved or "spent" that money in advance then watch out.  They will be the person who files the complaint and at that point you are on the radar screen of the Commission. They can then look back at all you business, marketing, deals, etc for possible fraudulent advertising, acting as a realtor, and many other things. Each instance they find you did something wrong is a count. Each count is a possible fine of up to $5000. If they find you guilty you cannot file bankruptcy and get rid of the fines.  Judgments for illegal activity is not dismissed in bankruptcy so you are stuck until paid off. 

Hope this helps everybody. Join your local REIA's and learn what they teach. Keep up on the laws as they are constantly changing.

Hi Edwin,

You aren't going to get everything you need here on this forum. There is no way you can and also understand all the in's and out's. I teach Sub2's and it's an all day class and we have a working lunch and I still have a hard time getting everything in that needs to be covered so everybody understands things correctly.

My suggestion is get some info here and then find an attorney who knows Sub2's well to help and guide you through it, especially since it's your aunt. Great learning opportunity and I am sure she will be forgiving and help when/if you make mistakes.

There is no substitution for experience. (or a JV partner who has experience).

Wholesale Education this month, with Tom Zeeb.  Tom will be teaching his program, The Rapid Cash Generator, to ArkREIA members and guest.  Meeting is Thursday March 14th at the Hilton Garden Inn at 10914 Kanis Rd in Little Rock.  The doors open at 6 pm for networking and Free food and the meeting starts at 7 pm.  If you want to learn Wholesaling from one of the best in the country come out and see this person giving out nuggets of wisdom.

sending you a PM.

PASS!  I'm in Arkansas (next door) and know the area pretty well but not your market specifically.  No major cities close to you.   You say across the road to the community college so your main tenant focus would probably be Students who do NOT take care of the properties.  You rehab is wasted then.  

No real cash flow.  You didn't say how far into the mtg the loan was and that could be important to analyze the deal.  

Personally I hate 2/1's. Limited renters, limited buyers.  

DON'T DO A DEAL JUST TO DO A DEAL!

As a newer investor I know you are excited to find and get deals but I will tell you some of the best deals are the ones you decide not to do.  You won't understand that until you get several years in and have the advantage of looking backwards.  

But we are the exceptions out there. Most are trying to do Sub 2's with no money, no reserves, and very little if any knowledge of the process. I do hold my longer term but pay all the extra cash flow towards the principal to pay them down quickly. My ROI is great and if the rare occasion pops up for a Due on Sale, no problem.

I use it a lot for rehabbing too.  Little investment upfront and paid off in 60 to 120 days usually so everybody wins.

Keep up the push for knowledge on here Jay.  after reading many post on here,  you are badly needed!

Subject to investing- a mine field for the uninformed and inexperienced and for many who THINK they know what they are doing.

First, you should have your seller close into "their" Land Trust.  Then have them sell you their beneficial interest.  By selling into their trust they do not pay transfer taxes since they are not benefiting from a payment from the sale.  (In most states anyway).  

Before closing I would have the seller write a letter to the insurance company telling them to change the name of the insured to the trustee of the trust effective on the day you plan to close.  Only the owner can be the Named  insured legally.  Keep the lender as insured just as they are.  I have been counselled by a large insurance company's attorney that if you get a second policy and leave the old one in place and you file a claim they will initially deny your claim. You can't have two policies double insuring a property as they look at that as attempted fraud, in some cases.  They said they would point the finger to the first insurance company and get into a pointing match.  Meanwhile the bank has been notified and wants their money. They have now been notified that the seller does not own the property anymore and can then give you a 30 call notice on the Due on Sale. Holy Crap Batman!

All this while the insurance companies fight it out.  What are you going to do?  The second insurance company will usually at some point pay off but you are all caught up in the middle and during all this time you have paid twice the insurance amount, therefore reducing your cash flow.

Also remember that you have to change the policy from a homeowner policy to a Landlord policy, which will be a higher amount.  Many people forget that if you don't do this and you file a claim it probably will be denied since you don't have the right policy covering the property.

One good benefit of doing things this way also is that you will get a refund on the unused portion of the insurance escrow.  

You need a Limited Power of Attorney for the property and the sellers too.

And don't forget maybe the most important thing!!!!  If you are going to make the payments online you better have written authorization from the seller specifically authorizing you to log in to their bank account and make the payments.  If not, the bank could look at you as a security breach and since you are probably crossing state lines that could be a Federal Offense.  You might win a prosecution but it will cost you tens of thousand of dollars to fight it.

Taxes are not an issue.

as @Jay Hinrichs said, you need also to have Authorizations to Release Info forms so you can talk to the mtg company.  I always get about three undated signed for my files because experience has taught me banks want something dated within the last 90 days.

Lastly, but not a full rendition of things you need to do, is you should have a signed mgt agreement between your trustee and you as the management company, if you are self managing. Have a Limited POA signed to you and the company name and the bank will talk with you without issue.

As you can see there are many things that go into a sub 2 transaction. It is in my opinion the most dangerous transaction you can do, without the right knowledge.  It can be one of the best transactions you can structure if you know that you are doing and structure things right.

Not trying to discourage you but being a novice at it I would find an attorney well versed in the transaction to help you in the beginning.  

If you mess things up and ruin the sellers credit, they could possibly sue you for breach of contract and other things. And that is when the real fun begins...

So if a tenant does a repair, say to electrical or plumbing, and three years later the electrical starts a fire and kills a child. The fire department investigates and determines the repair done was wrong and dangerous.  Guess who gets their butts sued to high heaven?  And by the way, your insurance won't pay because you allowed and non licensed person to do the work. Negligence.