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Posted by Tricia on June 14, 2006 at 21:38:06:

Hi,

I am a newbie and have been doing a lot of research on REI. I am particularly
interested in flipping properties at wholesale price. The REI course that I have
walks me through having the owner of the home sign a contract for a specific
price. This contract will disclose that I am a realestate investor and may
assign the contract to a third party. It also states that I can back out of the
deal if my partner does not agree with the purchase (this is the "exit" strategy
in case I can not find an assignee). I then find an assignee who is willing to
purchase the home for a set price. Again - the contract has all the disclosures
such as the fact that I may not have title to the property at time of closing. It
is my understanding that at closing I get the difference between sellers and
buyers price.

I have the following questions based on this understanding:

1. Why would I need an agreement where I would say that I would l buy the
house (or assign it)? Can I not just tell the seller that I will look for buyer
willing to purchase his home? Get it in writing and register it at the local
courthouse?

2. Is the above doable in PA/NJ?? How do I collect my assignment fee at
closing? A double closing is not something that people are familiar with doing
and have even told me is illegal.

Thanks in advance for all your advice.

Best

Tricia

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Posted by Max-Va on June 15, 2006 at 09:38:41:

1. the way you suggest makes you acting as a broker without a license. Fines and jail time can be expected. By signing the contract with seller, you become a principal to the transaction.
2. Check with many title companies and r/e attorneys, this type of transaction is not commonly done by them so they don't understand. Rather than checking the law, they just say it is illegal. Find a title company that works with investors, you might start with the local REI club for recomendations.

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Posted by dutch on June 20, 2006 at 21:56:00:

and...

You signed a contract to buy. Without the "out" clause, the seller could (although unlikely) FORCE you to buy via a specific performance lawsuit.

Dutch

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Posted by Treens in Texas on July 13, 2006 at 08:37:05:

Hi Tricia,

1. Once you sign the sales contract, "Tricia XXX and/or assigns" and pay the seller his $10 (or whatever you intend to use) you have the legal right to outright buy or assign the property as you choose. If you do not do a contract. Any other investor or realtor can come in right behind you, offer the seller cash and for the property while are still searching for a buyer and you would just lose out on the deal.

2. Wholesaling is legal because you have the contract. There is no need for a double closing with an assignment. Once you do your buyer's contract with the Assignee let your title company do the rest. They should receive the $2000-3000 deposit from the assignee and set up the close date. You just have to show up that day to pick up your check.

I have read that double closings are mostly so that both the seller and buyer cannot see your assigment fee. If you are not going to make over $15,000 on the deal, it not worth it because closing cost will eat into your profit.

I hope this helps.

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Posted by Hungry Gator on July 15, 2006 at 07:51:30:

Bad news folks- in many states, assigning a contract is the definition of "flipping" and is against the law. Much less regarding being licensed to negotiate for the sale purchase or lease of real property, most states have adopted laws that say an "entity"- which covers any form, may not "sell", real property unless they have become the owner of recordation at the court house.

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Posted by BTI on July 15, 2006 at 13:36:36:

Gator

If you are familiar with the statute of any state, it would be far more useful if you specified the state and the statute involved.

I have heard this cry from many people in the states I've done business in, and in all cases they didn't know what they were talking about. I'm not saying there isn't a state that does this, I'm saying yelling fire doesn't help if your in a theater and the fire is down the street six blocks at a drug store.

BTI

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Posted by Jack on July 17, 2006 at 17:45:26:

A comment worthy of a relator.

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Posted by cn on August 08, 2006 at 12:15:26:

He is correct, and it is nation-wide. The U.S. Attorney's office and the FBI are going after people doing that very thing nation-wide!

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Posted by BTI on August 08, 2006 at 20:32:33:

CN

No he is not right. You can as a principle assign a contract all over the USA. Contracts are being sold and assigned everyday in the commerce of the USA both in regards to real estate and otherwise.

I think you need to call the attorney generals office and get a clearification of the problem area, but such a general post will only serve to put off some newbie as a result of false information.

BTI

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Posted by BTI on August 08, 2006 at 20:43:33:

CN

Forgot to add your not selling the property, your selling the right to purchase the property, so the argument of Hungry-gator that you can't sell property you don't own is basically true but leads to a misguided conclusion, because the owner is the one who will be transfering title in the end.

BTI

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Posted by CN on August 08, 2006 at 21:27:35:

I hope what you are saying is correct. What I do know is that I sat through an 8 hour conference put on by the Asst. U.S. Attorney out of Gainesville, GA and the White Colar Crime Division of the FBI, and to paraphrase what they said: If anybody is paid from a real estate closing that is not the seller or any licensed professional involved in the closing (e.g. closing attorney, real estate agent, etc), then the transaction is fraudulant.

Again, I want what you are saying to be correct. Hearing this stopped me dead in my tracks of what I was doing as an investor. I have been doing the very things for the last three and a half years that they are saying is illegal.

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Posted by BTI on August 12, 2006 at 23:55:16:

CN

I know there is a ton of mortgage fraud out there and they are trying to cut it out but there is nothing illegal about wholesaling.

Write the Attorney General if you are afraid and chew them out for misrepresenting this activity at their seminars. These are honest deals and not the target of the crap the scammers have been pulling the last several years. Challenge them to provide you with one statute that substantiantes their position, I've never seen or heard of one.

Do you think that all us wholesalers/rehabbers would continue on with our activities if it was illegal? No, the word would spread, sellers would be filling the courts, and the death knell would be tolling.

BTI