Flipping homes using Notes and the Banking Commision. - Posted by Mark-NC
Posted by Mark-NC on April 02, 2000 at 17:52:59:
I am promted to write this after the fiasco with the posting below called, “They are coming to arrest me”. It reminds me of another thing that actually could happen if you are not carefull Using the Note business to sell with owner financing and sell the financing at closing. The banking commision will come down on you very hard if you are in any way represeting the fact that you are loaning money. There is a fine line between an origination Loan and selling a note at closing and you have to be carfull not to cross that line. And many people will argue to the fact that it is lending but it is not.
In fact I got a letter from my state Banking Commision asking me if I was making loans without a license. I believe it was some realtor that turned me in. However I was always carefull on how I represented myself. I wrote back a letter stating that I do not represent the fact that I make Loans nor do I have any intension of making loans. I do however buy properties and resell them with owner financing and many times I sell my financing at closing to a Note buyer. They were satisfied with this answer.
So when you are talking to prospective buyers be carefull how you state your wording or how you talk to your clients. In A Note sale there is never a loan and you have to make that clear you never now who is going to call you on your ad and test you on this. You have to make them understand that you as the owner of the home will offer owner financing in the property even if its on a flip. But you intend to sell the financing to investors that buy Notes at closing. So you see there are no lenders, the sale of a note is what brings the cash to the deal.
Many will argue that if you are getting credit applications and 1003 credit filled out It looks like you are lending. But the fact is I want to know what my buyer is like even if I don’t sell the financing. And If I do decide to sell the Financing I am Prepared and I can structure the Note for the best possible buy rate.
Another thing that comes up from time to time is the way the Notes are funded. Usually they are wired to the closing agents escrow account. Many people ask, why can’t the money be there when we close? If this happens it could be considered lending. What needs to happen to make it legal is the documents including the Note Must be executed first before the Note buyer can Purchase the note. At this time the Note becomes an instrument with value that can be purchased. Once the note buyer Ok’s this and approves it they can wire the funds to the clossing agent usually within 24 to 48 hours.
This is just an FYI for anyone that may be considering doing these type of deals.