Re: flipping through assigning contracts - Posted by Todd_OH
Posted by Todd_OH on August 01, 2003 at 19:21:45:
Unfortunately, I don’t think there is a 100% safe answer to your question. Ordinarily I would say don’t worry about assigning the contract, just set up a double closing. In a double closing, you close each transaction (your buying, and your selling) within 30 minutes or one hour of each other, ideally closing with your BUYER first (since they are bringing the cash). I say 30-60 minutes because that prevents your buyer and seller from ever meeting each other.
The double closing could also be done as a “simultaneous close” in which you do the same thing, but the buyer is in one closing room, and the seller is in another, while you and the title agent do your paperwork in both rooms. Or you have the seller wait outside in the reception area, while the buyer is in with you, etc.
Hopefully, you can find a title company that will STILL do double / simultaneous closings in your area…
Having said that, the day has come (in my area) that I NEVER thought I would see… Even the most creative (but legitimate) title companies are “just saying no” to double closings. Therefore I am now forced to do assignments.
Without opening a can of worms (I’m sure there is plenty of discussion on this board regarding this), suffice it to say that all the BOGUS HYPE about so-called “illegal property flipping” (better known as loan fraud), has title companies so petrified (per the FBI investigating their files and sending people to jail), that many title company underwriters are requiring SEASONING ON ALL CASH DEALS! (I can’t even believe I just typed that…)
Back to your question… The problem with assignments is, as you are finding out:
- Your Seller could find out your profit and be upset.
- Your Buyer could find out your profit and be upset.
- Your Buyer could find out your profit, and try to say that you only deserve a smaller profit, or a finder’s fee.
- Your Buyer could go behind your back, after the contract is expired and steal your deal.
Some posters addressed your issue by mentioning the “memorandum of contract”. However, you clearly stated item #4 above, that they are going behind your back AFTER your contract has expired. If that is the case, then the enforceability of your memorandum would also be expired, so no advantage other than temporary legal molasses that could wind up backfiring on you (i.e. they could say you were fraudulently clouding their title after your contract expired).
The best way to have “confidence” that your deal won’t fall apart is to:
Have a deal so HOT (i.e. under market) that you have many people begging to take it off your hands. That way even if 3 out of 4 of your potential buyers are possessed by the greed factor, hopefully one of them will have high ethical standards and not go behind your back.
Relates to number one: cultivate a supply of ETHICAL buyers for your wholesale deal.
Be prepared to take a smaller profit than you intended if you can’t find any buyers that hate to see someone else make a legit profit. Even if you only took a relatively small finders fee ($500 - $1,000), if you have a system for finding and tying up the deals that doesn’t take a lot of your time, it is still a viable way to generate some cash. One deal a month at $1,000 a pop is as much as some people make all year on a part time (1000 hours) or full time(2000 hours) job.
Be financially prepared to close if you cannot find a cash buyer. If you are strapped for cash, consider hard money lenders (several advertise on this site), home equity line of credit, or even credit cards if you have large credit lines. As soon as you come up with cash, remember, you are financially at risk, so I repeat: make sure you’re buying 40% or more below market, so that you can at least refinance and/or recoup your money no matter what happens.
Hope this helps…