Regarding Assignment of Purchase Contracts - Posted by Shawn Goins

Posted by David B on October 24, 2003 at 07:57:09:

Hi Shawn,
Thanks much for your response. I live in a rapidly appreciating RE market–Princeton, NJ. Over the last few years you could buy a townhome 1 year before it was built and by the time it was completed, it was worth $40K to $60K more. The only challenge I would have is timing. I’d need to line up a buyer who would purchase the townhome BEFORE the builder wanted to close. Typically, the builder sets the closing date and after that charges a per-diem for every day I don’t come up with a mortgage. If I assign the purchase agreement to a new buyer, does the builder have any say in that. Also, what happens if the buyer flakes out. Do I have any recourse? Also, am I still liable to the builder?

Thanks very much!

Regarding Assignment of Purchase Contracts - Posted by Shawn Goins

Posted by Shawn Goins on October 23, 2003 at 18:01:08:

Hello Everyone,
I am a very new REI, I have purchased two properties both were used as my primary resident, my first one I rented out for awhile and eventually sold and made a very big profit. I am now living in my second home and plan to live in it for awhile. That is the extent of my experience. My question is regarding some information I’ve come across in the few books that I’ve been reading to get my prospective career started. The assignment of purchase contracts seems to be a very easy and quick way to generate cash flow. My questions are: How often does this type of transaction happen amongst investors? and does the investor have to abide by the same terms as to what I offered the seller? or does the contract get renegotiated at that time? Sometimes without experience books don’t always provide a clear picture! Thanks in advance for any clarification or further advice.

Re: Regarding Assignment of Purchase Contracts - Posted by Brent_IL

Posted by Brent_IL on October 23, 2003 at 23:34:44:

When an investor accepts an assignment of a contract he is accepting all of the rights, obligations, and responsibilities of the one who is assigning the contract. He is now in your stead.

It happens quite a lot in the real estate arena.

An assignment is a replacement of him for you. The terms of the contract do not change.

This is exactly why I do double closes instead of assignments. I don?t want to pass all of the rights that I have on to a new buyer.

Getting a contract that is good enough to assign is simple, but not always easy.

Re: Regarding Assignment of Purchase Contracts - Posted by David B

Posted by David B on October 23, 2003 at 19:28:46:

I guess I’m kind of a newbie, too, though I own 4 townhomes now and I recently sold one. When you assign a purchase contract, does that mean that you sell it to somebody else before you need to get a mortgage from a lender. I’ve been buying the townhomes in preconstruction, then renting and holding them for appreciation. But I’d like to flip a few next time. When I flip, is that assigning the purchase contract to someone else before the builder is ready to close?


Re: Regarding Assignment of Purchase Contracts - Posted by Kristine-CA

Posted by Kristine-CA on October 25, 2003 at 10:02:41:

Brent IL: You know I never thought of double closings as you suggest. I double close in order to control the deal–meaning that I feel I can get the deal closed if I have two separate contracts. If my assigned buyer doesn’t come through or the seller the doesn’t perform I’m still a principal in both of the contracts and can take action. But what are the the rights that you don’t want to pass on the the new buyer? You’ve peaked my curiousity. Sincerely, Kristine

Re: Regarding Assignment of Purchase Contracts - Posted by bill

Posted by bill on October 24, 2003 at 13:14:32:


what rights would you not want to pass on with an assignment. I tried to think what they might be but I keep drawing a blank. Thanks for your time. We all appreciate it…

Re: Regarding Assignment of Purchase Contracts - Posted by Shawn Goins

Posted by Shawn Goins on October 24, 2003 at 24:10:18:

Assigning a contract is basically selling the purchase contract and conditions to another buyer(investor) this is all without having to give a mortgage to a lender. The property will not be in your name at the time therefore there are no records of you owning it. I’m not sure how preconstruction deals work however, to flip one you would have to sell the purchase contract before you closed. I don’t think I have enough experience and maybe someone else would have a better answer, but I don’t think there is much room for a profit for you and another investor if you are purchasing brand-new homes. There has to be a purchase at a discounted price in order for the flipping process to become profitable for all parties involved. Hope that helps some!

Re: Regarding Assignment of Purchase Contracts - Posted by Brent_IL

Posted by Brent_IL on October 25, 2003 at 11:44:31:

Hi Kristine,

As you know, I give the seller an option to cancel by paying a fee. If I left that in, no one would want to pay for an assignment. The seller warrants that almost everything but the paint will be in good operating order for 18 months after closing. It wouldn?t be fair to pass that on because most sellers don?t understand the nature of warranties and it could easily be abused.

Most of the items pertain to the financing or the collateral.

There?s stuff that I include in the notes and security instruments, e.g., rights to discounts, the right to renew, debt service limited to 90% of net income, etc. that make my notes to the seller non-negotiable.

Since I make frequent use of substitution-of-collateral and subordination clauses, the contract elaborates on how different types of collateral are valued as security for PMM loans. The method to accomplish in-substance defeasance, and the formula for the collateralizing value of shared ownership interests and interests that are liened or bought on margin, are given in the purchase contract.

The agreement for the performance mortgage and a hold-harmless agreement are built in also.

This was designed to give me maximum flexibility before and after closing, so that the only thing I have to worry about when negotiating is making the deal. I can figure out the best exit afterward.

Over the years, when something came up that obstructed what I was trying to do, I’d include a countering option in the next contract revision, so I wouldn’t have to reopen negotiations when I wanted the sellers to do something.

As collateral, I may want a seller to take an I.O.U. written on a paper napkin with a swizzle stick dipped in lime juice, but I don?t feel comfortable giving my buyer the same right.

Re: Regarding Assignment of Purchase Contracts - Posted by Brent_IL

Posted by Brent_IL on October 25, 2003 at 12:04:44:


See the reply to Kristine above. I’m too slow to retype and don’t want to be redundant. Thanks.


Re: Regarding Assignment of Purchase Contracts - Posted by Houserookie

Posted by Houserookie on October 25, 2003 at 11:40:37:

You would pass on the right to assign as well. It could get ugly after several chain of assignments.


Re: Regarding Assignment of Purchase Contracts - Posted by E.Eka

Posted by E.Eka on October 24, 2003 at 14:00:56:

You pass ALL rights that you would have in the contract to the person that you are assigning the countract to. So rather than you being the beneficiary/performer of the contract, the assignee is the one who performs. And in return you get a fee or an amount of money.