How To Get Around The No Assignment Clause, or Flip Deals To Retail Buyers

sliced breadThere are multiple ways to get around this clause. Banks  as matter of course, won’t let you “tie up” a great deal and flip it to another investor.   However, there is a  work around for that!

First Method – “Last minute” technique

One of the things when it comes down to contracts is that the clauses have to be enforced. Just because a contract says you can’t do something doesn’t mean that other party is going to enforce that particular clause within the contract. Now, if it has been put in there particularly by a bank, you are not gonna look too smart if you try to assign the property anyway.

When the bank “specifically put it in”, it tells you are not allowed to assign it and they don’t want to see you assign it. Now, there is one thing that you have to keep in mind, the number one reason they don’t want you to assign their property is because they don’t want their deal falling apart because the wholesaler is picking it up and they’re only going to settle if they find a buyer. That’s the number one reason why they don’t want properties to be assigned.

Second reason, the banks don’t want someone going ahead and making quick profits of their deals as they are about the property getting to settlement. You need to understand the mentality of the seller and the number one reason why the assignability clause is in the contract.

The banks number one reason why it is in the contract is that they are trying to protect themselves make sure the deal is actually settled. So, to give an understanding of that and once you understand that you know the mentality of the seller then we can begin working this issue.

So, YES I have actually assigned non-assignable contracts and did not have anybody say or do anything about it . We were all at the settlement table and it was assigned. Nobody said a word in order for that closing to happen. The other party has to enforced it so, that’s one thing to keep in mind just because it says you can’t doesn’t mean that you can’t. Secondly, in most cases states, they say that it only non-assignable unless you have written mutual consent by both parties.

Let me explain. You’ve got a buyer and a seller who come together, and the buyer approaches the seller and says “I have just assigned my contract. I need an addendum to the contract that says you are ok with me assigning it”. You can bet the seller is going to go all out to add in the addendum that allows you to move forward with your assignment. You do have the ability to approach the seller and ask them to do that.

Now, it all depends upon the seller that you are dealing with. A bank who is an experienced seller is not going to look very kindly upon that. They’re not going to like that you are approaching them with an addendum trying to pull yourself off of a contract and putting somebody else in your place. Most of the time if you approach the bank very early in the process they’re going to say no. However, my experiences, have been that if I approach the bank right a day or two before settlement ( when they know that this thing is going to settlement and that is on the game plan to take it off of their book) is the best time to act. The title companies have already contacted them they are scheduling things, they’re getting them to sign the paperwork. The last thing in the world, the bank wants is that the deal to fall apart at the last minute. If I hit them up with an addendum right there before were supposed to settle they’re much more likely to go ahead and sign that addendum and allow me to do it. So keep that in mind the timing of when you present the addendum to the seller makes a big difference.

Continued 

Let me be clear on technique one. Presenting the addendum right before closing in such a way that they are willing to consider it at that time. Typically, just send it over for signature so we can move forward.

This plays into the mindset that its already done and it just needs to be signed off. Most of the time it’s my title company who handles that. So they’re not even hearing from me. It’s the title company that calls and say there is something else that I need to sign with these contracts. We need for you to sign this addendum. So it’s not even coming from me. We’re not asking for permission. We’re saying we need for you to sign and they tend to be very receptive to that. I can only remember one time ever that I have had them say no we’re not signing that.

Their choices they can either Yes or No. If they say no, they know its a deal killer because they are on the contract saying that they didn’t want it assigned. The bank does note want to do that because they have so much to lose. They really do want to sell the house. When the title company calls and says the deal will be settling tomorrow, I need to get an addendum over to somebody else whose gonna be settling. The fear of them of my buyer not coming through has been alleviated because the title company says everything is ready. They’re getting the assurance from the title company. It’s not coming from me or a real estate agent. It’s coming from the person doing the settlement who’s assuring them that the deal is going to close.

Remember, you can always go back and get that addendum and get it done and that’s the sort of renegotiation of the contract. I want to also mention the situation, where its’s private seller as opposed to a bank, it’s much easier to get them to sign that now. Sometimes they have questions because they really don’t know what you’re doing. But again when coming from the title company, it’s much simple thing. I don’t the agent prepare the addendum. Uhm, I don’t have the agents present it. I have the title company prepare the addendum and the title company simply calls up the agent who is representing the sellers or there’s no agent involved. But I have a title company do it. They may contact and simply say listen in order for us to settle this, I’ve got this document that I need for you to sign.

The title company never puts up an objection. If you have a title company that does object to it, then you are dealing with the wrong title company. You know, you need to deal with an investor-friendly title company. Now, bottom-line is you know the addendum is renegotiating so the title company doesn’t have a problem with that just because it says you can’t do it doesn’t mean you can’t negotiate that. And the addendum is renegotiating.  So with the above method there are two points to keep in mind

1. Number one is the seller is looking is to protect themselves and make sure the deal gets to settlement.

2 . Have your title company actually do the negotiating for me to get that non-assignability close. The title company comes across as much more credible than my real estate agent or somebody else. So when the title company can assure them they are much more comfortable and much more willing to work with us.

METHOD # 2 – ADDING AND REMOVING NOMINEES

This technique is done frequently and that’s a little more subtle and works 100% of the time,

Here is how it works: Let’s assume that I put in an offer to purchase a property and the contract is between the seller and myself, DC Wierman. And then I decide that I’m going to flip this property to Paul W. One of the things that sellers typically do not have a problem with and this is done frequently is that you can go to the seller and have an addendum and day that we’re adding Paul W to the contract so the purchasers are going to be DCWierman and Paul W. And then shortly before settlement, I submit another addendum that say I’m taking DC Wierman off of the deal and only Paul W is going to be left on the deal. And so through the series of a couple of addendums, we’ve added who my ultimate buyer is going to be and then Paul W goes ahead to pay for my assignment fee.

It’s just little steps that you can take and to make these deals happen. This is done frequently with HUD deals because they will not allow you to assign a contract. But you can add a purchaser or you can take purchasers off. HUD doesn’t often have a problem with that. And that’s the way … deals frequently, adding a purchaser, taking off the original purchaser and leaving only the ultimate buyer in place at the contract.

So you are probably going to ask me ” How do you get paid? if its not going to be on the HUD?”:

The answer is that it depends on the hud as far as the buyout is concerned but for the most part I’m always getting paid on settlement. I rarely rarely collect money up front. The only time I collect money up front is when I don’t trust my buyer. It’s very rare that I collect the money up front and the only time is or I should completely say that I have collected the money up front to give the discount for a person who pays for me everything up front so that’s not only the instance, I offer a discount if you pay up front. But in any event, that is another message that will work.

Basically, adding a buyer and then taking yourself off on a later date. And when you have enough time to pull the settlement off, in the case of hud that takes about a week to get a buyer approved to be added, you send them another addendum. It takes about a week for them to approve that and take the buyer off. So you got to have time to work on the process. Don’t expect to do that in two days that’s not going to happen. You need for the whole cycle to go through to add the person and after that you need to go through the cycle before settlement takes the other one off.

The buyout should be on the hud somewhere as a wholesaler. You would just say that the new seller is buying my position now in the contract and you know the title company send them letter stating that and they will put that in.

METHOD # 3 – CREATE AN ENTITY

What I do is I make an offer in the name of an entity (that does not exist yet). If I’m purchasing a property at 123 Main Street. I might make my offer as 123 Maine St LLC. And if my offer gets accepted I’m immediately going to go up out and set up the entity. I’m gonna create the entity shortly after acceptance of my offer.

I create and make an offer in a name of an entity and not allowed to assign my contract. But, at this point, I have this entity which owns that contract of purchase. I am allowed to assign or sell my right in that entity to another party. And when I do that, let’s assume that Paul W says Duncan I do really want to buy that house from me can you assign that contract to me. I say Paul I can’t assign the contract to you. But here’s what I can do. I can assign the LLC that I just created. I can assign my ownership interest in that LLC to you. And this is you know, give me ten dollars and the LLC is yours. That is a very simple transaction. Something that’s very easy to do.

As far as the sellers are concerned, when they show up at settlement, 123 Main Street LLC is still the purchaser, nothing can change. There’s a different person who is showing at that time in behalf of the LLC but they are still doing the deal with the exact same person, with the exact same entity that they originally went to contract with. So that is the message, that I have used many many many times. It was my method of preference for years. I created many LLCs when I was really high volume wholesaling and I assigned everything that way. Since that time fees have went up for LLCs here and and maintenance fee is going up, I’ve opted to sort of stay away from that. I feel much higher margin deals where I don’t really have to worry about the closing cost as much as I used to when there were smaller margins. By assigning LLC, I wasn’t incurring any additional closing cost.

I transfer the LLC to the new investor by with a very simple instrument called a “substitution member form” which really looks just like an assignment form in contracts. It has lot of the same verbiage simply says I, Duncan Wierman, assign all my right, title and interest in this LLC to Paul W and there is some other verbiage dealing with LLC and things like that. It’s a very simple form. It’s a simple process. It’s not different at all. And then there’s two things that we do, is we file two more pieces of paper which state 1. The change of address of the LLC to your address and we change the rest of the agent of the LLC from me to you.

You don’t have to go out and hiring an attorney and say please create an LLC and create this big ring bind which is your corporate minutes and having meetings with yourself. You’re not going to do any of that. You’re using a very simple approach. Although legitimate, you’re not leaving out things you shouldn’t be leaving out. Its very quick and easy and a few pieces of paper and that’s it.

You can create LLCs online today for a few hundred dollars. Its not very complicated at all.

NOTE: I do not obtain the tax identification number. I give that information to my buyer and tell them to get it. So whenever we form an LLC, I simply tell them at this point we don’t have the EIN number. I even provide them with the form and say all you need to do is sign this and fax it off and you’ll get your EIN number. You can even do that online. It was something I always leave for the buyer.

 METHOD  # 4 – LANDTRUSTS

Based on the above technique, I know that many states it getting expensive to open and llc and also to maintain them, so the other alternative that works similar to an llc is a landtrust. You can create a land trust instead of an LLC and assign your beneficial interest on that land trust to your new purchaser instead of creating an entity. In some states, it’s expensive to create an LLC and it’s expensive to maintain them. Other states it’s very cheap. So just keep that in mind that the land trust is another option if you do not want to spend money on the LLCs.

We have been using land trust to take title for years. In addition to being superior vehicles for holding title (also known as “title holding trusts”) they can be used to acquire real estate with little out of pocket by taking over existing financing, and our focus here, getting around the bank’s “no assignment” clause.

Bank foreclosures are flooding the market and banks are discounting prices to get them off their books.  We started using this method to move loads of bank foreclosures to investors for great cash flow! Guess what? It’s not hard. (by the way, this is a huge service to the economy, it injects badly needed cash into the system, it’s win-win-win).

It takes some persistence tracking the bank properties, but getting a great deal in this market is not a miraculous feat. Then, you need a hungry investor, also not hard. After that, the technique is very simple, nuts and bolts. Simply tell the broker to write the offers as, John Smith trustee for the Elm Street Trustee.

When you get a honey of a deal accepted by the bank, you immediately notify your buyer. You grant ownership of the trust to the buyer, so you don’t have to change A THING with title- you don’t have to tell escrow, the broker, the bank, anyone, because you aren’t assigning the contract, you are assigning the trust! Make sense?

Your buyer puts the money in escrow, hands you a check for your work, and it closes. No, you don’t have to sit down with 8 guys in suits at a big circular table to make a trust. In fact, you barely have to do anything. A trust is simply an agreement – ours is a 3 pager and takes about 3 minutes to fill out.

After escrow closes, you simply deed the trust to your buyer (since you are the trustee, you sign everything). We’ve done it many times, and it works incredibly. We’ve even had a buyer flake out, and immediately replaced him with another buyer without a single problem. Try doing that in the middle of escrow with a bank ….talk about a federal case. The nice thing is that you keep total control over the transaction! Watch our webinar “How to wholesale without double escrow, using a land trust” Please give a few minutes to load, as this is a large video file

METHOD # 5 – SIMULTANEOUS CLOSING OR TRANSACTION FUNDING

As a last resort resort, you can always fall back on and do a simultaneous close. If everything else doesn’t work for me, I default to simultaneous close and I get my deals done. What’s most important is getting the deal done. But that’s always my last resort because it cost more money to do two closes. I try to avoid it but I do them frequently when I can’t get around any other way. For those who aren’t aware of it simultaneous close, back-to-back close, double closing they’re all the same thing. It’s basically when you sign a contract with your purchaser and you have a contract to buy, you are signing another contract to sell with your buyer. So it’s actually two contracts and two closings that take place at exact same time. So when I, when I say simultaneous close, that’s what I’m talking about. A good title company coordinates all of that. You don’t have any issues of getting them done.

One thing that many people have been running into an issue is just trying to get simultaneous closes done where title insurance have been telling the title company its not allow to do them without buyer number one actually bringing money to the front to the table to get their deals done.

One of the things that I had discovered right away is that there are many attorneys who are hard-money lenders . Hard-money lending is just a great, great thing to do but many of these attorneys what they do in those cases where the title companies says that the funds have to be there, the attorney will answer the funds and they might, if they charge anything for it, sometimes they don’t charge for it. They just put the money up to make the settlement happen and so that they can actually get paid on the two settlements. They want the two settlements. If they can’t, if they do want to show it, they might create a note. They might charge a small fee for doing it. And then they just run through the transaction. But if you find the right title company then, you can make the simultaneous closes happen. If you have the title company who you’ve been working with and who’s been doing this for you and all of a sudden just can’t do it anymore make that suggestion to them because a lot of them actually have the funds to be able to do that for you.

Another option for short-term funding, based on the collateral rather than the creditor, I’d highly recommend a program called “Dough-for-a-Day” (see www.QuickTurnMoney.com. This is cheap money for quick flips with easy qualifying. They will line up the money to fund the first transaction, the end-buyer funds the second, and you get paid the difference.

 METHOD # 6 ADD AN ADDEDUM

Adding and addendum to a standard real estate contract that nulls the basic contract and creates new powerful terms in your favor. This might scare a few Realtors away with so many terms, but its worth a shot .

METHOD # 7 – JOINT CLOSE AND QUITCLAIM

This method is to simply add the new buyer on your contract and then closing it with both your name and the buyer’s name and then quit claiming your buyer to your buyer outside closing. The only issue with this that it was really my intention to assign it, then its just the extra steps to change the title. So if you want to keep your name off of the title that is not necessarily the way that I would go. But it is the technique that will work.

I wanted to give you that last technique as another method of closing , even if not my ideal. It just goes to show you that you can get these deals closed. Don’t just quit and automatically just accept defeat and let things go. Think outside the box !

 The below documents can be used for all the above transactions:

  1. Assignment of Contract
  2. Instructions to Title Company
  3. Realtor Addendum
  4. Nominee Instructions

QUESTIONS FROM MY MENTOR STUDENTS:

QUESTION ONE

Hey, Duncan, I heard there are all sort of problems with Simultaneous closes. What about the seasoning issue? What about title insurance? Most underwriters, do not insure title in this situation. – Dave B – Boulder Co

Answer : That is never been my experience wherein under right or wrong insurance title and the experience is no reason for them not to insure it. If there’s something along the line, some restrictions that would be the only reason that I would see them from doing it but to the best of my knowledge, every title insured out there will do it when they’re saying that they won’t do it it’s as if the first part bring funds to the table which is the tip that I gave earlier on how to overcome that. But never have I seen them say that they won’t insure title in a simultaneous close. If the title is clean, there’s no reason to avoid that.

Now lets handle the title insurance

Seasoning issues have nothing to do with the actual closing. Seasoning issues had to deal with the lenders. That’s the lenders prohibition as far as when they’re willing to for instance I’m going back up I want to make sure it’s clear. If I’m selling you a property, (BUYER B), and you’re going to a lender that has a seasoning requirement that says I must own a property for six months before they’ll fund you, then that lender isn’t going to work.

The way I address that is I don’t allow buyers to go to lenders that won’t do it. I make sure that my buyers are lenders who will fund this deals and I usually recommend the lenders that they have to go to. So the key is making sure you’re using the right team. If your finding yourself in a situation like that cast where your lenders are not participating or your title company is not participating, you just have the wrong team members and you need to go find new team members. And once you have that in place you won’t run into those issues.

QUESTION TWO:

Hi Duncan, can you clarify how and when you get paid when you’re using the strategy where you create an LLC and then sell the LLC. In other words, in what point and in what form you’re getting your check? Phil and Carol – Jacksonville, FL

Answer : I’m getting my check at the settlement table and just about every time I do that. Now the way that it takes place is there is a couple things that can happen. One is that my buyer just writes me a check. He’s simply paying me for the purchase of my LLC. That is not something that shows upon the hud one because that was not part of the real estate transaction.

I want to take one step back just so that you know the way you protect yourselves in these cases is that in my substitution membership agreement that I signed with my buyer, the form we use to take over the LLC,it clearly states there what I’m to be paid and when I’m to be paid that I’m to be paid at settlement of the property. I give that to the title company. Just so that all of you understand the title company cannot allow my buyer to sign the documents on behalf of that LLC without paying me.

So now the title company, in order for them to make sure that they’re providing clear title and doing everything that they’re supposed to do, they have to make sure I get paid. So there’s two things that happen, either my buyer writes me a check or if my buyer is borrowing the money including my fee, what’s going to show up in the HUD one at the time of settlement is an overage. So if they borrowed $5,000 more that they could pay me, there’s going to be 5,000 coming back to the purchaser at the time of settlement because they borrowed 5,000 more than what they needed. And then what they do at the time of settlement is the title company has them endorse that check over to me. So that’s the way that I’ve always handled it before. They’ll borrow the money, which means they’re getting extra money at settlement, the title company has them endorse the check over to me. And I walk out of there with the check.

QUESTION THREE

Hi Duncan, here in Michigan I recently had a deed restriction lifted to allow a closing to happen. Upon removing this, have you ever encountered a situation to where this was reinstated or in some fashion preventing an immediate future sale?

Answer:  I have never had a deed restriction lifted and I’ve never been involved in a deal where there was a deed restriction that has kept me from moving forward. However, what I’m understanding is that there is a misconception out there that’s just a little lie back. Someone is apparently putting restrictions within the deeds of the properties that they are selling. However, they are not stopping you from selling the property immediately. They are preventing you from selling the property immediately from more than a 20% markup or they’re preventing you from purchasing… from borrowing more than 120% of the purchase price.

That is not first hand knowledge so don’t take that to the bank. But that is the only thing that I have seen coming up. Are there such a thing as deed restrictions? Sure there are. There are some things within deeds where a family tries to tie up the property in perpetuity where they’d never wanted anybody to do anything with it. You’ve got this deed restriction that are in there, the family is not allowed to sell the property or they’re not allowed to do certain things with it. I’ve never run into that type of experience myself so I really can’t comment on that. That would be but , I would not be speaking from experience in that case.

QUESTION FOUR

Hi Duncan, I am doing lending money on a simultaneous close, do you have to do anything to protect your check or do you just confirm with the title company to make sure that the funds are there and ready to go on to the backend.

Answer: If it’s a title company that I’m very comfortable with and I know, You don’t have to do anything because you should know they’re going to look out for you. If it’s somebody who you don’t know, DO not turn over your check until you know both of the parties and they are ready to go. So if your intentions are to lend for a few minutes then make it very clear to the lender that you are not releasing this check until you know that both transactions are going through. That’s the way that I handle it.

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