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Need to assign agreement back to seller


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#1 Lexie(UT)

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Posted 22 June 2006 - 09:34 PM

Hey all,

I have a lease option contract with a seller, and the TB is moving out. I now have someone who wants to buy the property outright, but wants to go through the original seller (it would make them much more comfortable) since the seller is who is on Title (they looked up the county records and asked me about it).

Anyway, I think I am fine with that, but I want to make sure my position is solid and secure. I stand to make about 25k off of the deal.

So, what should I do? What should I include in an agreement to make sure I get my money when the property closes?

Thanks,

Lexie

#2 MichaelC

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Posted 23 June 2006 - 04:56 AM

Lexie, there are a number of ways you can protect your position in this deal to assure getting your fair piece. I would suggest signing a Pure Option Agreement with the homeowner for the agreed to amount, then record that Agreement. Then, when the buy and seller begin their process, your Memo of Option is going to be clouding the title. You will agree to release that cloud for payment of the agreed to amount at closing.
There have been a number of threads about this subject. One member in particular comes to mind. Do a search for Jonathan RexfordFL. One thread here discusses this very technique.

#3 Lexie(UT)

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Posted 23 June 2006 - 09:45 AM

Thanks MichaelC.

I looked over the thread you mentioned and a few others, and got a little confused over Jonathan's method a bit.

Let me try to clarify what you said and see if I have it straight:

You think I should sign a Pure Option with the Seller even though I already have a Lease with Option with them? The Lease with Option dates back almost 2 years (a 3 yr agreement), and if I signed a Pure Option now, wouldn't that look suspect (like flipping) and possibly come under scrutiny? I don't mean to second-guess your advice, as you are definitely the expert here, I just want to make sure everything is clear to me.

Now, with this existing agreement I never recorded anything or signed a Memo of Option. Could I do this now on this older agreement, or is this why you are suggesting signing a Pure Option now to keep the dates looking better?

This process is already moving quickly and the buyer wants to get the seller an earnest money agreement right away. I just don't want to mess anything up or cause any red flags, but I need to be protected.

Thanks so much for your help.

#4 MichaelC

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Posted 23 June 2006 - 09:55 AM

Lexie, second guessing me is fine. I'm not immune to giving bad advice. I once told a friend he should get married. :mellow: He hasn't forgiven me yet. :P
Ahem, anyway, with a two year lease with option agreement already in place, you might be right. Setting up a Pure Option Agreement just might make someone suspicious, even though you're guilty of nothing.
I do know this: a Memo of that deal should have been recorded way back when the deal originated. But we can't change that now. So for starters, have a Memo signed and notarized and recorded with the county immediately.
One other thing you can do. Have you tried contacting the title company or attorney's office where the closing will be taking place? Fill them in on the details of the deal, and ask them how they want it handled.

#5 Jonathan RexfordFL

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Posted 23 June 2006 - 11:29 AM

Lexie,

Go ahead have Seller & Investor go into contract. Take control of the paper work. Go to title company and tell them that you will cancel your lease option contract that you have with seller so the seller can go into contract with investor. A cancellation agreement will need to be placed into escrow for payment instructions. Not a biggie. But that way you will be paid off the seller's side of the hud per agreement of escrow instructions and your lease option agreement.

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Jonathan Rexford
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#6 Lexie(UT)

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Posted 23 June 2006 - 11:44 AM

Jonathan,

Thanks for your comments. That sounds exactly like what I want to do, so things can be kept simple.

I have seen you reference the "cancellation agreement" many times, but not sure what it should say. Will there be dollar figures in it? Also, what happens if for some reason the sale doesn't go through? I don't want to lose my option.

And then you say "place it in escrow for payment instructions". Basically what you are saying is once I have this cancellation document signed, I take it to the title company and they just add it to the documents for the sale?

The title company seems clueless on this type of deal (from what the buyer is telling me), and I just want to make sure I have all my bases covered when I talk to them.

Thanks for your help.

#7 Jonathan RexfordFL

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Posted 23 June 2006 - 11:51 AM

You will need to have title company or attorney to make this up. There will be a dollar figure in the agreement. If the sale does not go through then you never did cancel your agreement so it still enforced.

The title company or your attorney can help you with the wording.

Regards
Jonathan Rexford
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#8 Lexie(UT)

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Posted 23 June 2006 - 12:01 PM

Thanks.

Is this a standard form the title company would have/know about? It would be fine to have them do it, I just want to make sure they know what I am talking about when I go in there. Is there some other name it would be known by?

Let me just sum this up for clarification and possible future readers:

1) I have a Lease with Option contract with Seller (nothing is recorded).
2) I allow Seller and new Buyer to go into contract for the purchase of the property
3) Escrow is opened at the title company with Purchase Agreement
4) I take my Option to the title company and get a "cancellation agreement" drafted with proper dollar amount that goes into escrow
5) At Closing I am issued a check for the amount on the "cancellation agreement"

Is this all right? If there is some step missing, or I have messed something up, please let me know.

Thanks.

#9 Jonathan RexfordFL

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Posted 23 June 2006 - 12:07 PM

That is it Lexie. I am sure the title company will not know about doing a cancellation agreement. Ask them how they would treat an option agreement to clear title. You can even write it.

Regards
Jonathan Rexford
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#10 Jonathan RexfordFL

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Posted 23 June 2006 - 12:14 PM

Lexie here is something that I just wrote. Its basic information.

Escrow instructions:

Parties hereby agree that the Seller (JOHN SMITH) and Lease Option Buyer (LEXIE) agree that Seller wishes to enter contract with Joe investor for the sole purpose of purchase and sale. It is agreed that Seller will pay Lease Option Buyer $30,000 to cancel the Lease Option agreement Dated December 12, 2005. If Seller and Joe Investor do not close the transaction then Lease Option agreement for purchase shall still be in affect.

Regards
Jonathan Rexford
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#11 Lexie(UT)

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Posted 23 June 2006 - 12:15 PM

Thanks Jonathan and Michael. I hope this will take care of it. But, I likely will have some more questions as I finish the process.

One more thing. Will anything in this process need to be notarized or recorded? Will the seller have to sign this "cancellation agreement"? He is out of state, so the simpler the better.

Thanks again!

#12 Jonathan RexfordFL

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Posted 23 June 2006 - 12:22 PM

Lexie its Belt and Suspenders. I would want it notarized.

Regards
Jonathan Rexford
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www.JonathanRexford.com


#13 Lexie(UT)

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Posted 23 June 2006 - 12:35 PM

Definitely good to err on the side of caution I suppose. I will get it notarized, then.

Also, one thing that seller brought up is that he doesn't want to have tax liability for the full purchase price, but just the amount he actually receives from the sale. Obviously he is really only receiving the amount on the Option Agreement, and I am receiving the rest as my fee. Is there anything different that would need to be done to ensure this?

(I realize this is a legal question, but I am most interested if anyone has had experience with this in previous deals.)

As always - Thank you!

#14 Jonathan RexfordFL

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Posted 23 June 2006 - 12:42 PM

When he does this transcation he will take his closing statement to his Accountant and they will deduct it. His basis in the property will reflect in the cost of the sale. An option agreement is a Cost of sale. I am not an accountant but I have done several of these. I am suppose to close one today around 3:00pm if the darn lender signs off on the HUD.

Regards
Jonathan Rexford
772-321-2290

www.JonathanRexford.com


#15 Adam King (MI)

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Posted 25 June 2006 - 10:34 AM

Hate to play devil's advocate here guys/gals, but there's something missing from this thread.

If the buyer's bank requires seasoning on options, then you may run into a snag. Such as FHA and other federally regulated loans.

In some cases however, some lenders will allow a "transaction coordinator" fee. The person able to answer this question and how to set it up will be the mortgage broker. I almost always start with them because all lenders are different. With that said, you simply have to correspond with RESPA to make sure it's done right.

There are more ways to do this than just options so keep that in mind too. You can have a power of attorney and letter of intent describing to the seller that you will be controlling the acquisition and disbursing funds. However, to keep things simple, I believe the best advice for you has already been given. Just keep learning as you go and asking a lot of questions to the right people. There are many ways to make things work the right way.
Just my two cents,
Adam
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