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

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.

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.

Lexie, second guessing me is fine. I'm not immune to giving bad advice. I once told a friend he should get married. He hasn't forgiven me yet.
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.

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.

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.

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.

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.

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.

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.

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!

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

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!

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.

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

Title seasoning never comes into play. You are never on TITLE and as far as Options it has not been an issue for me. We are FHA capitol here in our area....lol.

We are always paid on seller side of HUD. So no respa problems there either.

I do not like Transcation Coordinator. Makes you look like a realtor.

Jonathan,
Not being on title is exactly why there is a seasoning issue. They know you're involved and want to know why and they want to hear a good reason. I.e. why is their money is going to you if you're not the borrower or seller. FHA does not allow options because they're freaked over illegal flipping. And RESPA wants there to be a reason/service that you're being paid for and to make sure it's not at the expense of the buyer. I talk about RESPA quite a bit because they're hitting MI with a hammer. I work with RESPA and HUD on almost all of my deals now making sure I'm in line with their rules. Better be safe that sorry.

However, I agree with everything you guys have said minus some of the option issues. Some Lawyers in MI say that no one can even do options without having a license. So you can see the confusion. I obviously believe this to be wrong. Bronchick even talks about this and his information is inaccurate as well. Although well intended, but misinformed

As I always love to learn, I would like to know about specific transactions that have taken place with as much detail as possible how you or other investors have been paid using your ideas. I would love to adapt them if they work. And for the record, I am as far away from being sarcastic as you can imagine. I am ALWAYS willing to learn because these issues are always changing!
Regards,
Adam

Adam,

Title passes from Seller to buyer. Sure we show up on the side of the HUD on Seller's side as a release. It is a condition of release of title. By the way HUD/FHA has know regulations in regards of options only when it comes to title issues.

RESPA is not a judicary body. RESPA is governed by HUD as you know of I am sure. There have been so many adoptions to RESPA since its inception since 1976. As a mortgage broker I get updates it seems every week of some seminar or someone going to jail because of RESPA violations.

As far as licensing its going to be a state issue. Dealing in option is where the realtor's are trying to bring an issue. But its still a law of doctrine with the held interest of an option.

I have always been paid a release fee from seller side of closing statement. I have used performance mortgages also. Even recorded memorandums. Never had a problem with FHA, SUB PRIME, or FNMA mortgages.

I am not talking about hypothical cases here. Real deals. Maybe you cannot do them in MI but it works in all other states I am working in. Even in MD where the HEAD HUD guy lives. I currently have a deal going there another Option.

I guess I have to come to MI to see what all the hoopla is all about (wife if from there)

The one I closed on Friday was a sub prime. Right on the closing statement was "Release Fee". That check was 26K and change. End of story.

Jonathan,
Are your options short term or long term? Just to clear things up (I think a lot of people should be reading this thread, because I think you and I are about to get into some great information for everyone to learn from) I am talking about short term "prime" loans. I agree with you about sub-prime (C credit loans etc for the laymen) loans where this is much less restriction.

The "RESPA" violations I was talking about was distributing funds after closing, or at closing. I.e. buyer getting their down-payment back when the bank thinks it's going to the seller.

I agree (And happen to love) your advice on the "release" issue, but we've come up with a few problems trying to do this with prime lenders.

What's you input on that?
Very cool stuff,
Adam
PS I'm may have to respond later to be a little more clear, I've had the kids all day.

All of my options are short terms. Usually 90 days or less.

I agree that there are sorts of the kick backs at closing but since the money comes to me as a third party entity its been a non issue. You mentioned that PRIME loans. I am assuming that you mean FNMA mortgages.

Short term "PRIME" loans. Never heard of that loan product.

I will have to disagree with the scrutinity with subprime lending. They next to FHA have been hit the hardest with flipping fraud schemes. I have another transcation closing friday. Its with chase bank and I am being signed off as a payee on the hud.

Adam,

I think this is a great thread to that many could benefit from. Getting paid in the end is what we are all looking for, anyway!

With regards to this deal, there is no seasoning issue as I have held the option for nearly 2 years. Also, I talked to the Title company and asked them what they wanted, and they just said they needed a simple letter like Jonathan gave earlier in the thread and there would be no problems.

We will be closing in the next 2-3 weeks, so I will report back on what happens in the end.

Lexie

I like what Jim Mitchell (JimFL) said about using a Performance Mortgage to get
paid. Especially how to negotiate one with the seller, as well as explaining the benefits
of doing things this way.
He opened my eyes to the concept a while back about the concept.

I could post it if needed.

Anything to help.

Hey all,
Finally have some time to breath here. Have a ton of stuff going on right now.

Okay, first off Jonathan and I are saying the same exact thing. However, my communication in what I'm trying to say is totally off and I apologize for that. I was changing the direction of this thread into a "if you're putting money down etc." thread and that was confusing.

Here's what I mean:


Yes. There have been serious FBI investigations in MI about the buyer getting money back at closing. This was the mistaken direction I took the thread into. I should have made that more clear.

When I talk about Sub Prime I am talking about the lenders themselves allowing such things as "true" seller seconds on such loans as 80/20. We are allowed to hold a second note as down payment on the 20%. If I walk in with a partnership agreement or non-recorded option with the seller for the 20%, the seller can close and assign the note to me after closing. This way if the buyer needs to put down a true 5%, we can make a 15% note. However, most investors and Realtors are doing it wrong by jacking up the price of the property. This is also a bad habit.

The true issue I was talking about was seasoning when you have an option (Say for 90 days or less) and are not allowing the bank to see it as a lien. In my experience with lenders such as Greenpointe, Chase and Countrywide, they have not allowed someone to step in with an option. However you say you're being paid on a release and that excites me. This is a practice that we have always performed but now because of all of the loan fraud in MI, I am trying to stay on the right side of the law with the banks. I would like to know what banks allow this with full disclosure etc. Staying off of the HUD is not something I want to do. I put myself out into the public too much to need to worry about this practice.

Some brokers are breaking the rules by turning options into other "non-threatening" liens such as a mechanics lien. This is illegal.

I think because you and I are LOs we should continue this thread with your techniques because no one ever talks about this. Actually, it kind of bugs me to see so many people only get half of the story on investing. It seems like when there's a bank involved most people teaching turn their heads the other way. That's why I like to see MC and people like yourself make the commitment to get the story straight.

Now, I also know this topic can never be completely fulfilled because there's just too much diversity between banks. I know all of our basic techniques work with cash, but people start to get creative just to get paid in an extreme Buyer's market. This is a pattern that I have seen gradually incline over the last two years here in MI. And I'm sure it's heading across the country.
Cool stuff,
Adam
PS Keeripes. I just read my prior posts and I hope I'm making some sense now. It's clear I need a vacation.

Adam,

Just to touch on one thing in your last post regarding banks...

I am not sure I see why a bank would care (or even ever know) about handling the payout to me using a this 'release' technique.

As far as I can tell, the only people that will ever know about this are the seller, the investor (me/us), and the Title/Escrow company. We are simply giving directions to the escrow company on how to pay the funds at closing The bank is getting their full payoff before any other checks are issued, anyway.

Does that make sense, or am I missing something?

Lexie

Lexie,
I think that's a great question. But the answers that I have been given have simply been about seasoning. If you have not been on title for 120 days to 12 months, most banks want to know why you're being paid and why there's an inflated price to their borrower. This is why all REO properties do not allow this type of transaction. Other banks are weary about illegal flipping.



That's my point. Doing something the bank doesn't even know about is an issue. We should be able to do real estate with full disclosure. Now, on the other hand creative and illegal are two things totally different, but can also be close in similarity. This is the topic of this thread.

I think this thread is heading into a powerful direction. Jonathan and others have no issue with this, but I continue to run across it during underwriting over and over. We can argue about it all day and the answer may come that it's an MI issue, but it's a fact. I have had a very hard time getting paid on options when I put them on properties for a short period of time and try to get paid by the banks.

Now, back to basics. This is a Sandwich lease option site and a CA site. There are no banks on CAs and SLOs usually go at least six months. I have not had issues getting paid when I have at least seasoned an option. That is, if I have recorded like MC talks about.

I am not trying to scare the hell out of anyone, just getting us prepared for what is.
Hope that helps,
Adam

I am wondering if this could work to secure the payout on options investing such as Jonathan does for ex. the house fmv is 250 000 but you auction it and it goes for 280 000 why not just get a demand note for termination of the contract and get your money after the sale is closed directly from the seller? Can't the seller do anything with the money that they want after close?

I think to simplify this conversation we can look at it this way:

1. I am making it a difficult issue based on getting money "put down" back at closing so from here on out we will stay focused on the topic at hand; getting paid on an option.
2. The methods here are good and workable with certain lenders.
3. Getting paid on an option or even from a short-term note, such as a claim of interest from a promissory note, release of agreement etc attached to the property will work, but may be an issue with certain lenders based on seasoning.
4. Everything works if you don't tell the bank what you're doing. However, if they find out later and didn't allow it, it may become a problem.



Yes, and this goes under number 4.

I see people use power of attorney and other such documents to get paid after closing or at closing. Again, this is a title company allowance, but will the bank approve? That is the question that may never have a straight answer because of different lender allowances.

The last issue is where this thread has taken us. The best-case scenario is what is sought out here. What is the most "non-threatening" way to get the bank to go along with us getting cashed out on an option?
Regards,
Adam

Don't you guys SLEEP

Later on today I will take the last 6 deals and post the lenders that I have done these with. But I can tell you that I have done it with two of the ones that Adam has quoted. I guess we have different underwriters...lol.

I do not like the idea of a demand note because its a financing instrument. Just call an option and option. The title company has to clear the option in regards of title if its recorded or not.

Having a good team in place is what makes it run smoothly. Mortgage Broker, Property Inspector, Title Company, Appraiser, Surveyor, Insurance Company.

But of course it all starts with a buyer. These deals are very clean.

My experience is that a POA (used 3 times for flips) has to be approved by the underwriter. I have had them call the seller (one time) to verify the POA. I decided that I did not like that deal.

It really boils down to control. The last deal that closed on Friday had a snag. I will go into it later but I bailed it out in time. Nothing in regards of the option it was just the way the P&S was executed. I signed it as owner of record in seller blank and signed it as seller. Because I had the write to do as option holder.

There were 3 owners on this property....lol.

Well I have to get to the office

You know what, it all boils down to what you have said here. We ALL have right to get paid on an option and this discussion was about doing it from the lender's point of view. In all reality they simply don't want anything illegal to happen so that's why they get funky on creative acquisitions.

I can easily see I am changing my mind on certain routines even from the beginning of this thread.

There is a lot going on in today's world of creative real estate and we all simply need to keep our heads together to stay on top.

I personally do not need to see the deals you did because I truly believe with no ego, I have done or understand them all. It's just about getting the right lender to allow the right transaction. And most of the time it's the LOs butt on the line if they do something that isn't allowed by the lender.

Another point I want to make, is that sometimes you can create a niche so good that you will not want your competition know what you're doing. Not because they can steel it or even perform it themselves, but because of jealousy. This is what RESPA has told me as a fact. It's not doing something wrong that matters the most, it's the greed of others that will blow the whistle on you just because they can.

This is a difficult topic for sure.
Regards,
Adam

Hey everyOne
i know i have been M.I.A (missing.in.action) but i find this topic extremely serious
i have a question...
i have a pure option and we are trying to sell the house on a best offer takes it DEAL,
the offer is over the appraised value of the property for $25,000
how do we handle this extra money
seller asking $300,000
we started the bid at $310,000
appraised at 320,000
the highest bid was 345,000

Thanks
C.R.E.A.M

Give option to Title company give contract between seller and the end buyer to title company. Tell title company to give you the overage. Does your option agreement state how you can exercise your option to buy? If so you need to follow those instructions. Then tell the title company that you will cancel your option agreement so the new buyer can buy. Read this thread again. Good info.

So what your saying is that a lender wouldn't mind if the buyer pays $25,000 over appraised value
and the profit is mine
Sounds to good to be true, i have read this thread like three times. i picked up some great advice
Can't wait for the reply
Once again thanks

C.R.E.A.M

Hey if the buyer can give you the difference in cash then why not. But the lender will loan against the appraised value or contract price which ever is less.

FYI
I have been very busy over the last week and have taken this topic very seriously. I will be around all weekend and will post a conclusion over my research.

Also, I want everyone to know this is not a novice thread here. I have been paid on options in just about every form, but this continues to be so much in the dark there must be some answers. Also, in MI people are getting cracked left and right with fraud and that is why I have gone back to the drawing board with this issue.

I know we can be paid on options, but I want to know what the problem is with so many lenders. Even with lenders that don't require seasoning.

I will post a very detailed post sometime over the weekend. It will be from factual data that I have compiled over the last 14 days by working with RESPA, lenders, mortgage brokers, fellow seasoned investors, title companies and real estate attorneys.

Stay tuned.
Adam

I am staying tuned.

SAME HERE.... i don't have any meat left on my finers

CREAM

Hello all,

Reading over what we have been speaking about for the last week or so I decided to put in detail the steps in the process the way I do the option to flip method. It all starts with a seller.

1. I option to buy a home at least a 15-20% discount from Seller 30-90 days. Seller signs option and disclosures.
2. I check title to make sure there are know skeletons in the closet.
3. If title is good I start marketing to buyers list and buyers.
4. Once I find a buyer I get a 1003 Loan application to Mortgage broker.
5. Mortgage Broker informs me that buyer is ago under certain terms.
6. I send letter to seller telling them that I want to exercise my option to buy.
7. I inform Seller that my buyer is getting 3rd party financing that requires them to go into contract with title holders.
8. Seller to sign Option to release fee it gets notarized.
9. Seller and Buyer sign a contract for Anticipated appraised value.
10. Contract is faxed to Mortgage Broker.
11. Mortgage Broker orders title, appraisal.
12. Option to release Fee is turned into Title Company.
13. Mortgage Broker informs me of conditions.
14. I follow up with buyer getting all conditions made.
15. Appraisal passes.
16. Survey is ordered
17. Title company faxes HUD to lender for approval
18. Lender emails documents to title company
19. Closing is set.
20. I inform seller and buyer the times to show up
21. Money is wired to my account
22. Buyer and Seller are happy.
23. I follow up 7 days later to check with buyer and seller. Get testimonials.

Well that is basically it. There are some minor details but you can see the map of the process.

I hope Adam will post his results for Michigan, as it will be interesting to find out.

This has been a great thread! Full of practical, street level information that everyone here can benefit from. Kudos to Jonathan and Adam for being so generous with their smarts and their time. Thanks, guys!
I'm pinning this thread for the time being.

Hey all,
First off, Jonathan, GREAT information!

Second, this thread is about to go down into history as one of the most informative and "gut spilling" threads ever created.

Coming soon. (I have family stuff going on tonight so I'll be posting later)

1. How to flip an option several different ways depending (or not depending and why) on lender guidelines (Jonathan has this pretty much covered, but I'll add a few more for good measure)
2. How to flip while creating a note and/or seller financing
3. How to give a buyer their funds for purchase (if the lender does not require sourcing or seasoning) by using an option to avoid very specific lender traps.
4. What is considered a RESPA violation and how many people are doing completely illegal and fraudulent investing and don't even know it.

This is where I have been working over the last two weeks. The information has been incredible, but since I put myself out into the public so much (Not that that's an issue), and because of the buyer's market in MI, I am trying to do this the right way. Everyone in this market is getting "too creative" and some of them are going to jail. AND ALMOST EVERY GURU FROM MI HAS PUT THEIR TAILS BETWEEN THEIR LEGS AND SPLIT THE STATE! YOU KNOW WHO YOU ARE!!!!
Once more, stay tuned. I'll try to get the post done by the AM.
Regards,
Adam
PS On the cover of the Detroit News just last week, MI was voted the number one worse economy in the country. What does that mean to investors? OPPORTUNITY!

Okay, here we go.



Most lenders are only worried about one thing, their investment. What this means to us is that they have guidelines that they have with their representatives. This is why there was such a big issue about getting paid on an option. However, as Jonathan has said, this issue is almost always only up to the title company.

One point to make up front, is that this thread is going into so much detail because of a few things. A. is because of all of the issues with illegal flipping around the country and B. because of all of the issues with shady acquisitions where people didn't have a true interest in the property.

How I see it.
When you have an option, you are acting as a principle. Not only does that give you legal right to control the property, but it gives you a responsibility to do things right. I.e. have the right appraisal etc. Now, there are many ways to get paid on an option (as previously mentioned) such as a release, a claim of interest etc. But the main objective to this thread was to go through this on the lender's guidelines. HOWEVER, what had become extremely obvious, is that this issue is NOT with the lender but with the title companies. So, if the title company is willing to pay you on your agreement, then it's most likely a done deal.

Ways of flipping an option.
1. Release of option agreement with settled price
2. Claim of interest from a promissory not (Promissory to pay from the assignment of your option)
3. Assignment agreement (Usually cash deals only)
4. Partnership agreement with buyer/investor and assign interest
5. Power of Attorney (mostly cash deals)
Other methods have already been posted.



Taking an option that allows you to create a note (land contract, deed of trust or mortgage) and assign interest.
What takes place is simple. We could argue that a sandwich lease option is the same thing because it has the value of seller financing. However, the note is not really being created just the terms are. So to stick to the issue at hand, I am going to explain how this can be done with the note buyer.

If a property is purchased at 60% or little more on the dollar, you may have the ability to create and sell then note. This could be done by controlling with an option and having verbiage in the option allowing for the creation for the note. i.e. buyer gives optionee the right to purchase the property at x % with x down and payments of x on a x year land contract with a balloon payment in x years.

What this does is allows us to have the option to terms. The terms can then be presented to a third party (buyer) and then once their credit is ran you can create your note and sell it to a note buyer for up to 85-90% LTV if the buyer's scores are high enough. (usually 600 or more) This method can also be done with a double closing so the buyer has no idea what you're making on the deal.

Advantage: In all honesty this is a cash deal because most note buyers are not affiliated with national banks such as Chase and Country Wide. You can do whatever you are capable of.



Pay attention here, this is a big one.

If a lender does not require seasoning or sourcing (I.e. they don't care where the buyer got their money), then this gives the opportunity to lend the buyer their down payment. I.e. get a motivated buyer working with you.

Now here's the pitfall. Although most lenders don't require sourcing, they are still contradicting themselves by making sure it doesn't come back from the seller. This is a catch 22. What this means, is that if you loan the money to the buyer and get it back from the seller, the lender would probably have an issue with it. But get this, if you have an option on the property and loan the money, then in reality you're not getting it back. i.e. if you have an option for $80K and the buyer is purchasing for $100K and you are giving them 5% down or $5K, then the $5K is really a loss to you and you're not getting it back. And because you're assigning your option, you are NOT the seller. In all reality this makes this rule workable. And if the seller is actually getting money at closing too, you could argue your down payment assistance went to the seller.

That's a far as I'm going because I have a valuable niche with this. To me it's a tremendous trade secret and if you got it then great. You can work on the paperwork yourself.



Just to talk outside of RESPA for a second, I have been seeing two very disturbing forms of "so called" investing in MI lately. One is the rental or lease options of foreclosed properties. The investor takes an option, rents or sells on lease option during the redemption period. What bothers me about this is that there is clearly an ethics issue because whoever bought the property at the auction cannot accept payment during the redemption period. I.e. the investor is pocketing all of the money and putting everyone at risk if there's an eviction too late. However, I have also see investors sell/lease option foreclosed properties without even having an option! And yes, they're going to jail.

The other is of course, a RESPA issue. Section 8 of RESPA says that if you are getting a fee from settlement, you must provide a true service. I.e. you cannot get paid a referral fee that comes out of the seller or buyer's pocket. Now, I have had attorneys tell me you can if you have a written contract with the mortgage broker that they will NOT charge the borrower from the referral fee. And further the attorneys have said that you must now show up on the HUD. And the correction is, neither one of these are legal. The attorney was wrong, you cannot get a referral fee PERIOD. How do I know this? From RESPA themselves. I have seen too many investors go into settlement with the wrong strategy and they are basically getting paid a referral.

So here's the cool part. I understand that option investing is a gray area quite often, but ask yourself your intention. This is the final part of this post and the most valuable. Are you using the paperwork to get around the rules, or are you using an option as an investment tool? If it's the latter, then you're on the right track.

I have done a tremendous amount of deals. I have done everything posted about in this thread. I have created and sold notes, flipped everything from cash deals to sub tos and so on. But the one thing that happens as you get further into this business, is you need to know the laws and guidelines of those you work with. Ignorance is no excuse. And from my findings here and what has come from this thread, is that some of these rules that are created are so disorganized that they are misconstrued.

As my attorney says; there's a difference between legal and creative. And it's a thin line.
Hopefully we all have a better understanding of why now.
Regards,
Adam

FYI,
Walked out of closing yesterday with a $57,000.00 check. I was paid for the release of a promissory note that was based on my option to purchase and money I loaned to bring payments current for the seller. The Release and Promissory note were recorded. The bank was a Sub-Prime lender.
Regards,
Adam

congrats

Hello everyone,
It's my first time visiting this website and forums(referred by someone who claimed gotten his start from Michael C.) I'm new to real estate and have only just started learning options/lease options and I don't quite get this technique of flipping or pretty much any other that was mentioned in this thread but if anyone could help me understand this better I would gladly appreciate it.
(I just don't understand what's in bold lol.)
Thanks,
Geovanni

You are not going to find a note buyer in the current market that will buy at 85-90% LTV or ITV.

I would think 50% might be difficult in our area these days!

Geovanni, Are you aware that Land Contract(CFD) Notes can be sold? Diver

Diver, I'm not really familiar with notes (or real estate in general) to be honest. That is why I'm asking these questions even though I read in a previous post that this is not a novice thread. Hope someone can help me here.



-Geovanni

Back in the early 90's I brokered notes. Even until late 99 early 2000 before companies like Associates and Metropolitan went belly up or got gobbled. A note deal is really based on risk. We use to sell notes 85% LTV for PAR before large discounts started hitting. Brokering notes is a rough and tough business. Using it as a tool in the tool box is okay when dealing with real estate. For someone to buy a land contract or contract for deed it will need to be recorded and it can be sold. Just as title to a property is sold.

If you are looking at basics of flipping you need to identify your exit plan first and then use one of the tools. Options are wonderful for all types of purchases. I hope this helps.

Geovanni, first, let me say welcome to The Naked Investor! There's loads of great info here, and just as many helpful members. So feel free to ask your questions. That's what we're here for.
That said, if you are as new and inexperienced as you say, the notes business is not the way you want to start in real estate. You will be much better off by concentrating on one area, one technique. You'll have to decide what that is, but my suggestion would be options and lease options. They are easy to understand and risk free. I don't know what your financial situation is, but they also don't require banks or financing. In fact, most of these type deals require but dollars out of your pocket to complete. Once you get your feet wet and gain some confidence and know how, you can move on to other areas of investing and expand your horizons. But the mistake you want to avoid coming off the starting line is to try and know everything before getting started. You'll end up doing nothing. We call that the Paralysis of Analysis. Don't outsmart yourself. If you're serious about real estate, find your area of interest, and take action.