QUOTE (BarryMcGuire @ Feb 1 2010, 07:39 PM) Hi David. Thank you for those kind words. I too think my Deal-Ready Documents Focus Workshop is fantastic. However, it doesn`t matter what I think. It is your own opinion that counts. I have some ideas for a second edition of that workshop and will start a new thread to discuss. Now onto your question. Lenders are now very nervous about mortgage fraud, so when they see that the name of the seller on the contract to the ultimate buyer is you and you are not owner on title, then, they don`t want to touch the deal. It doesn`t seem to matter that you purchased the property under market and the ultimate buyer is paying market price as established by certified appraisal. In the end, it seems that you need a real estate purchase contract between current owner and ultimate buyer, therefore 2 contracts don`t work. Now, how to do that?
It all starts with disclose, disclose, disclose. When you meet with current owner you need to be clear that you are going to help him by helping yourself. He has a sale price he is happy with. You are going to do your best to get him that sale price and make a little money for yourself. Make sure you ask the seller if they`re okay with that.
Whatever your approach is and however you explain who you are or what you do, you need to explain to the current owner that an option gives you the chance to buy yourself, or you might find someone to buy from you, or you might just sell the option to someone else. Further explain that if it turns out you find someone to buy from you, a real estate purchase contract will likely have to be signed, that the ultimate buyer`s lender will really determine the parties to the contract but that it is likely it will have to be a contract between the current owner and the ultimate buyer. Remember, this is the scenario if you choose to go the route of finding an ultimate buyer and you don`t buy the property yourself. This is a friendly conversation where you are trying to make sure the seller understands that you are really doing your best to make it a win-win. He is going to get his sale price and you are going to make a little bit of money too. Once you have met the current owner and explained your position make sure to follow up with a friendly letter or e-mail confirming what you`ve told him.
Then, after you have marketed the property and if you have a serious buyer, you tell them to disclose to their broker/lender that you have control the property by way of an option. Emphasize that they must check with their brokers/lender regarding exactly what their lender is going to want by way of a contract. You can suggest that most lenders will want a contract with the current owner.
Once you have had that conversation and if you get the predictable response that the lender does want a contract between the current owner and them as ultimate buyers, then, a contract must be written up and signed for your selling price to them. Who writes up that contract? You might be helping them or they might have someone else to assist them.
Then, you go see the seller and tell them you aren`t going to be able to buy yourself but you have a buyer. Best for you is if you sell the option back to the seller for the spread, get them to sign the contract and let them deal with the buyer. If they are cautious, they probably won`t want to give you $$ right then, they will want the deal to close. Then, you would have a "Direction to Pay" ready for them to sign. This is a document that seller`s lawyers get sellers to sign instructing the lawyer how to pay out the sale proceeds, i.e., pay out old mortgage, outstanding taxes, $ 10,000 to David Mac Donald for re-purchase of option and balance to seller". Seller signs and your lawyer makes sure seller`s lawyer has and acknowledges. On closing, you get your money.[/font] I say again that disclosure on all fronts is key. You have to tell both seller and ultimate buyer most likely in your first conversations with each of them who you are, what you do and how this deal is likely to go.
Hope this helps, Barry
Hello Barry,
Thankyou for your expertise and taking the time to advise us in this matter of optioning houses. I am in Saskatoon and one of the first things I did when I got home from the RLG workshop was to take your documents to my lawyer and have her Saskatchewanize them for me. I currently have options on 3 properties and was planning on doing the double closing upon the sale of the property. However after reading your response above I see that I need to change my strategy. I am meeting with my lawyer next week to bring her up to speed on this new development. I have been very diligent in disclosing my intentions with these sellers, however I see that I will have to go back to them and explain the new direction I will be taking when closing on their property. I have downloaded the "direction regarding payment of closing funds" document and will have my lawyer look it over.( Saskatchewanize it ) I do not forsee any problems with my sellers regarding this change. In fact they have all expressed to me that they were happy to find out that there is an alternative to the traditional way of selling their homes.
Cheers,
Saskbrian.
Brian Gauntlett.
