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Many investors stop right there and turn away to other paths such as short sale negotiation or subject-to investing not knowing that there are in fact four different methods to workaround this roadblock.
Method #1 - Add to Contract, Then Quit Claim
Most banks do not have an issue with adding an additional party to a contract, they just do not want the ORIGINAL parties removed from it at any time. So Ivan Investor can get an REO property under contract for $50,000. Ivan calls Louie Landlord and after talking about the deal Louie agrees to pay a total of $60,000 for the property.
Ivan calls the bank up and requests that an addendum be drawn up that adds Louie to the contract and title. The Bank agrees and everyone shows up on closing day.
Louie brings TWO certified checks. One for $50,000 for the purchase of the property, and one for $10,000 made out to Ivan. Everyone closes n hh rooeett ttwwiihhttmm oohhIIaa nn ooii rr hh wweessoo he ooee LLuueehhnnssIIaa thee$$00000 hhcc nd vvnssggss a qii laii eee eeooiigghhmmffoo iill nnttaa ropeett.. rrttyyssmmll,,rrggtt<br> > rs he datg oti eto stht hr sol n e fcoigcss I's te ipeadsrih-owr ehdta ok o otdas I ok rudte9-a ee rsrcinta oe akgdwt ayFni/rdi rpris<r C
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This last method has been popularized by Steve Cook who's said that he swiped it from commercial real estate investors who have been using it for years to avoid paying transfer taxes.
The idea is that an investor would submit an offer in the name of an LLC. If he was writing an offer on 123 Main Street, he might put the offer in with the buyer as "Main Street Holdings LLC". If the offer is accepted, the investor immediately faxes in his LLC articles of organization and creates the company to match the Buyer on the purchase agreement.
From there the investor finds his end buyer and they agree that on closing day the end buyer will purchase the entire LLC from the original investor for the amount of the wholesale fee. From there, as the new owner of the LLC, the end buyer is empowered to close on the original transaction and purchase the property.
Pros: The upside to this method is that you workaround the extra costs in the form of transfer taxes and/or Flash Funding fees that come with the two Double-Close methods, and for those who are concerned about guarding their privacy, your name never goes on the deal.
Cons: The major obstacle to this one is that the end buyer has to pretty much be paying cash. Banks do not loan traditional mortgages (either to owner occupants or investors) in company names. You have to buy it in your own personal name to get a mortgage. Other concerns are that if you do this often enough you may attract the attention of state regulators who are confused as to why you start and sell 5-10 LLCs each month.
These four major methods are pretty much all an investor needs to know in order to start wholesaling bank owned REO foreclosures. None of these methods require the wholesaler to bring his or her own cash into play other than the initial earnest money deposit and none require a credit check. One of them will work for pretty much any situation, whether the end buyer is paying cash or getting financing enabling you to earn large checks on a consistent basis by wholesaling REO foreclosure properties.
