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“What if the Buyer Changes Their Mind and I’m Stuck With a House?”
Joe: Hey, this is Joe. I’ve got another question here. This one is from Jimmy Thomas. Jimmy says, “What if I close a subject to deal and I found a buyer before I close, but the buyer ends up changing their mind at closing? Now I’m stuck with the house and stuck with the loans.”
First of all, you don’t want to, and if you look at some of my old videos, you’ll hear me say that if you buy subject to you can sell it subject to because you have the deed. Well, because of the Safe Act, because of Dodd Frank, there’s some new rules about that. You probably do not want to take a subject to property, a deed, and then deed that property to someone else.
Joe: Now, you might want to assign your right to buy to somebody else, so let’s say I go to you, you’re the seller. And I want to buy it and I’m going to assign it to someone else. I could buy that property with a purchase agreement. Instead of having you deed it to me I’ll take purchase agreement that allows me to buy it on a subject to which means that you’re going to deed me the property. That purchase agreement is assignable. I could then take that purchase agreement and assign it to someone for a fee. They pay me a fee for it and I then assign them the right to buy and then they go in and buy that property directly from that seller.
Joe: Now. With that said, that is possible. With that said, I don’t do that either. And the reason I don’t is because I believe that you have to assume that you’re the most ethical person in the room. That you will always do the right thing and I’m counting on you by giving you this information that you do treat people right and you do the right thing with people and that you follow through and do what you promise.
Joe: So, with that in mind, that means that we, as in the investor, have to have the most control in the deal. If we have more control, then we don’t have to worry about somebody else doing the right thing because we have control of the deal. So, if we’re not going to stay in the deal, if we’re just going to assign our right to buy to someone else, of if we’re just going to flip the property, then we want the person who’s at most risk to be in the most control.
Joe: So in a subject to deal, if you assign a subject to to somebody that you don’t know as well and you think that that person might be riskier than the seller, because the seller has the loan at risk. His credit’s a risk if you don’t pay on a subject to. So if you just assign it to this person and this person drops it, it’s not going to hurt his credit. But it is going to destroy the seller’s credit. The buyer doesn’t have much, they don’t have much recourse against the buyer at all.
Joe: So what you want to do is protect your seller. So instead what you can do is you can set it up as a land contract. And you can write up a purchase agreement with a land contract and make that purchase agreement assignable then you can assign it to the new investor. That way when it’s transferred to the new investor, if that new investor stops making his payments at any particular time, this seller isn’t screwed. He still has control over the deal and he can take the property back through a judicial action and then sell it to someone else later, or you can sell it for them. And so it’s much safer that way.
Joe: So, but your question is what do you do if somebody changes their mind? So you’ve got this property, now, instead of just having them deed it, you’re going to have the purchase agreement and you’re going to have ninety days on that purchase agreement. So the first guy says, “Yes, I’m going to do it,” and doesn’t do it, you just go find somebody else. And you’ll find, and with this type of deal, with these types of terms deals, you can sell them very quickly as long as your monthly payment is at or below market rent. Because they can’t get something that’s cheaper than that, especially if they don’t have the credit to build a qualify for a mortgage which 75% of the country does not have.
Joe: So you’ve got a lot potential buyers out there who can’t go out and buy a property any other way except on terms. So telling it on terms is not difficult. Finding buyers is not difficult. Structuring it properly so that everybody’s protected, that’s what you have to think about, that’s what you have to think in advance. And you don’t have to worry about people backing out this way.
Joe: You know, one of the things that we see with people that do a lot of wholesale deals, they’ll think they’ve got this fantastic, yeah, “I got it thirty percent under market value. It looks great, you know, it’s in good condition, I know I can transfer this property, and you can go out and make yourself $50,000.” And then they go out there and they try to find a buyer and they give it to their buyers list, and their buyer’s list asks them a hundred questions about it and then don’t buy.
Joe: Or they’ve got one guy says, “Oh, I’m, I’ll buy it. If you just get it thirty percent under market value,” and it’s like this, and like this, and like this, and like this, exactly the way you set it up. Then you send it to them, they say, “Nah, I don’t really want that one.” And then you’re screwed. You’ve got nothing else. So you’ve got to go find another buyer for it. And then your time runs out and if you put a deposit down you’ll lose that deposit. So you’ve got to be careful how you structure these deals so that you know what your exit strategy is and so that you have more than potential buyer for a property.
Joe: That’s why when you structure a deal on a seller financed type of basis, it’s much easier to find a buyer for those deals because there’s a lot fewer of them available and a lot more people that the only way they can buy is through seller financing.
Joe: All right. Hope that helps. Thanks now.