Lender Resale Restrictions

After you’ve had a chance to watch the video, please let me know what you’re thinking by posting a comment below.

Cam

PS. Here’s a somewhat cleaned up transcription of the video.

Hello, Cam Dunlap here, for a white board exercise today. What I want to talk to you about is Bank Resale Restrictions. There’s no doubt that there are a lot of bank foreclosures out there now, and some lenders have been for a long time, and others are just experimenting, and some are moving away from the concept of ” lender-resale restrictions”. What is common in the marketplace are 30- Day, then we’ve got 45-Day restrictions, in particular, on some short sales, I’m now seeing an occasional 60-Day, and in some cases even 90-Days. We’re going to talk about these restrictions, and we’re going to talk about how to get past them so that you can continue to do deals, make a ton of money, while we’re in the middle of this amazing foreclosure opportunity.

I see at least another couple of years before the inventory really starts to dwindle. In fact we’re starting to see more and more of the shadow inventory that lenders have started to release, so that is continuing the opportunity, elongating in terms of a time frame – the opportunity. Ok, so 30 days I’ve seen pretty typically on short sales, and also on some REO’s, 45’s the same, 60 is a little more unusual and 90 I’m starting to hear about Fannie Mae doing arbitrarily. They’re not doing it in every market, and on every house in every market, but they are putting some 90-day resale restrictions on their properties.

Now what that means to you and me, is they want to prevent us from re-selling properties quickly. If you read the fine print on the Fannie Mae resale restriction, you’ll notice that it says that you cannot resell it within 90 days as long as you are re-selling it for more than 120% of your purchase price. Now, what they’re basically doing is trying to tell you “Hey, if you’re making more than this much on it, well, we really would rather stick our finger in your eye. If you’re making less than this much on it, well, then we’re ok with it.” So what we have is a government organization, that is a known disaster area, and has been for years, run by idiots and crooks, now trying to tell us what we should be able to make, when we as Real Estate investors are helping them out of the jam that they’re in. Does that bother you like it bothers me? It makes me want to put my fist through the wall! It’s wrong, it’s un-American, it’s anti-capitalistic, it’s controlling, and it’s nothing but big government in our face, but we’re not going to get political in this conversation.

I’m just trying to put it in perspective and I’ve got some others too, some other perspectives.

So, let’s say you live in an expensive market where you are buying a Junker house for $100,000 and you plan to wholesale it. You’re not going to rehab it. You’re just going to turn around and flip it, as is, to another investor or rehabber or landlord type buyer. This is called “Wholesaling” by the way, So you have it under contract for 100k, you could sell it for as much as $119,990 and not be subject to that 90-Day resale restriction… read the fine print!

Now if you happen to live in a cheaper market, where you are buying a house for $15,000.00,120% of that is not a whole heck of a lot, although it’s still a $3,000 profit, which is nothing to sneeze at. But, if you’re buying it for $15,000.00 and you could easily sell it for 40k… well you’ll want a plan “B” because it’s certainly more than 20% and it’s certainly not a deal you would want to walk away from. So, there are a couple things to consider on the Fannie Mae 90 day resale restriction. I don’t think you’re going to get them to wave it, by the way. You can always ask, and frankly should, but I would not bank on them waiving it. Now with organizations like Bank of America, Wells Fargo, and other large institutions, where they’ve been pretty notorious with resale restrictions, it’s another story.

More and more of my students from all around the country, are telling me that Bank of America and Wells and the likes, are waiving their resale restrictions when asked.  So, when they make an offer through the realtor, the student, and it comes back accepted from B of A with a resale restriction in the contract saying something to the effect of, “We’ve accepted your offer but there’ll be a 30 day resale restriction in there.” What you can do is go back, obviously through the realtor and tell them “No, take the resale restriction out, or no deal.” And what we’re seeing is Bank of America and Wells Fargo are starting to back down. They’re starting to say: “Okay, we’ll take it out.” The Fannie Mae thing is kind of new. up and coming issue that I think we may see that for a while. The point I’m getting at is the smaller banks, not the Fannie, Freddie, HUD, VA owners – but the smaller, as if Bank of America is small, banks are taking them out.

So I wholeheartedly encourage you to tell the bank to “Stuff it!” whenever you can. It’s also important for you to understand that if there’s a resale restriction in the deal, your closing agent, whoever’s issuing the title insurance policy, whether that’s an attorney or a title company, it doesn’t matter, but whoever’s issuing the title insurance policy, is probably not going to like the idea of a resale restriction. The reason is because it opens them up to a potential title problem later, that they’re going to have liability for. See, if you somehow manage to get the property sold prior to the deeded resale restriction expiring, well then, there’s a title problem, and it falls back on the title company that issued the policy to you when you bought the property – so they don’t like resale restrictions either. Here’s my point, you may be able to get your closing agent to go to bat for you and help you get the resale restriction waved- they don’t like it either.

Now before I move on, I’ve got a very powerful strategy that’s going to take a few minutes for me to lay out for you, that will make you glad you kept reading. Before I move on though, I want to congratulate you for being here. If you’re reading this now, that means is resale restrictions haven’t caused you to tuck your tail between your legs and go away assuming that this business doesn’t work. The fact of the matter is the real estate business never stops changing and evolving! It’s fluid! It’s always changing, and if you don’t like what you’re seeing, then it’s like the weather… wait five minutes, and it’ll change.

With just shy of 20 years of being in this business of buying and selling properties, I can’t begin to share how much change I’ve seen over those years. Not only change in one direction, but in many cases, change back. Like a recoil from things that lenders and governmental agencies have tried over the years. So, I congratulate you for realizing it and understanding that this is a changing, fluid environment, real estate, and I hope that you’ll be like me and see the constant change as part of what makes it so fun! It’s never boring! No two deals are ever the same, and the longer you’re in the business, the more you’ll see in terms of change and the more opportunity you’ll see as well.

Ok, so now let’s talk specifically about this 90-Day one, ok? Because this is tough. If you’re familiar with me and the funding we do, you already know that we just aren’t able to go out that far. Our theoretical maximum is about thirty days, we may go a little over that, but that’s about it. And believe me, if we’re going to hold the funding in place for that long, you’ve got to have a rock-solid buyer lined up, ready to close, with skin in the game, whose not going to wiggle out of the deal. We’re just not willing to go to 90 days, or even close. However, there’s a wonderful strategy that I recently kind of tripped over, that is absolutely unheard of in the marketplace that I wanted to share with you in this video. Now let me explain too, and I’ll probably come back to this point after I explain the strategy.

This one strategy, could easily be, in the eyes of another real estate trainer, not mine of course, but could easily be seen in the eyes of another real estate trainer, the basis for yet another $997 program. That’s not how I roll. I don’t have a $997 program every few months to try to keep you focused on the shiny object. We stick to our core here, and that’s why I want to share this strategy with you right now, and not charge you a dime for it. This is powerful, and I want you to get this. Ok, so what we’re going to do is run through a scenario where we’re making an offer on a property, that we’ll say is Fannie Mae owned and they’ve put in a 90-day resale restriction and we can’t get it out. How can we wholesale this house, and not use any money of your own at all? Knowing that my transaction funding is not available for this deal, going into it, the question is, how can you still do the deal?

Ok, here we go. Now what I’ve done is I’ve gone ahead and I’ve drawn a few boxes on here to represent the different players on this strategy. Party A is the seller, and in this case, it’s Fannie Mae. And Party B is You. Party C is your buyer. Typical sounding A to B, B to C transaction, with a twist. Alright, so what we’re going to do is we’re going to go ahead and put this thing under contract at  whatever price we’ve agreed to, and we’re going to plan on this A to B closing. This will be a cash transaction.

Where’s the money going to come from? Your buyer!

So that requires that your buyer be a cash buyer. This strategy will not work if your buyer is going to get a mortgage at a bank. So this needs to be a cash buyer. Now, you already know that cash buyers are the best buyers in the business, there’s no doubt about it. And, the more often you can sell to a cash buyer, the more quickly you’ll close, the more money you’ll make, and the less hassles you’ll deal with. Cash buyers are the best in the business – they buy again and again, they don’t evaporate at the eleventh hour, like so many financed buyers do. They stick with the deal, if it’s a good deal; they’re going to close. They’re just the kind of buyer that’s easy to deal with, with no hassles.

Now, if you’re not aware, you can get access to cash buyers, known cash buyers from public data, all across the USA, at my cash buyer data feed. Ok, so that’s at www.CashBuyerDataFeed.com. 

Alright, so we have this cash buyer. Now instead of selling to them on the normal B to C transaction, where the deed would transfer to them, we’re actually going to insert in the middle of this transaction, a lease option. Now if you happen to be in Texas, you might want to use a different instrument, you can talk to a real estate attorney, and have him help you with that. But nevertheless, it can be done in Texas too. But everywhere else, we’re going to use a lease option. So we’re going to sell it to our buyer on a lease option. Now the money for our purchase is going to come from our buyer. So this buyer will fund the cash, but we will give them a mortgage, or a deed of trust. So in effect, what is happening now, is our buyer is our private lender. We found this cash buyer, and they’re going to be our private lender. They’re going to lend us the money.

Let’s say we’re purchasing the property for $100,000.00 and we’re selling it for $120,000.00, ok? Now, you might argue, “Well wait a minute Cam, you could get away with the 90 day thing here because you could drop your price a dollar and get under that 20% markup.” Fair enough. It would really be $119,990, but just go with me, it’s an example, and hopefully the numbers are much bigger for you. Ok so, we’re selling to our buyer on a lease option at $120,000.00. He or she is lending us the $120,000.00 and we’re going to have a mortgage or a deed of trust. Now, in order to close this transaction, we only need 100k, the other 20k is going to come out of the closing and go right into your pocket. So you’re actually going to walk away with your $20,000.00 profit when we close the purchase and sell to our buyer on a lease option. This buyer will put up the full $120k, we only need $100k to satisfy the seller, that leaves $20k for us at closing… there’s our profit. Now… there is a mortgage on the property, or deed of trust, that we’re going to sign as the borrower, for $120,000.00. This protects your buyer’s interests, so there’s no way that they could get screwed up here. What we’ll also do is go ahead and sign a deed over to our buyer, Party C, now. Then the closing agent will hold that deed in escrow.

So now the buyer is protected in 2 ways. They have a lean on the property, and they have a deed from you to them in escrow. So there’s no way they are going to get screwed on this deal. They’re going to get their property now, even though there is a 90-day resale restriction. What allows us to avoid that is the fact that the title is not transferring to the buyer yet.

So, let’s pause for a minute and look at the benefits and what we’ve done here. We’ve been able to make this transaction happen. We close with $100k. It comes to us in the form of a mortgage or deed of trust, from our buyer. Our buyer is a cash buyer, who we are asking to be our private lender, for about 91 days, ok? We make the purchase; the additional $20k the buyer needs to come up with is the rest of what they’ve agreed to pay for the property. That obviously represents a good deal to them, or they wouldn’t be willing to do it. And we walk away from this closing, the A to B, with our $20k overage. That’s our profit. The buyer is protected by a lean, at the value of $120,000.00, and a deed held in escrow. So, the closing takes place and the buyer temporarily holds the property on a lease option. As rehabbers, they immediately go to work rehabbing it.

Ok, so we’re wholesaling here, we’re most likely selling to a rehabber, could be a landlord, but they’re going to go about whatever business they need to do to prepare this property to put an occupant/buyer in it. So they begin the repairs immediately. We know we can’t resell the thing for at least 90 days, fair enough. So on the 91st or 92nd or 93rd day, even if you are out of town, you can send the closing agent instructions, your buyer will also instruct the closing agent to go ahead and record the deed. Bam! The B to C transaction just took place. So this happens, on say the 91st day.

What we’ve done is adhere to the 90-day resale restriction, put our buyer in the house immediately so he or she could get the repairs done, and begin lining up their D buyer. The D buyer is the end buyer to whom our buyer is going to sell. So there’s a 3rd transaction to the end buyer. That will almost for sure involve financing, probably government financing. And so, your buyer is likely to get this D buyer going before the deed is ever recorded if that makes sense. Your buyer will understand this process without a problem, as long as they are in the business doing deals, and not a beginner. A beginner might not like the idea of this. A buyer that’s in the business doing deals won’t mind it at all, especially if, and I keep coming back to this, the $120,000.00 they’re paying, is a great deal.  It needs to be a great deal for your buyer.

You know it’s amazing… when you give your buyer a great deal, they’ll jump through rings of fire to get at it. That’s just the nature of what we do. You as a Real Estate Investor have probably found yourself in a place where you’ve been willing to jump through rings of fire to get a great deal. So as long as it’s a smokin’ deal, and you’ve got a buyer who’s not a beginner, this works beautifully. It gives them time to do the repairs, get their buyer lined up, and record that deed as soon after the 90 days as possible. Your buyer’s mortgage gets extinguished at the time that that deed is recorded, and all of this is handled by the closing agent. They do the repairs, line up their D buyer and cash out. So, it’s a way to get around the 90-Day restriction that doesn’t cost you, really, any more money.

Now there is one expense that we’re going to incur here, and it’s something you need to consider, and that’s the tax on recording this mortgage or deed of trust between you and your buyer. In most counties and most states there is some sort of mortgage tax. There may not be in your area, which would be great, but for most of us there is. It’s not a lot of money, but it’s an additional expense. I’m here to tell you, I’d rather pay the fee to get this mortgage recorded, than either not do the deal, or have to figure out some sort of funding so I can sit on the thing for 90 days so I can get my $20k profit. The last thing you want to do, is fund this thing, and then have it sit empty for 90 days before you turn around and resell it. That’s where the 3 V’s come in. Vermin, vandals, and vagrants.

Vacant houses are targets, and so it’s one thing to buy them, but it’s another thing to own them and be sitting on them while their vacant. That’s not a good plan. This strategy allows you to avoid that.

So, let me go through it one more time just to review and make sure you’ve got it. Here’s your seller, it’s Fannie Mae. They’ve imposed a 90-Day resale restriction. We put it under contract for $100k. We go and find a cash buyer who’s willing to pay us the $120k, which needs to be a great deal. We go ahead and talk to this buyer, explain what’s going on. Their going to know how much you’re making on the deal, by the way. That’s a given. Get them on board, they go ahead and lend the $120k, the property is the collateral, you are the borrower, you only need $100k to satisfy your seller, so you leave with the overage of $20k less a few closing costs, which may include mortgage tax on recording this $120k mortgage. The way that we put this property in the hands of our C Buyer temporarily is on a lease option. This gives them the right to use the property, to fix the property, and their protected by this mortgage, and we’ve gone ahead and signed a deed, from you or your entity to your buyer, that’s held by the closing agent. It will only be recorded after the 90 days have ticked off the calendar. So on the 91st day, maybe it’s the 95th, depends on how the weekends fall or whatever, but on the 91st day the deed gets recorded to the buyer, the mortgage is extinguished and you’re out. You were pretty much out when you took your $20k anyway, however you are on title, or better yet, your entity is on title until that deed gets recorded. When it gets recorded, you’re really out. Now you’ve already gotten your money and now you’re no longer on title. They’re on title; they turn around and sell to their D Buyer. During the 90 days they’re doing their repairs and they’re getting their D Buyer lined up.

So it’s win, win, win, win. Everybody wins, and we get around that 90-day resale restriction. So, we need a cash buyer. Remember www.CashBuyerDataFeed.com. That’s where you’ll find cash buyers all across the USA. In fact we added 38,000 just last month. That’s from public record. It comes from several different databases. It’s a phenomenal service, and dirt-cheap. We need a cash buyer. We are going to turn him or her into our private lender temporarily. They’re basically going to put out the money now, and in effect they’re lending it to us, even though what they are really doing is they’re just putting it into the property and now they’re going to do the repairs. And what protects them is the mortgage and the deed in escrow.

And by the way, if private lenders excite you, and they should because this building I’m standing in right now is funded by a private lender, then you may also want to check out the private lender data feed, which is where you get access to known private lenders from all over the USA coming from public record. We have access to several different data sources, where we clean and scrub that list down to just the private lenders that we want and oh my gosh, we added 8,000 new ones last month. So, that’s another phenomenal service as well. Go to: www.PrivateLenderDataFeed.com.

So, there’s a great solution to get you past a long resale restriction. One where you can continue to do the business, make lots of money, and watch your competition whither, because they don’t know about this. They weren’t smart enough to come here. You were. Congratulations. I hope to talk to you soon,

Cam Dunlap