Closing the DealPosted on June 9, 2014 by
Last month, we talked about follow up and got to the point where we were ready to prepare contracts and even had a discussion on some of those. This month, we are going to finish the “closing the purchase” process regardless of what kind of deal it is we’re closing. That means getting a contract and, when applicable, getting it to the attorney and letting him or her close the deal.
There are several types of deals you will be closing. The first is a lease option with a sandwich lease which you intend to stay in and then sublease out to your tenant/buyer. The second is a lease option that you intend to assign to a buyer, which we now call an ACTS deal. The third is an owner financing deal which you intend to buy and close with owner financing and stay in the deal. The fourth is an owner financing deal which you intend to put under contract and then assign to a buyer and get out of the deal. The fifth is a taking over debt subject-to deal, which you likely intend to stay in, and the sixth is an all cash deal. The only thing left is an option that does not involve occupancy of the house or installing tenant buyers. We’ll ignore that for the sake of this article.
In the case of a lease option agreement, whether it be a sandwich or an ACTS, this agreement is signed in the house, or you leave it with the seller, and they bring it to you the day after or whenever you can get them to finally put their signature on the dotted line. Once this happens, there’s nothing else for you to do except find a tenant/buyer for the property, and when that’s done, your attorney will close the tenant/buyer with the appropriate lease option agreement while simultaneously contacting the seller and getting anything else signed we need for our own protection. Of course, this is the easiest closing you will do because as soon as the seller signs the agreement, in effect, you’re closed. There’s no formal closing at an attorney’s office until you locate the tenant buyer.
In the case of an owner financing deal, your objective is to get a contract signed while you’re in the house stating the terms that you and the seller have agreed to and then setup a formal closing with your attorney. Under no circumstance are you to prepare the documentation required to complete a seller financing deal. That includes a land contract, or getting the deed at the kitchen table or any of the other documents involved in seller financing that are long term agreements between you and the seller. This is the responsibility of your attorney and a most assured way for you to get in trouble if you attempt to do this yourself. I strongly urge, no I insist, that you get an attorney to close these transactions and do not try to be your own attorney. It is an absolute recipe for disaster.
So in the case of owner financing, it’s simple. Get a contract signed, decide when you want to actually close, set it up with the attorney and coordinate with the seller. Once that closing is done, your purchase is finished and now you’re ready to begin the sale or occupancy.
In the case of a deal where you’re taking over the debt subject-to, it’s the same process. Get an agreement signed in the home and then set it up for a closing with your attorney at the appropriate time. Of course, this is going to vary with each type of deal you do. For example, if you’re putting up a down payment and it’s small or none, I’d strongly suggest you close immediately to protect your deal. The faster you get it closed, the less that can go wrong. When you negotiate a sweet deal and get a purchase and sale agreement signed, inevitably, if you don’t get it closed quickly something will happen and you will lose that great deal because you were trying to wait ‘til you get a buyer to go in the house before you close the purchase. If you’re going to stay in the deal, close it immediately as long as it doesn’t require a lot of cash and sometimes even if it does if you’re getting enough free equity from the seller.
If however, it’s more like an ACTS deal because it requires a large down payment and you know you’re not going to come out of pocket to put up the down payment, well then your path is clear. Your only option is to put it under contract with clear disclosure to the seller and then find your buyer that you’re going to assign it to and have the attorney close the entire transaction. Which means, you will close the purchase and then assign the contract or if you wish, you can actually have the seller close directly with the buyer and you stay out of the middle. In this case, you will still have to show your fee on the HUD1 as an assignment fee unless your attorney tells you he would like to call it something else.
What you don’t want to do here is make it look like you’re getting a commission for putting buyer and seller together. As long as you have the property under contract you should not have an issue with commission. However, never sell a house unless you have it under contract or unless you have a real estate license. That’s absolutely acting as a Realtor® without a license.
So if you’ll take a look, you’ve really only got three agreements. You’ve got a lease option agreement for a sandwich lease because you intend to stay in it. You’ve got another lease option agreement to install a tenant/buyer whether it’s your tenant/buyer or you’re assigning it to an ACTS tenant/ buyer. And you’ve got a purchase and sale agreement. The same purchase and sale agreement is used for any kind of purchase and sale whether it be owner financing, subject-to, selling with owner financing, selling with subject-to, or buying or selling with cash. It’s all the same agreement it’s just filled out differently.
The agreement you will use for a sandwich lease because you intend to stay in it is labeled “Lease Agreement With Option To Buy-Sandwich Lease For Seller.” I didn’t know how to label it any simpler. That’s the one you’re going to use if you intend to stay in it. The one you use to install a tenant/buyer, whether it be yours or one you’re going to assign, is the “Real Property Possession and Lease Agreement- ACTS for Buyer.” Now, that might be a little mislabeled because that’s the same agreement you’ll use whether it’s an ACTS deal or whether you’re going to install a tenant/buyer in a home you own or control. Don’t be confused here, that’s the one with the table of contents.
Look down a little further in that column and you’ll see a “Standard Purchase and Sale Agreement.” Now the really good news for you is, if you go to the training section and pull up the list you will see there are videos training you on how to use every single agreement in all of my courses. You’ll just have to hunt and find the one you want, there are over 100 of them in total, but I think they are all clearly labeled. When you are installing a tenant/buyer in an ACTS deal your attorney will close the documents required to put the tenant/buyer in the house but at the same time they will simultaneously contact the seller and get whatever documents needed signed to satisfy his or her desire to make sure you legally comply with local, state and federal rules.
Never use an agreement out of anybody’s course until you first run it by your attorney at least once so you’ll know that it will comply with your state rules and you don’t have issues that will have to be fixed later. If you do use an agreement that doesn’t comply, your attorney will fix it before you get to the closing so it’s not a big deal, but why not get it right, right from the get go. You’ve only got to have your attorney check your agreements once.
Well, that’s about it. That is the process of closing. Once you get the agreements signed and get everybody to sign off on it, you now own or control the house and now you’re ready to go to the next phase which is selling the house or installing a lease option tenant/buyer as fast as you can. In next month‘s issue we will start the process of selling houses.