Purchase Contracts (agreement of sale) VS Assignment Contracts

Robert......  A very good point made in your last paragraph. And that is why lenders won't do a loan if there is an assignment attached to it. And I just hate when an investor comes back to me and says, well, I have 3 other lenders that will do it.

Funny thing.... in regards to my last sentence. This happened to me on a deal 3 months ago. The property was worth 3 million.... they wanted to buy it for 1.8 mill and no money down and use the equity out of property. They were promised by 3 lenders that said yes to this. And it has an assignment. But even without the assignment, this couldn't have been done. Sorry...here is the funny part. This person kept calling me every day for 2 weeks. I finally stoped taking the calls and after the 5th call, he stopped. So much for the other promises that were made.

Tommie.....thanks for the input. And in regards to what you have mentioned, we have talked about that in a few other blogs.

Hugh.... you must have snucked in under the radar.....  but yes, as I hear more about this, it has more to do with investors in way or another. May it be buying or selling. And the bottom line, most lenders won't even touch these with an assignment letter.

thanks

Hi, I am just getting into the conversation, so let me first introduce myslef... My name is Yael Warman, a real estate Broker in Florida with an office in Southeast Broward (right between Ft lauderdale and Miami). I have been in the business for the last 5-6 years, so I've witnessed the real estate wave of the last few years, the frenzi of multiple offers, assignable contracts, the limitations by builders and lenders, and now, the cool-down of the market.

Contrary to what all of you are saying, I have NEVER had a problem with my clients assigning contracts, nor had I heard (prior to reading your comments) of anyone having problems doing it. I have only had closings of assignable contracts for new construction purchases, in which the original purchaser secured a contract form the developer 12 to 18 months prior to closing, so I don't know if there may be a problem securing financing when the period of time between contract and closing is less.

For the first couple of years of the super hot market we had, assignable contracts were as common as any other purchase.  After about two years of this practice being very common, the developers put a stop to it. Not the lenders, but the developers stopped accepting assignable contracts, in order to avoid having so many investors in a project. If more than a certain percentage of units in a project are owned by investors, financing becomes a challenge, but also it created a challenge for the developer, when about two months prior to completion, more than half the units were being dumped back into the market, creating competition for the developer on those last units he still had not sold and making a just completed project look empty once CO were issued. As you may imagine, being in Florida, investors found loopholes to this. They started purchasing units under corporations and land trusts and then selling the shares of those. When this happened, developers stopped accepting contracts under corporate names and started forcing people to close first and the sell their units.  As you may already know, if an investor owns a contract for more than a year and 1 day, they can take advantage of a 1031 exchange, however, if they close, title changes and so they must, after closing, start counting the year and a day in order to qualify for a deferred exchange. This, added to the current cool-down of the market has in fact slowed down assignable contracts. In fact, I have not had an assignable contract so far this year.  

I apreciate though all of your comments, since now I know that it may in fact create a problem and I was just lucky to never had a deal fall through because of this.

Yael,

Thanks for stopping by. Some awesome comments in regards to the fact that it does happen. And that there are some lenders that do allow this. But from my experience, it's the banks in Florida. if you could let me know who actually allows for this, that would be great.

The reason I bring this up, there is not one National lender that will allow this, from my experience. I did have someone go through the local bank that was doing most of the financing for this project. BUT.... just a thought.... was the bank acctually accepting these... or who is too say that the person actually writing the applications had incerted CONTRACTS instead??

Now, I am not accusing of anyone of fraud. But I do know for a fact that most...most lenders or banks will not accept an assignment. And like I said... there are some banks in Florida that will accept this. But like I stated before...there is a reason why. And Yael, you even mentioned a few of them, but you happened to be on the positive side.... the outcome was good. And yes, I think you got lucky on a few of those transactions.... but it does come down to the bank or lender.

Thanks for your input.

Susan...that is my whole point...there are many assignable deals out there, but it's usually with an investor and cash.

Keith....thanks for stoping by. But in all honesty, I would love to know what investors?  And when you say investors....are they Wells Fargo?  Net Bank? GMAC? etc etc... and when you say you haven't had any problems... I read your profile. You are a realtor. So....are you using one specific loan officer/lender? Are they a broker?  A large company?

You said it yourself, Countrywide wants the contract rewritten. They will not accept an assingable. Hey...if they did, they would get the most business.

You also stated that some lenders won't accept them if there are inflated values. That is the reason why lenders don't do these or want them. So, not trying to sound mean here or repeat myself, but again, who are these lenders?  If it's one loans officer, is he still passing off the assigment?  Or does he make up a contract. Again, I bring this up because no "A" paper lenders do this that I know of. I hate to say I know everything, but this is one thing that I do know. FNMA doesn't allow for it in the guidelines. So..it goes back to the lender. If you read many of these posts....FRAUD is involved. And not saying that you are doing this....but what about the person that you are passing this off to?
I still would love to hear what you have to say. And seriously...thanks for stopping by and giving your input.

Keith....and everyone else... I apologize if this sounded harsh. But I am not going to delete it, because I am trying ti make a point. I am starting to hear that lenders will do this. And when I follow up with someone at the top of that lending institution....they tell me NO.

Example...I have an investor that refers me to his investor friends. He asked me to work on a deal for him and 3 other clients. All buying a Condotel....each buying one Unit for $350,000. I tell him that I need the contracts. He sends me over a copy. Up top, bold black letters.... ASSIGNMENT CONTRACT. I call him up and tell him and his investors that I can't do this. He then tells me the next day that his other guy can do this. Now, this other guy....he stopped doing business with because he was dropping the ball on many deals. And this company has a retail and wholesale division.

So...I call my rep. up and ask him about this. He says... I don't think we do or allow assignment contracts. I said...please double check with you underwriters. He comes back...nope. I call my investor up to explain to him the differences and why lenders won't do this. He then tells me...well, this other guy said he can. I said...the one that has let you down before?  ...pause...hesitation. "he says he can do it" I told him I called the company. My investor then says that he was getting a favor and he must have gone to the top. I said...great....that's if they keep this loan themselves. But it won't happen. Well, that was 5 months ago and it never closed.

The last thing.... I found out one loan officer that was actually converting over the assignments as legal purchase agreements. Sure, we know this is fraud. He was even signing all the contracts with everyone's signatures. People will do desperate things to make it look like they can do anything. It caught up with him. BYE BYE.

That is why I would love to know who the lenders are. because I have a lot of investors ready to do this if the lender will accept this.

Yo Jeff, you seem a little emotional about this.  No big deal...

 Let me clarify a little.  First, I stated that the Utah REPC allows for assignment with no specific statement of the intent.  I still will use the language "and/or assigns" if my client is uncertain as to the exact name, title, etc they want to purchase the property under.  For example, a current client is purchasing a small office building for his hvac business.  He wants to create a specific purpose llc to purchase it under but it was not in place at the time of the REPC.  It's now in place and we've assigned the contract with approval of the lender (Key Bank).

A second incident I had about 9 months ago.  I had a listing with competing offers.  One was a relo with no buyers agent.  Of course they won the bid.  The loser was so upset they went around their agent and asked me if there was anyway they could get the property.  I sent them back to their agent and told them to make an offer to the successful bidder.  As I was now respresenting the successful bidder, she agreed to assign her position to them for a $10k cashout.  We drafted an addendum assigning the property to the loser.  The addendum fully disclosed the payment of the $10k and was approved by the initial seller who was happy because they got $30k more than list anyway.  I don't recall who the lenders were as I was representing sellers.  I was told by the buyers agent there was no problem with the assignment or the documentation.  I did have a battle with appraisers and had to provide them with comps to support the final price.

The third deal was stated in my previous post and involved Countrywide.  It was a simple assignment from a family trust to a daughter who was a member of the trust.  They required a complete rewrite of the repc.

You've got me curious enough I'm going to probe my lenders to see what they'll say regarding assignments.  I'll let you know what I find.

Now, Jeff, get some sleep...

Keith......I understand what you are saying. But you gave me about 3 totally different examples. A trust assigment is different and belongs in another category. I am talking about the true assignment from a person selling it to someone that in turns sells it to the buyer. And many of these are from builders. Or people that go around bird dogging for properties to sell to investors. And lenders will just not except this. Maybe a local bank.

But overall... I am sure each deal is different, just like yours. We would actually need to see the whole deal and the actual assignment. But I know FNMA will not allow this. Hence...."A" paper deals can't be done the traditional way.

Kristal....they could damage several people involved. But the primary thing behind the assigment is that there is a middle person looking for a fee, just like a realtor. But they can't do a legal contract to get paid because they aren't a realtor. So...they assign rights over to collect a fee. And investors (lenders) are afraid of this because the value could be raised to cover this fee.

Where is Bill ....William J Archambault Jr???   I would love to hear what he thinks about this..

George......it might just not happen in your area.... nothing wrong with that. They can be a pain and not many lenders will allow them, especially on the "A" side.

Damion....I read your blog... thanks a lot. People...read this. He goes into detail. I just touched on the basics. thanks again.