Okay - let's start this one out the easy way. If you are a "bird dog", "locator", "consultant" or whatever name you use to call your unlicensed, uninsured, no background check business I don't care if you like my words, ever recommend my company to your "clients" or want to get in my face for what I have said for years and will say again and again so long as it holds true. Your greedy numbers and fees are a bane to this industry and I want you OUT. Oh you tee. OUT. Your fees blow deals and make the buyers look like complete fools. Yes, I have a case in point to be submitted here today.
Phil Foolish called me back in February wanting to do a non-seasoned cash out refinance on an investment property into his IRA. After the initial interview I found out he had rehabbed the property out of pocket as well as having paid cash for the property to start with. The property is worth about $78k - a very cheap investment anywhere - and he paid $65k for the property and put another $10k in it for rehab. Not a good deal but it's his first one and he has never red my book Ten Mistakes Every Idiot ... er ... Real Estate Investor Makes. He made them all - and there are actually about 23 mistakes in the book today.
The really sad part for Phil Foolish is we didn't discover his biggest error until today - three days before closing. A few months ago we would never have investigated this far on a property which was originally purchased with cash. However, because the values are so tight and the property is located in a declining market area, we followed all the trails back to the listing. Our goal for looking at listing prices on properties that are being refinanced is usually to discover if there was any "cash back at closing" - another foolish mistake of greed that costs deals. In this case we thought we may have found it but it wouldn't make sense for a cash transaction to receive cash back at closing unless there was a more sinister plan to artificially inflate the resale value. So I asked Phil Foolish why he paid $65k for a $50k listing when he was paying cash.
"Oh, that included the $15k assignment fee", Phil beamed.
Okay so get this straight - Phil paid an UNLICENSED third party FIFTEEN THOUSAND DOLLARS (30 percent of the price of the property) for doing nothing more than assigning the deal. OH MY GOD PEOPLE! Get OUT of my industry. Buyer - you are a FOOL if you do this. NEVER pay an assignment fee of more than $1000 or 1% of the sales price whichever is less unless you just want to be an idiot. ASSIGNERS - greedy, scum of the earth low life trash. I don't care if you have been a fan of mine your whole life and I just lost you forever - you are SCUM.
Phil is not getting his refinance - well, he is, but he's getting $50k the original listing price. "It's not enough", he says.
"Okay, fine. Go away, " I reply. "You're an idiot anyway so goodbye."
"No, I need the money desperately, I'll take the $50k", Phil sheepishly replied.
So what is Ken's issue with this? Why is this a problem if the value is supported and the buyer was foolish enough to pay a 30 percent (or ten percent or 5 percent) assignment fee?
1. Assignment fees cannot be refinanced. Fannie Mae, Freddie Mac and most institutional lenders disallow those from a refinance.
2. They artificially inflate the sales price of the property actually turning this into prosecutable mortgage fraud (yes, the MBA is working on this).
3. There is no or little recourse against the collector of the assignment fee unlike a licensed, insured agent who has passed a criminal background check and met minimum requirements to obtain and possess a license.
4. There is no protection under the law for the buyer for excessive fees - such as THIRTY PERCENT.
Basically unlicensed agents make their living from emotion and greed - the two biggest killers of real estate investment wealth.
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