Just received this in my email in response to a property I am selling. Sure sounds fishy.

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Full Price for your home in 2 weeks or less

Thank you for your interest in our program. What we offer is a fast sale of your property at full current appraised value. If you can wait at least 18 months before you get cashed out, this program will benefit you.

We have a large database of buyers willing to pay full value for your home if you give them 18 months before they refinance & cash you out. During those 18 months I will personally help them repair their credit so they can qualify for a refinance loan.

These buyers will immediately pay $4,000 as down payment and the balance will be paid to you at 8.5%. monthly payments. I can have your home occupied with a tenant/buyer within 2 weeks or less. If you need a fast sale of your home due to divorce, job transfer, making 2 house payments etc, this program will benefit you!

My fee for bringing the buyer & preparing the paperwork is $2,000 & payable only after they have paid you the down payment. Benefits to seller are:

1. Full price 2. No realtor fees 3. No closing costs 4. No long vacancies

Example deal:

The Smiths have had their home on the market for 6 months & making 2 house payments. Their home is appraised at $100,000. They contact me & I get them a buyer. The buyer pays $4,000 down payment & the balance of $96,000 will be paid to the Smiths in monthly payments at 8.5% for 18 months. After 18 months the buyer refinances the loan & the Smiths get the balance as cash out & their original mortgage is paid off.

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It sounds like a lease option, in which case, people are occupying my home with an ownership interest but have only paid $4000 for the right to do so, and I don't know how qualified they are. They are in my home for a year and a half while they repair their credit?
--A

And it generally works like this. Say your full price is $250,000.

They'll lease option it from your sellers for the $250,000, make the monthly payments but at the same time sub lease it to someone else with another lease option for $300,000 or so.

The second lease option people move into the house and make their payments to the first lease option guys.

IF, at the end of the term, a year, 18 months, or whatever, the second people can qualify for a loan they buy the house for the 300K just after the first guys buy it for $ or they just assign their sale to the second people and get a check for the 50K difference.

They have everything to gain and nothing to lose.

Your sellers have a lot to lose and 50-50 odds of the deal closing.

It's often called a Sandwich Lease/Option, and Jim is right about what he said. The cool thing about it is that your sellers could do exactly the same thing, without the middleman. They have the same downside potential, with a much larger upside.

In fact, I can imagine that a patient agent could help sellers with low equity implement a lease/option strategy, helping with management, and getting a much larger commission down the road. It would take some doing, but it might be an option for those listings you are forced to overprice or turned down due to lack of equity.

i agree its a type of seller financing where the investor is looking to sandwich his interest.
i send out a similar type of email to fsbo's.


broker,
so what are you going to do?

Someone educate me here.. how is this not illegal and not activate the due on sale clause of the mortgage?

The way I read it is that this guy wants to bring in buyers who would not qualify normally, let them lease the house for 18 months, make payments and then get a loan. They are not "refinancing" anything unless he is thinking that the people leasing the home are going to sign some kind of owner financing thing with him... in which case that is also illegal because he doesn't actually own the property.

I also suspect this guy not licensed as either an agent or mortgage broker.

A typical lease option I understand... this I don't.

violating the due on sale clause is not illegal. if you want to avoid this DOS clause legally, safely, and ethically, the seller would have to put the property into their own trust and grant deed the title to a trustee. the seller and the investor would both be beneficiaries of the trust. no one has ownership except for the trustee. how does the Realtor get paid? its simple, if the incoming buyer brings in 5%, the investor can pay you some of it now and the rest later after a refinance or purchase. also if you plan to go with this seller financing, you'd want to have some of that 5% contribution into a contigency fund whether the tenant/buyer misses a payment or for repairs.

look up the Garn St Jermain Act of 1982. owners are allowed to put their property into their own trust without violating the lenders DOS.

if you dont use a trust, then the investor has a risk of triggering the DOS if the tenant/buyer were to default thus forcing a judicial foreclosure and quiet ejectment title action to get the property back to the seller. another disadvantage is properly structuring the contracts using a lease option. be careful on the wording and keep both contracts(lease & option) separate from each other. try not to have the word "buyer" on the lease contract and the word "tenant" on the option contract otherwise its going to be a long court battle.

keep an open mind and ask a bunch of questions.

how long has the property been on the market?

also when does it expire?
when it comes real close to expiration, these investors are counting on you to become a motivated Realtor to use this alternative method to get "some" commission out of a dead deal. if not, youll see these investors dealing directly with the sellers to move this property without you. they can easily say that they have a buyer ready to move in to take over all payments, maintenance and repairs, and convince the sellers to cancel your listing or relisting

Here's an article on this subject.

http://www.legalwiz.com/articles/dueonsale-rightframe.htm

I find it unethical regardless of what this guy says. At best it's a gray area laced with moral dilema for the opportunistic to enter.

what if you were to disclose that all parties are aware of the DOS being triggered?

Due on sale clauses fall under contractual law, not criminal law. Therefore, they can't be considered either legal or illegal (unless there is a state law in place).

Unethical.. Yep. Illegal, no.

Lease option DOES NOT create a beneficial ownership interest in the property,a lease purchase does.

The reason they want to lease it out is if you have payments for a year it is alot easier to get a refinance in the challenged borrowers name than a standard loan.

This is not illegal just creative financing.The investor could also split some of the future appreciation as part of the contract with the future buyers once it closes.

Refinance what loan? They don't have a loan..

"what if you were to disclose that all parties are aware of the DOS being triggered?"

all parties including the mortgage company?

"18 months before they refinanace and cash the seller out"
The buyers on the lease purchase would buy the home on a refinance as compared to a conventional loan.

The problem I have with this is the term "refinance". I think it's very misleading.

What you really mean is that the buyers lease the home for 18 months and then go get a new loan an payoff the old one. They are not refinancing the original mortgage because they are not on it.... or am I mistaken ?

All my lease purchase guys get a new loan and pay off the one I have on the property.

Since they're been living in the house for 12 to 18 months and have a solid payment track record of timely payments (I verify that) it tends to make lenders look favorably toward granting them a loan to buy it with.

Jim' right. Many mortgage companies will allow a lease/option contract that's at least 12-months old with all on-time rent payments to be considered a refinance for the purposes of qualifying and underwriting. The thinking is that they've been making the payments for a year or more anyway, and that they have an emotional interest in the home.

So it's not really a refi, but the lender treats it favorably as one.