HUD-1 Form Issues when doing IEE Strategy

We posted the question above, and no one replied yet. Our contract was set to expire tomorrow, but they agreed to a 7 day extension.

This is the email we received from our attorney after he spoke with the Seller's attorney:

"He acknowledges that his clients signed an agreement(P&S) with you for the sale of the property at $XX.XX. He further acknowledges that you have the right to assign the agreement to your buyer. However, he is advising his clients not to sign a second agreement (P&S) with your buyer at a higher amount of $YY.YY for several reasons:

1. His clients will only recognize the original price of $XX.XX and he is concerned they could be taxed on $YY.YY. Because you are not licensed broker's, he does not think he can show a "referral or finder's fee" on a HUD;

2. HUD regulations require attorney's to make full disclosure of all financial information. He is concerned he will be in violation of HUD if he participates in a deal where you are paid a fee outside of closing.

Frankly, I understand his concerns. While I understand that you are not doing anything under handed or illegal, the HUD regulations that we are bound to coupled with licensing requirements for brokers make it difficult for you to flip property that you never acquire title to.

The regulations are designed to simplify finances for real estate transactions and to insure that everything is legitimate. A "finder's fee" is equivalent to a "broker's fee". Everyone's concerns about HUD are heightened by recent changes to the HUD regulations and by the fact that attorney's and bank have gone under by being involved with attempts to circumvent the regulations."

I know our attorney keeps refering to "Finder's fee", in the DG contracts, it refers to it as "Investor fee", but my attorney advised me, it is still considered/viewed as a "Finder's fee"

We don't know how to get around this, and I've searched all of the posts and reviewed every step of Dean's IEE strategy several times and cannot find anything that addresses this issue. We're wondering if maybe IEE is illegal in Massachusetts?

Any help, insight or ideas would be greatly appreciated. Thank you DG Family!

"He further acknowledges that you have the right to assign the agreement to your buyer."

Why don't you just assign the agreement for $ZZ.ZZ and have YOUR buyer pay it directly and allow them to move forward with a closing where they close with the seller for $XX.XX.

Perhaps there is a lot of mis-information that is going on. Are you doing an assignment or a double closing? If it is the latter, you could use transactional funding. If it is the former, follow my example above.

If you don't know which one you are doing, and can't determine which one you are doing by reviewing the contracts that you have used; perhaps you should consider canceling the deal until you know how to structure it correctly.

It is hard to give advice without seeing the actual contract and, of course, most people on here are not attorneys. Since you have one, why not ask him for his advice on how to structure it as he can see the contracts.

I don't mean to come across brash, but you are doing a transaction whereby you may be on the cusp of breaking the law. It appears that you are moving in the right direction, but do you see the hardship we are under trying to help you with only partial information?

It has to do with the buyer's bank financing ~ not ca$h.

Another great investor put it to me this way: If they have financing, make an agreement with them personally for them to pay you for bring them the house, and you can still make your fee. Rip up the contract between you and the seller, and make a new contract with the new buyer and seller. Maybe you can make some kind of invoice between you and the buyer, and get the buyer to pay you a fee that way. Am I right or wrong on that?

I think I may have solved your problem (as a last resort).

Turn this deal into a Sandwhich L/O (Temporarily), but don't make it look temporaary on paper. Lease option the house from the seller for your contract price, the Lease option the house to our end buyer for the higher price (which inclused the fee you wish to make). At that point, maybe a day or week or so after the papers are recorded, have the buyers ecercise the right to buy the home. When the bank sunds come through, it will pay off your contract with the seller and you, and you will get your fee. You could even use a title company, instead of the lawyer issues. Or, use your lawyer to L/O the deal. Why do they have attorneys anyway? (not that it's a bad idea or anything)

Either way, you'll get around the financing issues, you'll still get your fee and make the deal a wi-win-win. It's a round about way of doing it, but it would work.

Traditionally, a finder is referred to as someone who introduces or brings together two parties who consummate a deal, and is paid for the introduction that facilitated the deal. The fact that you negotiated with the seller takes you out of the finder role and into the role of a principal, acting on your own behalf, which is why the attorney is having an issue with entering your fee as a finder's fee on the HUD-1. As Bill said, the easiest way to move forward probably is to do a double closing with transactional funding. But as Bill also said, we are not privy to all the facts.

Dallas,

I think that's a great strategy! two separate sets of contracts!

but how do you get the seller to agree to it? maybe offer him a little more $ ?

With the double closing, the investor has to come up with the $ to pay for the transactional funding fee...

valerie

Hey Valerie,

You tell the seller that you have another exit strategy. Explain the process of a Lease Option. If this deal is done right, Jim & Nancy could double dip with the Down Payment going toward their "option" to buy the home. Offer the seller $2k or so as your down payment, poket the rest, keep record of the "option deposit", contact the buyer's bank (with authrization form), communicate with the mortgage company about the house. The buyers will exercise their right to buy, you would draw a PA with the higher sell price. The financing goes through, the sellers are happy and the buyers are happy, Jim and Nancy are happy because they can keep that option money and get their fee at the same time, and everybody wins. Depeending on how long it takes the mortgage co. to process funds, the tenant buyer (end retail buyer) might have to pay a month's lease amount or 2, and part of that monthly payment would also go for their option as well. Hoping it would take tha long to go through, considering at any tile during their least, the buyer has the right to option to buy the house, anyway.

Do you mean the end buyer (investor)? It should come out of the funds from the end buyer, for TF, unless it's changed?

"You tell the seller that you have another exit strategy"

I'm thinking that about now the seller and end buyer are thinking what smooth sailing it would be if you exited the picture completely. This deal isn't going to happen unless the seller's attorney is satisfied. If he grants you a do-over to come up with the paper work to preserve your profit, great! But I'm thinking he's going to have his client's best interests in mind and unless this deal closes with the existing contracts, you're profit may be in jeopardy. Double closing with transactional funding seems like a logical approach since it addresses the three concerns...you flipping a property without taking title, the taxable amount issue, and being paid a fee outside of closing. Just my opinion and I may be wrong.

Yeah, that's true. Thiis was only a suggestion that could potentially work. I would try Transaction funding, and if it didn't work I'ld go the other route. We'll find out what happens, though.

Dallas,

I don't think you can come to the closing table and change the whole transaction and 'explain' to the seller what a L/O is...

That's what I meant with 'what do you say to the seller'- good ideas, but kinda late in the game...

Lesson learned: You always need to have an exit strategy.

I would definitely like to know how this transaction works out.

valerie