The non assignable contract has popped up everywhere. All the banks, mortgage companies, HUD, and Realtors, use it to protect their interests. No longer can an investor sign a sales contract then sign it over to a third party. And now, many investors who flip, sell wholesale, or even sell to retail buyers are feeling its sting.
Yes, unless the contract specifically states that it is not assignable. Typically, a contract from a Realtor or HUD is not assignable.
But there's always a legal solution provided you have a little knowledge and the right strategy. And we have four legal strategies that will let you get your deals closed.
The strategies aren't complicated. All you need to do is tell your favorite investor-friendly title company what you want to do. They'll make sure all the paperwork is in order and filed correctly.
YES. ADD ANOTHER BUYER to the non assignable contract with an addendum.
It's quick and easy. If you are flipping the property, add the buyer's name you're flipping the property alongside your company name. Then you have
Two options. Leave your name on the contract and sign a quitclaim at closing or use a second addendum to remove your name off the contract before closing. You don't need to worry about the details. All you need to do is give the instructions to your favorite investor-friendly Realtor or title company, and they'll do all the work.
USE A LLC. Write the non assignable contract to purchase using your LLC as the buyer, then at closing, transfer your membership interest in the LLC to your cash buyer with a substitution member form. An essential LLC is simple and can be completed online for about $200. Use the property's address as the LLC's name and add yourself as the agent.
However, wait to get the tax identification number because you'll give that paperwork to your buyer at closing, and they'll submit it.
Also, in many states, when you sign over your membership interest, it's recorded as a transfer and not a sale, so there isn't any sales tax due. Plus, it ensures a clean chain of title. But you don't want to sell more than 5 LLCs a year without talking to your CPA or financial adviser first. Find out more about LLCs here.
USING LAND TRUSTS is a lot like using an LLC, except the paperwork is a bit more complicated, and the cost is around $400 to create the trust and $100 yearly maintenance. You can do it yourself. However, we highly suggest using a trust attorney.
You'll write the non assignable contract to purchase using a land trust (sometimes called a title holding trust), and at closing, you'll assign and transfer your beneficial interests to your cash buyer. All the paperwork is taken care of by the title company. In all states, this transfer of interest is not recorded as a sale, and so, the fees are less.
Unlike LLCs, there aren't any limits; you can sign off as many land trusts as you want without any extra ramifications. Here are the details about land trusts.
SIMULTANEOUS CLOSING consists of 2 contracts, two sales, and two closings. That's why it's sometimes referred to as a double close. This strategy produces the cleanest chain of title, but the closing costs increase.
More importantly, the cash buyer you're flipping the property to doesn't know how much money you're making on the deal. You'll find this especially helpful if you are making more than $7,000 on the flip. As an example, you could increase the property's value by repositioning it.
First, sign a non assignable contract to purchase the property with the seller, then you create a separate agreement to sell (flip) the property to your buyer. Since the two closings are taking place simultaneously, you don't need to worry about funding. Your end buyer brings the funds to the closing.
PRO TIP. To eliminate headaches and get your deals closed quickly, always use an investor-friendly title company.