Investors using Options as offers

Hi All!Has anyone worked with an investor who uses an "Option Offer" Basically what this is, the investor puts in an offer to the bank on a short sale, but the offer is contingent upon the investor immediately listing the property and trying to find a buyer(same day buy and sell). After a predetermined amount of time the investor can walk away.

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  • I have done this as well.

    In my opinion, it's a GREAT Service to the Realtor, Seller and Bank.

    In short, (since there are some other great answers here) it speeds up the process with the bank and stabilizes it. What makes the deal seem shady is the investors you are dealing with. The investors I work with do not make ridiculous offers and they must agree (in writing) to walk away if they are "IN THE WAY."

    The short sale won't go through without an initial offer, so the investor provides.

    Why the bank doesn't care? I don't know, but I'm sure it has something to do with them (the account rep) being overworked and underpaid.
  • I had one come into my office. I had the agent that had the option presented to her take it to the OH division of real estate. They brought my agent as well as my self down to the division and told us that it was illegal and questioned us about the individual doing the options. The option does not give the buyer equitable right to the property and that every time he/she is doing this option he/she is acting as a lic real estate agent and will be fined by the OH division. Second fiduciary responsibility is now questioned. Who is the agent working for? the seller or the new potential buyer using an option? This was another no no that the division said the agent could lose his/her lic for. Once again this was here in Ohio.


    Good luck.
  • If this transaction is a short sale, I don't believe there are any equity to the seller. The seller is not allow to receive any funds in a short sale.

    This transaction sounds like a flip, which is not really illegal according to the California Association of Realtors. Called CAR about it, because there is a group of investors looking into short sales and flipping it with someone else money. The investor (B buyer/seller) has to disclose to all parties involved that the transaction is a flip (double closing) - A to B and B to C closing (A is the bank who makes the decision to approve the offer). If it is not disclosed, the buyer's lender will not fund the loan, and the homeowner's lender will not release the homeowner's default mortgage(s) in the transaction.

    The transaction can only work with A paper buyers (C buyers). FHA buyers can not be use in the transaction (if it is a flip), because FHA prefers the seller to own the home for at least 90 days. Also, it will not work with poor credit buyers because their loan may not get funded.

    The thing is when the investor gets involves, he is going to try and get the home for at least 50% on the dollar as well as get the short sale closed rather than have the home go to foreclosure. The investor becomes the seller and pays the real estate agent up to 5% commision for dual agency. As for the homeowner, he is out of the home and will not have the word "Foreclosure" on his credit report.

    There is a company and one title company that have been doing this type of transaction. They have all the documents, videos, Q&A webinar for an investors to do it correctly on their website for anyone who wants to learn to do this. I kind of checked them out to see what is new for investors now-a-days. Not sure, if this program will work for those people, because they do have to speak to the homeowners to do this. There are not many people that can knock on doors, and ask the homeowners to do this program.
  • Hello everyone, this is my first post. Truly glad to be here. I've handled several short sale closings. After several painful deals, I came across a local investor using the option contract double close system who wanted to partner up. The lure of sharing leads, having an offer up front, and farming out the negotiations was VERY tempting.

    However, after running the option contract and notice of option by the chief legal counsel and chief investigator at The Ohio Division of Real Estate & Professional Licensing (they go after both licensed and unlicensed people in the state), I was told the following:

    Yes, double closings are legal so long as they are separately funded.

    No, option contracts are not considered equitable title for the investor to act as the seller on an end transaction until the option is exercised (ie. property is purchased or buyer goes into purchase contract). Purchase contracts, however, ARE considered equitable title.

    No, I am not doing my fiduciary duty to represent the seller if the bank will go after them for a deficiency as so often happens on junior liens. Another pitfall regarding fiduciary duty is if the investor rejects an offer because it doesn't give enough of a spread and the home ends up foreclosing.

    No, it is not legal for an unlicensed person to take a fee for negotiating on the HUD. (The logic is that taking a fee for an activity that only gets paid out when real estate sells is illegal unless you're the seller or a licensee. To me this makes little sense as that is how a title person or mortgage lender gets paid and they are not licensees, either.)

    Long story short they advised me to stay away unless this investor was willing to use a purchase contract and ultimately buy the property whether there's an end buyer or not. I asked this investor her thoughts and she decided to continue using her option contracts and find an agent more comfortable with these transactions.

    They advised me the major problem was unlicensed activity. They said the fee for violation was $1000/day/transaction (in Ohio). Activities requiring equitable title or a real estate license include marketing the property, negotiating as the seller, and/or getting paid for negotiating on the HUD.

    It's too bad there doesn't seem to be a clean way to do short sales. The problem I run into working these deals without an investor's backing is either 1) an offer doesn't come in time to postpone the foreclosure or 2) the ready, willing, and able buyer walked while waiting. The beauty of the investor was having the offer up front to get the ball rolling and even stall the foreclosure.

    The only way I'm going to continue working pre-foreclosures at this point is if I find an investor who will make a low ball offer on all my short sales so I can get the paperwork started before listing the properties for sale. I would still like to hire out the negotiations if possible but it sounds like I have to pay a set fee whether it closes or not. Doesn't make good business sense to hire out the bank negotiations unless I'm doing high volume with commissions reduced the way they are on short sales.

    Thank you thank you thank you for the list of BPO/REO companies. That's where I'd like to take my business in 2009. My broker has had a lot of success in this speciality and was actually the one to introduce me to this forum.
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    • Your last statment is the way to go. I have had an investor put in a very low ball offer, so low that if he got it he would be very happy. This is the best option for the homeowner, it holds off the auction and gives the seller time to regroup, in the meantime it gives me time to find a buyer who is willing to pay a fairer price for the house limiting the possibilities of the lender wanting to go after the seller for the deficiency. The investor is well aware that I am activley trying to find another buyer and is fine with that because he knows that there is only a slim chance that the lender will accept his offer anyways.
      • That's a great strategy and is definitely a win-win all the way around!
        • Absolutely.
  • I've seen private sellers do this. In the end, the seller gets screwed no matter what. Either the investor walks away and the seller is stuck or the investor sells the property at a profit and the seller doesn't get all the money. Actually, I wouldn't call the middleman an investor at all. He/she is a flipper. Now, if said "investor" pays something for option it may be a different story.
  • I list properties for Banks and this type of transaction is not allowed. The banks do not accept offers with and or assignee designations in the offer. This type of transaction may work where the seller is not a bank. It sounds like your buyer has been watching to much late night TV and bought one of those investor programs from them.
    • Well said Raul!!!!
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