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By Tod Snodgrass

The Real Estate Investor (REI) landscape is starting to change, in both residential and commercial markets. Since the 2010s, most of the country has experienced a seller’s market with rising housing prices benefiting all property owners. Recently however, due to historically high mortgage rates, coupled with COVID-related issues and other factors such as changing U.S. demographics, much of the country is experiencing a slow shift to a buyer’s market. After all, prices cannot go up forever.

Signs of the shift to a buyer’s market include: recent price discounting, listed properties are on the market for longer periods of time, vacancies are going up in some markets, there is even speculation about the possibility of a nationwide recession arriving in 2024. These trends, if they continue, will eventually cause more and more property owners to put their properties on the market in order to take advantage of all the equity they have built up over the past decade or so.

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As the number of properties up for sale starts to climb, past history has demonstrated that this may cause even more property owners to put up For Sale signs, since the “herd instinct” often kicks in, as it has in previous housing downturns. The good news is that all these market changes may open up new opportunities for REIers.

Take wholesalers for example. They make their money acting as middlemen between sellers and investors. However, what many people are discovering is that, due to COVID-related issues and other related problems, a lot of properties are currently suffering from clouded title issues, which may include (but are not limited to) the following types of problems: property tax lien, pre-foreclosure, mechanics lien, HOA lien, lawsuit, lis pendens, divorce, probate dispute, IRS lien, state income tax lien.

Clouded title issues can present major headaches for REIers in general and wholesalers in particular (since they feed deals to others and are the frontline troops in many cases who help jump start deals). In fact, clouded title issues can stop a deal dead in its tracks if the underlying issues are not properly addressed. See more about solving clouded title issues below.

CASE STUDY

Situation: A wholesaler had a property that he wanted to micro flip via a double close. The good news is that it came with a good amount of equity in it, and he had a cash buyer lined up, ready to go via a double close. (It could not be done via an assignment because, like a growing number of states, assignments are illegal in the state where the property was located.)

Problem: The property was burdened with several Clouded Title Issues. Unless and until those CT problems could be solved, the seller was stuck due to a lack of money to pay them off, plus he had pretty bad credit. To make matters worse, if he did not sell the house very soon, he could lose it in a matter of weeks to creditors and receive no money at the end.

Solution: A commercial loan broker reached out to my firm for help. Once all the needed paperwork was set up properly, we agreed to fund the property purchase for the wholesaler. The amount we funded included enough money to pay off each of the CT debts that plagued the property. It took a few days to get clear title, however in the end it was a win-win for all parties.

Wholesalers Double Close Financing: Clouded Title

Please find below information about the Wholesalers Double Close Financing (WDCF-CT) program from Creative Transaction Funding (CTF). The WDCF-CT program is available to experienced Real Estate Wholesaler Professionals (REW Pros):

A. Who need money to fund double close deals, i.e. those that include two separate escrows.

B. There are Clouded Title Issues (CTIs) that may block the acquisition of the property unless and until the CTIs are fully resolved.

C. CTIs (as CTF defines them) may include (but are not limited to) the following types of problems: property tax lien, pre-foreclosure, mechanics lien, HOA lien, lawsuit, lis pendens, divorce, probate dispute, IRS lien, state income tax lien.

I. Overview

A. WDCF-CT fundings are not loans. Instead, they are Joint Venture Partnerships (JVPs)—a form of equity—between CTF and the REW Pro; this is achieved via 50/50 split of the resulting net profit: The wholesaler brings the deal, CTF puts up the purchase money for the first close + any costs to remove CTIs.

B. Obviously, all the paperwork involved (for both closes) has to be carefully crafted to offer maximum protection to all parties, with appropriate security and collateral issues spoken to successfully, which is why we require that doc prep, title and escrow functions all be assigned to service vendors chosen by CTF.

C. When CTIs are involved, very close attention to detail takes on added importance. It is often the case that it can take many days, in some cases, to achieve 100% clear title–especially when there are multiple liens or other loans on the property that each need to be dealt with successfully.

II. Features, Benefits, Costs

A. How it works: We form a Joint Venture Agreement (JVA) with the REW Pro.

B. CTF’s profit comes from a 50%/50% profit split with the REW Pro.

C. We do not require any upfront, out-of-pocket fees from the REW Pro. There ARE of course “overhead costs” involved with every deal to cover: back-office expenses, administrative costs,

underwriting expenses, document preparation fees, closing costs, referral fees, etc. Those overhead costs are fixed at 15% of the funded amount for all deals. The 15% overhead amount is deducted from the gross profit at closing. The remaining net profit is split 50%/50% between CTF and the REW Pro.

D. We provide WDCF-CT funding nationwide.

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III. Summary of the WDCF-CT Program

A. Our funding is available to REW Pros who have a fully qualified, double close wholesale deal that is ready to go, but they are short of the critical capital needed to go forward (i.e. for the purchase price), and/or there are CTI issues involved, etc.

B. The REW Pro must have previously and successfully completed three or more real estate deals. For those who have NOT successfully finished three deals on their own (or with a mentor), we strongly suggest that they partner up with a mentor (who HAS the prerequisite experience…three or more completed deals). They can, for example, form a joint venture partnership whereby both parties benefit from the involvement of the other.

C. Joint Venture details: The CTF/ WDCF-CT Program functions as a Joint Venture Partnership (JVP) between the REW Pro’s legal entity (LLC or Corp.) and CTF’s LLC and/or CTF’s funding arm, The Edith Capps Trust (TECT).

D. We normally run the (wire transfer) funding for all deals through TECT, however the final decision about whether we opt to fund via TECT or from another one of our sources is at our sole discretion.

IV. Process issues, example

A. The wholesaler (our JVP), brings a profitable, double close deal:

1. The JVP has the property under contract with a Distressed, Motivated, Flexible (DMF) seller (homeowner, landlord).

2. The JVP has the property under contract with a cash buyer, who has the money and is ready to purchase the property from us = our exit strategy.

3. The minimum profit requirement on any deal is $40,000 ($20,000 to out JVP, $20,000 to CTF), after deducting 15% fixed overhead costs, which is based on the funded amount provided by CTF.

B. Double Close Process:

1. There are three separate parties involved in double close deals:

a. A, Seller
b. B, Wholesaler (our JVP)
c. C, Cash Buyer = Source of the exit strategy money

2. There are two separate escrows/closings:

a. A to B
b. B to C

3. The two separate closings involved are AB & BC.

4. The normal sequence of events, for a typical double close deal, is as follows:

a. The JVP assigns both (seller and buyer) contracts to CTF prior to the opening of both escrows.
b. C puts their money into the BC escrow first

c. B puts their money into the AB escrow (funded by CTF)
d. If there are CTIs involved, then each of those needs to be paid from the “B” funds. Once the property has 100% clear title, then:
e. AB escrow closes
f. BC escrow closes
g. Final docs are sent out to all parties; all monies due are wire transferred to all respective parties.

11 Case Studies: Funding Examples

CASE STUDY NO. 1

Situation: A REI Pro does not have enough down payment (DP) money. He has a deal that meets the following criteria: the property is being purchased for 70% or ARV = 30% equity for the REI Pro (100%-70%). He has already lined up funding (i.e. a hard money loan) for the 70%. The hard money lender requires that the REI Pro bring 25% DP (skin-in-the-game) money to the table.

Problem: The REI Pro only has 10% DP available; he needs 15% DP Assistance (10% + 15% = 25%).

Solution: Our firm, Creative Transaction Funding LLC, can provide the missing 15% DP funding, assuming your deal meets our standard criteria. Our fee is 5% of the ARV. The REI Pro’s profit equals 25% (30%-5%) of the ARV.

CASE STUDY NO. 2

Situation: A loan broker sent us an experienced real estate investor professional (REI Pro) who had recently purchased a property via a judicial tax sale through a county Tax Claim Bureau. The house came with a lot of equity and clear title.

Problem: The “hold over owner” was still occupying the property. The REI Pro needed cash in order to facilitate (with the cooperation of the current occupant) a cash-for-keys arrangement, as well as funds for cosmetic upgrades (paint, minor repairs) so they could rent the house out to a qualified new tenant. However, all of the REI Pro’s money was tied up in other deals.

Solution: The new owner arranged for a refi with the same broker who brought us the deal. We provided the needed capital to the REI Pro. Shortly thereafter, the proceeds of the refi were used to pay back the amount we funded + our standard markup. The REI Pro was able to successfully rent the property to the new tenant less than one month later.

CASE STUDY NO. 3

Situation: A homeowner has fallen way behind with his monthly mortgage payments due to the fact that he lost his job. The bank recently sent him a NOD (Notice of Default) and the property is now in pre-foreclosure status. With insufficient time to fix up the place and subsequently sell it for top dollar, the homeowner has come to realize that he needs to prepare to move away from the residence, sooner rather than later. He reaches out to a local real estate broker who in turn puts him in contact with a cash buyer investor (REI Pro) who is interested in purchasing the property—at a discounted price—via a double close (involving two separate escrows).

Problem: In addition to the overdue first position mortgage on the property, it is also encumbered with several liens: mechanics, HOA, property tax, as well as a lawsuit, including a lis pendens filing. The seller has no money to clear up the title, so it remains clouded, and the property remains unsold. Due to the high-risk factors involved, everyone (including the cash buyer/REI Pro) is, understandably, reluctant to front the money to pay off the liens beforehand. The homeowner is stuck.

Solution: Seeking a way out of his client’s deteriorating financial situation, the broker reaches out to a Short-Term Equity Financing source for help with paying off the liens which created the clouded title logjam in the first place. Once all the pieces of the financial puzzle are properly in place (agreements and contracts signed, proper escrow instructions prepared, all monies needed for the deal are sent into both escrows), both closings can occur pretty quickly.

The property owner came out OK; the REI Pro got the property at a good discount from FMV; the STEF was amply rewarded for its involvement; and last but not least, the broker earned a 5% referral fee from the STEF (based on the amount that the STEF funded) for their time, trouble and expertise.

CASE STUDY NO. 4

Situation: A General Contractor Investor (GCI) owns two acres of prime residential real estate, free and clear, with no loans or liens against the property. The land had already been successfully subdivided, entitlements are all in place, architectural drawings and plans are 100% complete for all the SFRs. Further, the GCI has already arranged a construction loan with a major bank for all the new houses, to be built one-after-another, in a series. The only thing left to do, prior to starting work, is to pay for the permits on the first few houses.

Problem: The wife of the GCI recently filed for divorce, tying up all the CGI’s assets, including the funds he had previously put aside to pay for the permits.

Solution: A STEF was brought in to provide funds for the permits. The STEF was provided with collateral via liens against the lots the CGI owned free and clear. Based on that, the STEF fronted the money for the permits, which had already been previously approved. By prearrangement, the bank providing the construction loan had agreed to “overfund” the construction loan in order to provide payback to the STEF for the funding they provided + the STEF’s markup. That same day, the loan got funded and the permits were issued. Construction soon got underway. It all turned out OK at the end for all parties.

CASE STUDY NO. 5

Situation: A property was part of an estate. The owner died and the property went into Probate. While the property had a lot of equity in it, there was still an outstanding first mortgage with a modest amount still due, which the court ruled in this case had to be paid off completely before Probate could close. Once probate closed, then the four beneficiaries could each receive their respective six-figure proceeds.

Problem: To say that the four heirs to the estate did not get along well would be an understatement. There was apparently long-standing bad blood between several different family members. The result is that, because of a total lack of trust, none of them could or would agree to pay off the amount due on the mortgage. It was a financial standoff.

Solution: A STEF was referred into the situation by an attorney. The STEF provided sufficient capital to pay off the one remaining encumbrance: the first loan. Probate was able to close; the heirs got their money and STEF was paid off for its investment + standard markup. All parties walked away with a smile on their respective faces.

CASE STUDY NO. 6

Situation: A successful REI Pro owned several commercial and industrial properties free and clear. He recently identified an investment property he wanted to buy from a distressed seller. The REI Pro calculated that he could turn right around and immediately sell the property for a handsome profit, since it came with an extraordinary amount of equity. The REI Pro had the property under contract. Further, the REI Pro had already lined up a cash buyer to purchase the property. The buy and sell would only take one day to successfully accomplish, best case scenario.

Problem: The REI Pro, at that time, was “asset rich and cash poor”. He had no ready cash to use to buy the investment property he wanted to immediately flip. To further complicate things, he had recently defaulted on a bank loan, which had caused his FICO score to plummet. Due to the hit on his credit score, no banks in the area were willing to loan him the money he needed to buy the equity-rich property he had his eye on.

Solution: A STEF was brought into the picture who fronted the purchase price, once the REI Pro pledged several properties he owned in order to cross-collateralize the deal. It all wrapped up to everyone’s satisfaction.

CASE STUDY NO. 7

Situation: A retired gentleman (in his late 80s) was experiencing financial problems. His wife recently passed. He was on a fixed income and only had limited savings. He had owned his home for several decades, and it had quite a bit of equity in it. However, $100,000 was still due on the first position mortgage loan. Adding to his money troubles were rising utility costs, annual property tax increases, the nationwide inflation rate for food and fuel was going up pretty fast as well. There were also other home-related cost increases as well for things such as homeowner’s insurance, maintenance, etc.

Problems: The gentleman recently received a NOD (Notice of Default/Pre-foreclosure) in the mail from the mortgage company due to non-payment. Further, he had used up almost all his savings trying to keep up with all his monthly expenses.

Solution(s): The homeowner needed immediate short-term funds, to keep from losing his home at a looming foreclosure auction. A financially savvy friend of the homeowner brought in a STEF who fronted the short-term funds needed to reinstate (“cure”) the first position mortgage by paying off all outstanding payments owed to the lender, including any accumulated interest, late fees, and foreclosure costs.

However, STEF funding is only short term. What was needed was a long-term solution that would allow the gentleman to stay in his home of 45 years, until his passing. The same financially savvy friend of the homeowner reached out to a private investor with whom they arranged a home equity-sharing arrangement. The private investor agreed to: pay off the STEF investor, and then make all home-related monthly payments on a go-forward basis (mortgage, taxes, insurance, maintenance, etc.) The homeowner agreed to pay for the cost of monthly utilities.

The homeowner and the private investor signed a contract which stipulated that, after the gentleman passed away, the investor would sell the house to the highest bidder. The contract (arranged by a real estate attorney), stated that the investor was to get back all the money he had fronted + 50% of the net profit that remained after all costs had been accounted for (realtor sales commission, closing costs, etc.). The gentleman’s heirs received the remaining (50% net) profit from the sale of the property. (FYI: For a list of private and public home equity-sharing firms, see:
https://money.com/best-home-equity-sharing-companies).

CASE STUDY NO. 8

Situation: An elderly widow found herself in a financial quagmire. Her husband had handled all things financial in the household during their long marriage. Now that he had passed, she was left with major financial fallout as a result. The good news is that she owned her home free and clear.

Problem: The bad news took several different forms: First, once he passed, HIS social security payments stopped flowing into their joint checking account. Second, she was shocked to learn that (due to some oversight on the part of her deceased husband), HIS pension check stopped arriving each month once he passed. In other words, the pension did not include any survivor benefits. Third, being totally unsophisticated when it came to financial matters, and in order to keep food on the table, etc., she started using credit cards to fill the gap between her monthly expenses and the meager amount of income she was receiving from her social security and a small pension. Fourth, after a short while, she completely exhausted her remaining savings in an attempt to pay off the mounting credit card debt, not to mention covering normal monthly household costs for utilities, property taxes, maintenance and upkeep of the house, fuel and insurance for her paid-for car. Fifth, she was now the lone occupant of a house that was way too big for her to keep clean and maintain by herself What she needed was a way to both downsize AND substantially boost her monthly income.

Solution: A relative of the widow was a financial planner. After studying the situation, he suggested that she sell the equity-rich property she was living in. She did not have to pay any state or federal taxes. She received a very sizeable down payment for about half of the selling price; she also started receiving a very nice monthly payment for the other half of the selling price, which she received via a seller carryback loan she extended to the buyer. This unique approach solved all three of her problems: She was able to pay cash for smaller place (and pay off all of her debts as well), which meant a lot less upkeep; with a smaller place her monthly operating costs were lower than before; she received enough monthly income from the seller carryback loan that she was basically set for the rest of her life. It wound up being a good deal for the buyer of the property as well since he received favorable financing from the widow. Win Win!

CASE STUDY NO. 9

Situation: Several years ago, a retired gentleman sold his then-primary-residence (which he had owned for many years) to a woman buyer. However, the buyer lacked all the required down payment money. Since the gentleman was very desirous to move ASAP, he agreed to provide the buyer with seller carryback financing, in the form of a second position loan, using the house as collateral.

Problem: Fast forward half-a-decade. The holder of the second-position note had stopped receiving monthly payments from the woman. Worst still, after doing some research, the gentleman discovered that the woman was in serious financial straits—so much so that she had stopped making payments on the first position mortgage as well. Worse still, the holder of the first position mortgage had already sent a NOD (Notice of Default) to the woman. The clock was ticking. The gentleman soon thereafter sat down with a realtor friend of his who was also a loan broker. What the gentleman discovered was that if the holder of the first-position note successfully foreclosed (which at this point was scheduled to happen in just a few weeks), the value of the second position note he held could be completely wiped out, and be worth nothing.

Solution: Since The loan broker recommended that the gentleman needed to take action, i.e. sell the note to an investor who specialized in NOD notes. A STEF investor was brought in by the loan broker who bought the second note for from the gentleman, for a discounted price. The STEF investor subsequently cured (brought the first position note current), then foreclosed against the property from the second position; he eventually undertook a cash-for-keys/deed-in-lieu deal with the woman. In the end, all parties were happy with the outcome.

CASE STUDY NO. 10

Situation: An investor owned a rental property free and clear and wanted to buy a second rental property. The seller was an older gentleman who was tired of being a landlord and wanted to move out of state to be near his grown son and grandchildren. The property came with a good amount of equity, was cash-flowing positively, but needed some cosmetic upgrades. The current tenants were OK with the change in ownership.

Problem: Due to recent financial issues, the investor lacked the Down Payment (DP) money for the property he wanted to buy, but could easily afford the monthly payments on a new loan, based on the projected positive income streams from both rental properties.

Solution: A mortgage broker (who was financing the bulk of the purchase price) suggested that the investor reach out to a STEF for the DP money, using the equity from the first property as security via cross-collateralization. The exit strategy money (to pay off the STEF) came from a first position mortgage the investor secured from the broker. The lender agreed to “over-fund” the loan enough to pay off the STEF (DP money + 50% markup). The bank was happy to over-fund the loan because the investor pledged both properties as collateral.

CASE STUDY NO. 11

Solution: A commercial loan broker reached out to my firm for help. Once all the needed paperwork was setup properly, we agreed to fund the property purchase for the wholesaler. The amount we funded included enough money to pay off each of the CT debts that plagued the property. It took a few days to get clear title, however in the end it was a win-win for all partiers.

If you would like us to send you a free information pack, please fill in the three lines there and email that info to: creativetransactionfunding@gmail.com.

Name_______________________

Phone #_______________________

Email_______________________

Any questions, please advise.

Sincerely,

Tod Snodgrass
President
Creative Transaction Funding LLC
Providing Down Payment Assistance & Short-Term Equity Financing to investors, nationwide.
8322 El Paseo Grande
La Jolla, CA 92037
310 408-7015
https://creativetransactionfunding.com
creativetransactionfunding@gmail.com

5% Referral Fee: We are happy to pay a generous referral fee to those who refer business leads to us. Once the closing (with the closing agent) is complete, you are paid 5% of the amount that we funded. If we fund $100,000, you earn $5,000.

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Wholesalers Rising

CASE STUDY