PSA Assignment Contracts

Can I Assign an Assignment Contract? Well, are you an Investor or a Speculator?

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." — Ben Graham

For a speculator (gambler), value is only determined by what someone will pay for the asset.

Assignments of Contracts are Tricky things.  They are normal everyday occurrences in commercial/business transactions, where sophisticated parties have, upon thorough analysis of all factors, determined that they are better suited to not being involved in a set of duties/rights/responsibilities or that another entity is better suited to having them.

Yet, regular Joes/Janes, as well as some sophisticated ones, think assignments in residential real estate are illegal.  Partly, this misconception stems from an idea that sellers are being taken advantage of when someone flips their sales contract.  The government sure thinks this is the case. The Official Position of HUD, the NC Attorney General, the NC Realtor's Commission is that they are absolutely illegal (for various reasons). And the NC State Bar (the folks who regulate Attorneys) say that if HUD does not like it there must be a reason, though they have stopped short of prohibiting them. Mainly this stems from an idea that for these deals to happen someone must be being taken advantage of, as no one would sell for so little only for someone else to immediately reap all the profits. Yes this ignores economic reality, and the commission that agents can get when a homeowner sells at a loss. The government does not care because this paternalistic protection has a basis in fact, people do things that are against their self interest to solve a short term problem. And after the problem is solved they cry foul, even if there wasn't one. Also, some folks do break the law and act like brokers and try to control deals and attorneys because of their own ignorance or because a Guru told them that is how it should be done.

Further, even for the squeaky clean deals, Sellers often find out about the marketing of their properties and get very frustrated.  As previously stated, this frustration has negative consequences for the investor world which is a factor that should be considered- namely will I be able to do deals in the future if I take this action today.  How can we alleviate these problems?  By actually and properly controlling who buys the properties we put under contract.

By default assignment contracts that are themselves assignable... This adds a layer of complexity to who is really going to make the deal happen.  Once you have assigned the contract you lose control because you are no longer an active party to the contract.  Unless, of course, you fall into a contract liability scenario or some other exception within the Brokerage Laws. Further, often investors get so excited about assigning a deal that they do not care where the money comes from, as long as they think they will get theirs, including if the buyer will be trying to resell it themselves. And when you have two layers of buyers who cannot make a deal happen without yet another 4th party, deals do not close.  Then everyone gets a bad taste in their mouth. From experience, contracts that have been double assigned ultimately do not close.  They fall apart because no one but the end buyer, presumably, has the money to make the deal happen and then for whatever reason the end buyer backs out. Realize that they understand that, and probably do not like that they could have gotten something significantly cheaper.

Problem solved with a double closing, right?  Not really.  It does help a deal rollover multiple times with multiple closings.  Some property has been flipped three times in short succession.  However, every level had an independent closing, which were not double closings the way investors think about them.  Honestly, in NC, the “Double Close,” like the Guru's preach, is probably on its way out. Expect that very shortly you will see attorneys telling you to buy the property outright and then resell it, if you are not already (for their own ethical and insurance reasons). If you’ve crafted a good deal, it should always work out. If not you will lose money, so don't do iffy deals...

In every deal, you should know where the funds required to close are coming from.  And, do not assume that your buyer has them.  Particularly if you do not have the necessary funds yourself.  Get the proof of funds or loan approval in advance.  And, always be able to close the deal if the end buyer walks away or can’t deliver the necessary funds. (Both financially and contractually)  This should be your backup exit strategy so that the deal is not lost.  If you don’t know how that is done, find a mentor to help you out… or get your own legal opinion, because the TRIAD REIA does not provide legal advice.  (Triad REIA, Inc) does not give legal, tax, economic, or investment advice. Triad REIA disclaims all liability for the action or inaction taken or not taken as a result of communications from or to its members, officers, directors, employees and contractors. Each person should consult their own counsel, accountant and other advisors as to legal, tax, economic, investment, and related matters concerning Real Estate and other investments.   

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