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We applied for a commercial loan for a property and were granted a commitment letter to include with our offer to the sellers. The sellers ended up going with another offer; lower, but cash.
We have been in contact with the cash buyer. He has not closed yet, but said he would sell to us if we met his price point. Our respective attorneys are negotiating the details, and both attorneys advised it would be preferable to do a single closing wherein we were assigned the purchase contract. In other words: one closing where cash buyer pays the sellers, we pay the cash buyer, and the deed is transferred directly to us. (Our understanding is this avoids some extra fees for the other guy, and we would avoid any hangups in the event other guy has any liens against him).
We have agreed on a price and have submitted a new application for the higher loan amount through our bank. They called us last Friday to say they do not think they can offer us a commitment letter to a person who is technically not yet the owner. We asked them to contact our attorney for more info, but with the holiday weekend, of course we haven't heard anything yet.
So, my question is, is this situation highly unusual? We would not have even considered it an option, just assumed cash buyer would have to close, then we would buy from him and have second closing. Since the attorneys suggested the single closing assigning us the purchase contract, we assumed this was, if not common practice, at least done occasionally. The bank didn't seem to like it, though. Any thoughts or suggestions?
Doing one closing does seem unusual - can it happen yes. I had a similar situation where to prevent a property from being foreclosed upon by a bank. A cash buyer came in paid off the loan, and entered into a new mortgage with the existing homeowners (in one closing).
The issue is the property is commercial, closing on these type of property's do not happen is quickly as private homes. The seller knows this and that is probably why they accepted the cash offer. The cash buyer will need to take ownership before they can resell the property to you. The only way I could see this happening in your case (one closing), if you had cash or the lender was going to be at your closing to fund the loan. Which is unpractical because they would have to approve you first for the loan.
One thing I have learned by dealing with attorneys over the years. They only give general answers. Since you are getting a mortgage, my advice is to find out the lender requirements and focus your efforts there. If you need assistance with your loan PM me, have a knowledgeable friend here in New York that does commercial loans.
It is not unusual to do a single closing and it is not unusual for a purchase contract to be assigned to another party. With an assignment, the cash purchaser is not selling you the property--he is merely selling you his interest in the contract to purchase the property. Since he will not be taking title to the property, the major cost which can be avoided is transfer taxes...since the property is only being transferred once.
It's good that you have an attorney involved because you need to be verycareful that you can fulfill the exact terms of his contract with the Seller. Failure to do so will cause you to be out the amount of money you pay to assume his purchase contract.
Please also understand that once you pay the cash purchaser for him to assign his contract to you, he will be out of the picture. You will be buying the property from the original Seller--and any loan amount would need to be paid to them to complete the purchase. You need to do your full due diligence on the property before you pay for any assignment.
We have been in contact with the cash buyer. He has not closed yet, but said he would sell to us if we met his price point. Our respective attorneys are negotiating the details, and both attorneys advised it would be preferable to do a single closing wherein we were assigned the purchase contract. In other words: one closing where cash buyer pays the sellers, we pay the cash buyer, and the deed is transferred directly to us. (Our understanding is this avoids some extra fees for the other guy, and we would avoid any hangups in the event other guy has any liens against him).
Just to reiterate: the cash buyer will not be paying the Seller if the contract is assigned to you. They will not even need to attend your closing, although they could.
If you need assistance with your loan PM me, have a knowledgeable friend here in New York that does commercial loans.
Good Luck
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Thank you! We are in New York, so I may just do that.
Quote:
Originally Posted by jackmichigan
Just to reiterate: the cash buyer will not be paying the Seller if the contract is assigned to you. They will not even need to attend your closing, although they could.
Do you have any advice on how to communicate to our bank what we want to do? They seem to be baffled by the idea of a single closing. We are getting resistance from them on two fronts: they say we are eligible for the loan, but they don't like the idea of writing a commitment letter to a person who isn't yet the owner. I too am confused how it would work; would we be presenting two payments, one to the cash buyer, then one to the seller? Or a single payment to the cash buyer and he would present payment to the seller?
The other thing they are hung up on is the fact that the cash buyer is making a significant profit. I don't see how this is relevant. As long as the commercial appraisal comes in where it needs to be, why does it matter what the cash buyer paid? Our banker said to me yesterday, "Why does he think he can get away with making that much money without doing anything?" They seem to be taking it personally.
When you have a contract assigned to you (for whatever amount you pay for the assignment), their contract becomes your contract. (Some contracts prohibit assignment, but most Sellers rarely think about including that prohibition.) In a typical assignment, you pay the party that holds the contract...and then you proceed to close on the property with the Seller as if you had made the original contract with them. I've only bought a few properties through assignments, so I'm not really sure how loan officers will want to treat this. In every case I've done, I bought out the contract for cash, and then I paid for the property with cash. If you have the cash to pay for the assignment, you may be able to finance the purchase of the property based upon the original contract price. But if you need to finance the assignment portion, too, that's where it gets complicated--especially if you're paying a significant amount for the assignment.
It seems from the above post that you still don't understand the concept of an assignment. The purchaser who presently has a contract to buy the property will never become the owner if he assigns his contract to you. Think of it this way: he presently has a contract to buy the property at, say, $100,000. If allowed under the terms of his contract, he can assign, or transfer, that contract to you for $1. You would then be able to purchase the property for $100,000 at the exact terms which he had negotiated. You would have no further dealings with the person who assigned the contract. You would proceed with buying the property from the Seller.
That would be how it would typically work. However, if you don't have the money to pay for the assignment--and are looking to have that portion financed--you'll just need to work that out with the loan officers. They need to understand, however, that the person presently under contract will not be in the chain of title if he assigns his contract to you.
I don't know what type of property this is, or how important it is for you to get it, but are you sure that you want to pay a lot more to get this property? It sure makes life easier when you're the one paying the lesser amount for a property!
It seems from the above post that you still don't understand the concept of an assignment. The purchaser who presently has a contract to buy the property will never become the owner if he assigns his contract to you. Think of it this way: he presently has a contract to buy the property at, say, $100,000. If allowed under the terms of his contract, he can assign, or transfer, that contract to you for $1. You would then be able to purchase the property for $100,000 at the exact terms which he had negotiated. You would have no further dealings with the person who assigned the contract. You would proceed with buying the property from the Seller
Thank you so much for this advice! You spelled it out so much more clearly than any other person we had spoken to, and that helped us make the decision that we did NOT want to do an assigned purchase contract/ single closing.
The church and cash buyer are set to close any day now, and we will then proceed with the purchase from the new owner.
In the meantime, we have learned an interesting bit of info. As previously mentioned, because this was a church being sold, the sale had to be approved through the courts/attorney general. We have learned that the real estate agent who represented both the buyer and seller put in her affidavit to the court that there were no other offers received; that the cash offer was the only offer. Obviously, we put in a offer, so this is a lie. We were wondering what possible recourse we might have. We are hesitant to do anything too drastic; we don't want to cause a problem that would prevent us from purchasing. We were considering waiting until our deal is done, then proceeding with some complaint. At the same time, it feels wrong that, because of her own selfish interests, she successfully torpedoed our offer in order to satisfy a long standing, deep pocketed client of hers (the cash buyer). The result is that we are paying $20,000 more for the property and the church is getting $30,000 LESS.
Thank you so much for this advice! You spelled it out so much more clearly than any other person we had spoken to, and that helped us make the decision that we did NOT want to do an assigned purchase contract/ single closing.
The church and cash buyer are set to close any day now, and we will then proceed with the purchase from the new owner.
In the meantime, we have learned an interesting bit of info. As previously mentioned, because this was a church being sold, the sale had to be approved through the courts/attorney general. We have learned that the real estate agent who represented both the buyer and seller put in her affidavit to the court that there were no other offers received; that the cash offer was the only offer. Obviously, we put in a offer, so this is a lie. We were wondering what possible recourse we might have. We are hesitant to do anything too drastic; we don't want to cause a problem that would prevent us from purchasing. We were considering waiting until our deal is done, then proceeding with some complaint. At the same time, it feels wrong that, because of her own selfish interests, she successfully torpedoed our offer in order to satisfy a long standing, deep pocketed client of hers (the cash buyer). The result is that we are paying $20,000 more for the property and the church is getting $30,000 LESS.
Any advice?
If it were me, I would immediately contact both the Attorney General's office and the Court to inquire about the true facts of the matter--while letting them know that you had also submitted an offer (be prepared to give them a copy).
If the agent, indeed, committed perjury, I would let the chips fall where they may. The church should not be swindled out of $30,000. (It feels wrong because it is wrong!--don't be complicit!)
Your story really exemplifies why it is so important to learn as much about a property and the property owners as you can. Information is really key in making successful offers in real estate.
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