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Jack Milller talks a lot about fronting money to a homeowner in distress in exchange for the option to buy while also receiving a multiple on that money as credit toward a purchase. The challenge I see with this is that the owner could go into foreclosure without us even knowing and then we could potentially lose that money. A tax lien for example trumps all other liens. A lender’s 1st position lien trumps other liens except for tax. How do you deal with this?
Jonathan,
If you hold an Option on a property, yes, that property could go into foreclosure which could, if the entity foreclosing is senior to your secured option, wipe you option out.
When getting an Option, we also get a Power of Attorney from borrower. We send this to borrower’s lender. This gives us access to borrower’s account. This allows us to regularly check to make sure borrower is paying as promised. If we find out the borrower is not paying as promised, often the Option we hold can be immediately exercised, and part of the option states the the property can be bought Subject-to the seller’s mortgage.
For anyone reading this, I’m teaching our two-day Power of Options course June 24 & 25, 2023 via zoom. Go to BillandKimCook.com to get more info.
Bill Cook
770-815-8727thanks Bill. just for clarity, it’s a power of attorney and not an authorization? I asked because when I’ve spoken to real estate attorneys who I have confidence in, they tell me they do not like the idea of an entity that can benefit being the POA for a party that has potentially opposing interests.
in fact I had asked the same question in a group I belong to “real estate legal” at https://m.facebook.com/groups/777873356258354/permalink/1195279677851051/?mibextid=Nif5oz
this was response from attorney Nathan Case:
“Attorney checking in. I’ve used this exact tactic to go after wholesalers and buyers that operate under a POA. The agent under the POA owes the principal a fiduciary. As a fiduciary, one must act in the interests of the principal and not place their interests or the interests of others before those of the principal.So by its very nature, I believe a buyer/wholesaler acting under a POA on the seller’s behalf is going to have a lot of strings attached to it, and if the agent is not working towards the principal’s best interests, we have a breach of fiduciary.”
who is your power of attorney in those cases and how do you deal with the issue of conflict and interest?
Jonathan,
I see the attorney’s point, but it may be this attorney is referring to a general power of attorney, not a Limited Power of Attorney.
Over the years, we’ve used both Notices to Release and Limited Power of Attorney to be able to speak with borrower’s lender. We used a ton of Releases when doing short sales between 2007 and 2010. No need to use POAs for short sales. When doing a S2 Deal, we use POAs.
A POA gives one or more people the power to act on their behalf as their agent. A POA can be broad or limited to a particular activity (like helping with real estate).
Kim and I have used POAs for more than 30 years. We’ve never had a problem. This is because when doing a deal, we put daylight all over everything.
Our POAs make it very clear what we can and cannot do in the name of the person giving the POA.
About buy-back options: If we dealing with a person’s personal residence, we do not offer a buy back option. It looks too much like a disguised loan.
Hope this helps.
Bill Cook
770-815-8727
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