October 2018

A Text Book Whole-Tail Deal Closed

The Tenant Wanted to Buy The House and I Was Happy to Sell

Tony called me back in February. He seemed like a straight shooter on the phone. He said, "If the offer is good, I'll call you back. If it's not, I won't." Fair enough. I gave him a $120K cash offer for his $180K 672 Sq/Ft house. He responded that the offer seemed fair, but he wasn't quite ready to pull the trigger. I followed up with him and he said the tenants are going to buy it and that he’d make $40K more. If you've been in this business for any length of time, this often comes up. It is nothing more than an objection. The tenants won't buy it and probably are not even qualified to get a payday advance. At least not in my market. When this happens, I typically put them on a long term follow up. After a few more month's of frustration with the tenants, these people often become sellers.

Now what is very interesting about this deal is that he gave 1/2 interest to a partner who hasn't recorded the deed. Basically, he had a partner and he handed that guy a quit claim deed at some point a few years ago. That guy never recorded the deed. Title calls this a "wild deed." At any time, the guy could walk into the recorder's office, record the document, and Tony loses his house. He didn't have time to open a 30 day escrow because the former partner had recently called him up and said he was going to record it and then sell the property. This caused a lot of frustration for Tony since he put up the $40K to buy the property, had been managing it for several years, and was experiencing some financial distress in his own business - the reason he called me in the first place. I made quite a few phone calls to my Title Rep and to my lawyer to see what my risk was. My title guy claimed the partner could still record after I close causing an uninsured title defect. My lawyer disagreed. He said first in line is rule in California. As long as I got my interest recorded, that guy would be out of the chain and although the girl at the recorder's desk might take his money and the document, when it got to the back office, they'd reject it because the interest had already been transferred to another party, me. Sounded good enough, but to be safe, I called the recorder's office and asked how long before a document is record does it take to show up in the system. I was told 48 hours, which is faster than the 3-5 day delay Title gave me. I decided to move forward on the deal, but I would instruct escrow to withhold the seller's proceeds for 48 hours to ensure this guy with his wild deed didn't happen to walk into the recorder's office on the morning I was scheduled to close and beat me to the deal. All went well, we closed, it funded and life went on.

On the day of recording I got to work shoring up my deal. I typed up a 60 day notice and headed out to the property. When I got there, I couldn't believe what a bad neighborhood it was. This had to be the worst ghetto house I've bought thus far, and I've bought a lot of ghetto houses. I was actually fearful for the house once it went vacant. If I couldn't convince one of my guys to sleep there, I was sure my rehab budget would be at least 50% higher due to theft.

When I knocked on the door, the tenant answered. He didn't speak English and I know zero Spanish, so he got his son to translate for him. As is the case, he was shocked that the house had been sold and then told me the owner had agreed to sell it to him. I asked why he didn't buy it. He said the former owner had promised to find him a Spanish speaking mortgage broker, but never came through. Now I'm thinking, did that guy think we are in Montana? Spanish speaking mortgage broker in California has to be as easy to find as a McDonald's. I handed him the 60 day. I also told him I would see what I could do to find him someone to help him out. However, if it didn't work out with the purchase, he'd have to vacate in 60 days. Then I asked, "And just how much did you agree to pay for the house?" He said $165,000. Well, I was going to do everything I could to find that Spanish speaking mortgage broker even if it meant hiring a translator and using my preferred mortgage broker. Doing a rehab in this neighborhood was the last thing I wanted to tackle.

I sent an email to my private Google group. A good friend and mortgage company owner hit me up to tell me she had someone on staff who spoke Spanish. We got the paperwork rolling, waited out the 90 day flip rule, and the tenant closed the deal to become a proud home owner. I got paid $34,857.89 for a house I only saw one time, for about 10 minutes and spend $455 on rehab, which I made the seller pay me back. If I had to rehab the house and sell it retail, I don't think I would have made as much money. Now this guy is a proud home owner and the house was appraised for $190,000 by the FHA appraiser so he's even got a nice little equity spread. Life is good in the hood.

Have you ever done a whole-tail deal? How'd it work out for you? Did you sell it to someone else or the person living there? Leave your comments below and if you think someone else might find some value in this post or from this site, feel free to share the link or post it on social media.
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