Chase Bank / JPMorgan / WAMU Cherry-Pick Protocol For Purchasing SFR REOs Via Non-Profit Organizations

Please do not contact us until you thoroughly understand the process described below – experienced NPO real estate buyers only please – You will receive one to two weekly lists from different banks.  Keep in mind that banks are not giving that much of a discount on these properties (may be 10-25%), so your best odds of getting enough of a profit margin, after adding 6% in fees (see below), is only to bid on properties that are listed at less than YOUR estimated market value.  About 20-25% of bank listings are under-priced, so you get an automatically built-in profit.  These are all cash offers ONLY.

We’ve also had success in just picking properties offthe tax records and/or MLS, and placing a hold on them, then purchasing.   For whatever reason, most of the bank lists are outdated, and only about 50% of properties are actually available.  Of those 50%, another 50% get picked up within minutes of the lists coming out, so you have to move VERY quickly.

Basically, you have to have a system in place where you receive a list, send a driver to preview the property immediately, and once you place a hold on it – you’re committed to buying.   NPOs get penalized if they pull out of a deal, so that is not an option!

_____________________________________________________

PROTOCOL

Individual JPMorgan/Chase  Bank SFR REOs can be “cherry” picked –  Most of these are listed in the MLS, but will get pulled off the market when we ask the Asset Manager to put a property for us on hold.  These have to be bought through a Non-Profit 501 (c)(3) Organization (NPO) specializing in affordable housing, and the buyer (“Capital Partner”) pays them 3% (TARP requirement that the NPO gets a percentage), as well as 3% in Brokerage commissions, for a total of 6% in fees on top of your agreed-upon purchase price.  Capital Partner keeps the profits after the final sale to the owner-occupant.  These properties cannot be held as investments or resold to investors!

Property has to be previewed before a “hold” is requested, and once a hold is placed, buyer has to go through with the purchase.

Title will be held in the name of the non-profit organization, and the “Capital Partner” will place a 1st Trust Deed against the property.  Capital Partner is fully responsible for rehabbing the property, purchasing Title and Fire Insurances, and marketing the property for resale.

Acquisition costs for the property are: approximate purchase price below + closing costs + and 6% of the purchase price (Non-profit organization and Broker fees).

Property has to be resold to owner-occupants who fall within the low-median income bracket.

The approximate discounts for Chase Bank / JPMorgan properties are as follows:

Fair Market Value: taken into account  is the “as is” condition of property and expected “reasonable restoration cost.”

1) Fair Market Value: $95,000

Subtotal: ($25,271) 26.75% Discount

Adjusted Sales Price: $69,729

2) Fair Market Value: $105,621

Subtotal: ($24,884) 24.50% Discount

Adjusted Sales Price: $80,737

3) Fair Market Value: $129,799

Subtotal: ($29,464) 22.25% Discount

Adjusted Sales Price: $100,335

4) Estimate of Fair Market Value: $188,000

Subtotal: ($38,090) 21.25% Discount

Adjusted Sales Price: $149,910

5) Fair Market Value: $203,490

Subtotal: ($41,024) 21.0% Discount

Adjusted Sales Price: $162,466

6) Fair Market Value: $237,500

Subtotal: ($45,068) 19.50% Discount

Adjusted Sales Price: $192,432

7) Fair Market Value: $259,900

Subtotal: ($49,311) 19.75% Discount

Adjusted Sales Price: $210,589

8) Fair Market Value: $268,900

Subtotal: ($51,015) 19.75% Discount

——————————————————

Chase does not allow the Non-Profit Org to transfer the title to the Investor/Capital Partner as soon as the escrow closes.  The title can be transferred after 105 days, by which time most properties have been “flipped” already.  So basically, the investor will be a Note holder while rehabbing the property, and until it sells (Citi Mortgage allows the title to be transferred as soon as the 1st escrow closes).

——————————————————-

On individual REO picks, the title has to be initially transferred to a 503 (c) Non-Profit Organization (NPO), prior to being acquired by the Investor/Capital Partner.  The NPO has to be in a good standing with the IRS and has to be approved by the banks, and can be checked out by the Buyer.  The investor will hold a note against the property until the initial escrow closes, then there might be be another title transfer from the NPO to the investor, depending on which bank sold the property.

It is a government requirement that the bank transfer title to an NPO first, for them to get a tax credit and recoup the loss/discount.   3% will be payed to the NPO, and 3% will be payed in Broker fees out of escrow, so the additional 6% in fees has to taken into consideration when calculating the profit margin.

A sample contract that you will be signing with the NPO is excerpted below, and it explains a lot of the protocol.  You can also downloaded it from here:

BUILDING A BETTER COMMUNITY INITIATIVE FUND

COLLABORATION AGREEMENT

FOR VALUABLE CONSIDERATION and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, this Collaboration Agreement for the Purchase of REO Real Estate through the [Insert Bank Name] Neighborhood Stabilization and Revitalization Program (the “Agreement”) is entered into this day of_________, 201__ (“Effective Date”) between AR Association, a California nonprofit public benefit, 501(c),(3)  Organization (“AR” or “NPO”), and _________________________________ (“Capital Partner” also known as “Collaboration Partner”), as follows:

1.         AGREEMENT TO CONTRIBUTE CAPITAL INTO THE BUILDING A BETTER COMMUNITY INITIATIVE (“BBCI”) FUND FOR THE PURCHASE OF REO PROPERTIES THROUGHT THE [INSERT BANK NAME] REO DISCOUNTED SALES STRATEGY PROGRAM , AS A COLLABORATION PARTNER WITH AR AN APPROVED NPO:  The Capital Partner agrees to purchase the real properties identified in Exhibit A (“Properties”) incorporated herein, for and on behalf of AR, subject to the terms and conditions set forth in this Agreement.  Capital Partner agrees to accept the transfer and conveyance of the Properties identified in Exhibit A incorporated herein, to AR according to the terms and conditions of this Agreement.  Capital Partner shall hold a note and deed of trust to secure its interest.

2.         AGREEMENT OF NPO TO TRANSFER TITLE TO CAPITAL PARTNER: NPO agrees that once Bank’s (“Seller”) NSP compliance requirements of ownership are met, as set forth in Exhibit B 2-3,
to transfer and re-convey title to said properties as identified in Exhibit A, to the Capital Partner without any further consideration.

3.         PURCHASE PRICE: Subject to the terms herein, the sum total of the purchase is______________________________________________ Dollars ($_____________) (“Aggregate Purchase Price”), subject to the prorations and adjustments herein. Subject to the satisfaction or waiver of the terms and conditions set forth in this Agreement, Capital Partner agrees to pay the Aggregate Purchase Price to the Seller by wire transfer on or before the Closing Date (as defined in Seller’s/NPO’s Purchase Contract).  Capital Partner also agrees to pay additional fees and NPO donations as instructed in writing and referenced in the Title and Escrow instructions, or as otherwise agreed, by the principal parties as part of the total purchase price.

4.         FINANCING: Cash Sale – This Agreement is not contingent on any

financing.

5.         ESCROW COMPANY: To be Determined

6.         DEPOSIT: Capital Partner shall deposit the sum of _____________________________________ ($_________) (“Deposit”) with the NPO within two (2) business days after the Offer and Acceptance as described in Exhibit B-1. The Deposit shall be credited against the Aggregate Purchase Price and shall be fully refundable until the expiration of the Due Diligence Period. If Properties are, for any reason, made unavailable by the Seller, this Agreement is terminated pursuant to Section 8 and the Deposit shall be fully refundable, except in the event of Capital Partner’s breach of this Agreement

Within seventy-two (72) hours of the making of the Deposit, the NPO shall deliver closing or procedural instructions that would pertain to the NPO’s and or Sellers process for the consummation of the sale. Refer to Exhibit B and B-2 Bank and NPO protocol.

Escrow Company shall be responsible for the holding and disbursement of the Capital Partner’s purchase funds and the holding and disbursement of the Deeds (defined below) and other transfer documents in accordance with this Agreement and any supplemental escrow instructions signed by the Seller, the NPO and the Capital Partner.

7.         PROPERTY CONDITION: Capital Partner  hereby acknowledges that unless otherwise set forth in writing elsewhere in this Agreement neither the Seller or the NPO have made any representations concerning the present or past structural condition of the properties. Capital Partner and NPO agree to the following concerning the condition of the Properties:

A. Capital Partner accepts the Properties in its “as-is” present condition without warranties, and guarantees.

B. Capital Partner agrees that he/she will not hold Seller or the NPO responsible or liable for any present or future structural problems or damage to the foundation, slab or any other portion of said property.

C. Capital Partner acknowledges that they may elect to purchase properties in cities where an inspection prior to closing may be required; Capital Partner will be responsible for the costs associated with correction and the timely completion unless otherwise noted in closing documents.

8.         DUE DILIGENCE PERIOD A.  Capital Partner agrees to have inspected, as a condition to the “Hold Request”, all properties desired to be purchased and represented by this agreement. The full execution of this agreement will signify to the NPO and the Seller that all due diligence has been completed and there are no other conditions pursuant to this agreement for purchase.

B. In the event this Agreement is terminated pursuant to this Section 8, Capital Partner shall be entitled to a return of the entire Deposit save any amounts agreed upon that shall not be returned for any associated fee or cost.

9.         REPRESENTATIONS:  The NPO represents and warrants to Capital   Partner, and the Capital Partner represents to the NPO as follows:

A.        General.  The statements contained in this Section are true and correct in all material respects and will, except where specific reference is made to the date of this Agreement or to another date, be true and correct in all material respects as of the Closing Date.

B.        Consents.  The NPO has received, or will have received as of the Closing Date, all necessary consents to the transactions contemplated by this Agreement, and to the execution and its performance of this Agreement and all other agreements contemplated by this Agreement, and the consummation of the transactions contemplated hereby will not require the consent, approval or authorization of any other party not so received.

C.        Legality and Enforceability.  This Agreement has been duly executed and delivered by the NPO and Capital Partner and is the legal, valid and binding obligation and is enforceable in accordance with its terms, subject to applicable bankruptcy laws and judicial limitations on the availability of equitable remedies.

D.        Title to Real Property.  The NPO guarantees good and marketable title to the Properties, free and clear of all liens, encumbrances, restrictions, claims, pledges or security interests or charges in interest of any kind that arise and will transfer to the Capital Partner on the first available day after the conditions of transfer are met.

E.        Post-Closing Restoration of Purchased Properties.  The Capital Partner will submit a restoration schedule to the NPO within 10 days of the Closing Date. Implementation of the restoration schedule will commence on or before 30 days of the Closing Date. The restoration schedule will include the name, address, and license number of the General Contractor. NPO has the option, for the those properties within its designated “Initiative Zones” to recommend, as qualified, General Contractors, Sub-Contractors, and General Laborers as a condition to its NSP Initiative objective. Recommended General and Sub Contractors shall be a registered small business entity with the City of Los Angeles Minority Business Opportunity Council (“LAMBOC’), and/or other local, county, state or federal small business and/or minority business opportunity designation agency.

10.       MECHANICAL EQUIPMENT AND BUILT IN APPLIANCES: All such equipment is sold “as-is” without warranty.  Any repairs needed to mechanical equipment or appliances, if any, shall be the responsibility of the Capital Partner. The Capital Partner has been made aware that third party mechanical warranties covering pre-existing mechanical conditions are available to be purchased by the Capital Partner and may be applied towards or in conjunction with this Agreement. The present condition of all utilities shall be disclosed by the Seller and approved by the both the NPO and Capital Partner.

11.       CONDITIONS OF NPO TO TRANSFER TITLE TO THE CAPITAL PARTNER: It is agreed and understood by both parties that the NPO shall take title at close of escrow and the Capital Partner shall hold a note and deed of trust to all subject properties. Said note and deed of trust shall be for an amount equal to (i) the funds deposited into the escrow account required, as noted, on the HUD-1 Final Settlement Statement, (ii) cost to insure property, and all applicable tax payments due during NPO holding period through and including restoration, final sale, and/or transfer to Capital Partner. As required by the NPO-NSP compliance requirements, the NPO must file prior to the title transfer of the property to the Capital Partner the filling of the following forms, as applicable;

A.  Change of Ownership Statement – Form BOE-502-AH, ASSR-73
B.  Exemption Claims for Nonprofit Organizations
C.  Welfare Exemption Claim – Form BOE-267(S1, S2, S3),

EXM- 417, EXM-419

D. Supplemental Affidavit Form – BOE-267-L (P1-P5),

ASSR-92.2, ASSR-92.1

It is agreed that the Escrow Company of record shall preside over the filing of item A. Items B-D shall be filed as applicable. The NPO agrees to fully execute this procedure, as applicable, and that no other agreement is necessary for the transfer of title to the Capital Partner.

12.       INDEMNIFICATION:

A. Capital Partner shall indemnify, defend and hold the NPO harmless from and against all loss, liability, claim (including without limitation a claim for property damage, personal injury or wrongful death), damages, lawsuit, action, arbitration, costs or expenses (including without limitation reasonable attorneys fees and costs of litigation) (“Claims”) related to the Properties which arise after the Bank-NPO Closing Date.

13.       DEFAULT:

A. If the Capital Partner fails to perform the obligations and responsibilities as and when required by this Agreement, such failure shall constitute a material default by and shall vest in the NPO the right to terminate this Agreement by giving written notice of termination to the Capital Partner and the Escrow Company.

B. If the NPO fails to perform its obligations and responsibilities as and when required by this Agreement, such failure shall constitute a default and shall vest in the Capital Partner the right to terminate this Agreement by giving written notice of termination to the NPO and the Escrow Company.

C. Both parties agree that in the event of Default by either party, damages shall be determined by third party biding arbitration.

14.       NOTICES.  Any notice, delivery or demand shall be given by one party to the other by (a) overnight carrier sent “next business day service”, (b) U.S. certified mail, return receipt requested, or (c) email and fax sent simultaneously, addressed to the other party at their respective addresses as follows, and effective on the day of rendering upon confirmation of receipt or refusal of receipt:

AR
PO Box 1554
cell
e-mailCapital Partner:

Escrow Company:The above addresses and information may be changed from time to time by written notice to the other party in the manner provided herein.

15.       ATTORNEY’S FEES: The prevailing party in any legal proceeding brought under or with respect to this Agreement is entitled to recover from the non-prevailing party all costs of such proceeding and reasonable attorney’s fees, court costs and expert witness fees.

16.       AGREEMENT OF PARTIES: This Agreement contains the entire agreement of the parties with respect to the subject matter herein and cannot be changed except by their written agreement.  Capital Partner is entitled to assign this Agreement and its rights or delegate its obligations under this Agreement, provided that the assignee assumes all rights and duties hereunder.  Notwithstanding any assignment or purported assignment hereunder, Capital Partner agrees that it shall remain bound to all warranties, representations, indemnifications and obligations agreed to herein and that the assignment shall in no way release Capital Partner from its representations and warranties contained in this Agreement

17.       SEVERABILITY.  Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be valid and enforceable; provided, however, that in the event any provision or term of this Agreement should be determined to be invalid or unenforceable, all other provisions and terms of this Agreement and the application thereof to all persons and circumstances subject thereto shall remain unaffected to the extent permitted by law.  If any application of any provision or term of this Agreement to any person or circumstances should be determined to be invalid or unenforceable, the application of such provision or term to other persons and circumstances shall remain unaffected to the extent permitted by law.

18.       COUNTERPARTS:  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original hereto and all of which together shall constitute but one Agreement.19.       TIME IS OF THE ESSENCE:  Time is of the essence with respect to each and every provision of this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above below.

AGREED AND ACCEPTED:

AR

The Capital Partner

By:
Name:
Title:

Date:

EXHIBIT A

EXHIBIT B-1

Overview of the process for identifying and obtaining properties through the program.

IDENTIFY/ INSPECT / REQUESTING HOLD

IDENTIFY – WEEKLY PROPERTY LIST

An Excel report will be sent every Tuesday (unless otherwise notified) listing all properties (Listed and Pre-Market) that are available for the program.

Best Source of Information the weekly list is the best source of information as not all Chase assets are available for the program.

INSPECT – SCHEDULE SHOWING/ PROPERTY INSPECTION

After you have identified properties of interest on the list it needs to be confirmed that we have access to the property i.e. MLS provide entry code confirmation or Supra key access and a confirmation email should be sent to TBD to confirm.   If we are unable to view the property, a call to TBD should be made to gain access or to schedule an appointment to view the property.

 

REQUESTING HOLD

After the property has been inspected and determined that, based on estimated repairs and program price that the property will work for our collaboration, a HOLD request can be submitted.

HOLD Requests – need to be submitted via email from AR with confirmation of the following:

Confirmation that the property has been inspected and

Acknowledgment that program pricing and repairs have been considered in offer.

Time is of the Essence – until the asset has been placed on HOLD it can be listed and sold at any time. If the line of business has already received an offer it cannot be pulled for the program.

 

HOLD DECLINE/CONFIRMATION

Hold requests are processed in the order they are received and typically within in 24 hours or less.

HOLD NOTIFICATION – AR will be notified via email when the hold is sent to the Line of Business.

HOLD REJECTED – If the hold is rejected for any reason (accepted offer/ multiple offers/ litigation) AR will be notified right away.

HOLD CONFIRMED – If we DO NOT receive a HOLD Rejected notice in the first 24 hours after the request has been processed that means the hold has been confirmed and program pricing has been ordered.

 

PRICING / OFFER / CLOSING

Discounted Program Pricing – After the hold has been confirmed the Discounted Program Pricing is ordered.

PROGRAM DISCOUNT – On average ranges from 10-25% off the List Price or Fair Estimated Value provided on the weekly property list.

OFFER EMAIL – As soon as the pricing is received an offer will be sent to AR via email with the discounted program price.

Offers are not negotiable as discount is based on a specific pricing model.

Acceptance/Pass – Offers need to be responded to VIA EMAIL within 48 hours or as specified in OFFER email.

 

CLOSING

ESCROW ORDER- When they accept the offer, the escrow order will be placed with National Default Exchange, LP.

AR will then be contacted by the closer assigned to our state to gather the pertinent information to complete the contracts and facilitate the closing.

EXHIBIT B – 2

“AR CDC-Bank Purchase Process and Procedures Transactions Model.” If you are of the same opinion, we can table the LLC vehicle, and engage the transaction steps as described below:

1) Properties will be purchased from Bank using Capital Partner Funds on behalf of AR;

2) AR Is issued title satisfying the Bank’s NSP Compliance requirements;

3) Capital Partner receives Note and Deed of Trust securing its interest in property. The Note is issued interest free, with a Due-On-Sale Clause. The terms and conditions of the clause are open for discussion.

4) AR will file the required post-closing County Tax Assessor Items.

(1) Change of Ownership Statement – Form  BOE-502-AH, ASSR-73
(2) Exemption Claims for Nonprofit Organizations:
(a) Welfare Exemption Claim – Form BOE-267(S1, S2, S3), EXM-417, EXM-419 (TBC); and
(b) Supplement Affidavit – Form  BOE-267-L (P1-P5), ASSR-92.2, ASSR-92.1 (TBC)

These 4 steps will satisfy the interest and requirements of all related parties.

Note: Capital Partner has the option of using an LLC to engage the transaction if it so chooses at its expense.  I am also open to suggestions for alternate closing procedures for Step 3.

 

EXHIBIT B-3

AR/CAPITAL PARTNER ESCROW AND POST-CLOSING LINE ITEMS

(1) the offer to purchase (aka funds into escrow on behalf of AR) by Capital Partner to designated escrow; (2) Capital Partner to issue check(s) in the amount of *$1,000.00 per property made payable to AR to be deposited into escrow upon Capital Partner confirmation to commence processing and execution of Bank Purchase Agreement, and one check in the amount of *$500.00 to AR to be debited from “Contribution To AR” escrow line item at closing. *Note:  Bank’s NPO-NSP Program policy and procedures are $1,000.00 per property (subject to adjustment by NSP Bank) for escrow deposit by the NPO. AR policy and procedures are $1000.00 per property to AR for Administrative Transaction Cost to be debited against Contribution/Fee line item.

2% To AR:              Capital Partner Contribution

Escrow Fees:              $TBD – All Fees Paid By Capital Partner

Post-Closing Ins.:        $TBD – Paid By Capital Partner

Post-Closing Taxes:    $TBD – Paid By Capital Partner

Post Closing Rehab:  $TBD – Paid By Capital Partner

——————————————–

 

[INSERT ENTITY NAME]

CORPORATE RESOLUTION DEATED FEBRUARY 15, 2011

 

On February 15, 2011, the Board of Directors authorized [insert entity name], to provide capital  funds to Village Solutions Foundation, a California Nonprofit 501(c)(3) Corporation (“VSF”) for the purposes of acquiring properties through the Chase Home Finance/WAMU Program.  Further, [insert entity name] shall deposit the necessary funds in escrow required for acquisition of properties that [insert entity name] and VSF have mutually agreed to target for acquisition.  Rev. Jackson, in his capacity as Chief Executive Officer of VSF, is authorized to utilize the funds deposited in escrow for the purposes of closing escrow on properties acquired from Chase Home Finance/WAMU Program.

With no further items on the agenda, the Board of Directors adjourned the meeting at___ p.m./a.m.

 

Share and Enjoy:
  • Facebook
  • Twitter
  • LinkedIn
  • MySpace
  • del.icio.us
  • Digg
  • StumbleUpon
  • Technorati
  • FriendFeed
  • RSS
, , , , , , , , , , , ,

New post from AngellaRaisian.com

We respect your privacy and will NOT share your info! Subscribe below to get copies of new posts by e-mail:

5 Responses to “Chase Bank / JPMorgan / WAMU Cherry-Pick Protocol For Purchasing SFR REOs Via Non-Profit Organizations”

  1. Michael Nugent Says:

    Hello,
    I am really interested in talking more about this. Please contact me at 951-751-5504

  2. Lisa Says:

    Great article. Thank you for providing us with this useful information. I am looking forward to reading more of your articles in the future. Love your website! Lisa

  3. Johnny Baker Says:

    I am a real estate broker in MD. I also have a 501c3 in good standing. I currently list some reo homes for the state of MD and DC. Investors have approached me about buying in bulk. Please help me to help them and myself.

    Johnny Baker, Broker/Ower Dabak, LLC
    Exec Dir, H.E.L.P U, Inc
    allhudmd@gmail.com

    202-359-3840

  4. Angella Says:

    Johnny, how is it going? Any luck or progress since our conversation?

    Angella

Leave a Reply