Overview of paperwork

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Course Module: The Novation Paperwork & Process Blueprint

Objective: This document provides a detailed, step-by-step walkthrough of the paperwork and process for executing a successful novation real estate deal. The insights are derived directly from the experience of investor Richard Wonders, focusing on practical application and avoiding common, costly pitfalls.

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Overview of the Paperwork & Process

This is the chronological flow of a standard novation deal. Each step is critical, but the commentary reveals essential optimizations and warnings learned from hard-won experience.

1. Initial Agreements: The Foundation

The process begins by getting the property under contract with two key documents:

Purchase Agreement: The standard agreement between you and the original seller.

Novation/Indemnification Agreement: This is the core document that gives you the right to market the property and substitute a new buyer in your place, while legally protecting you.

2. Authority to Act: Avoiding the Power of Attorney (POA) Trap

This is the single most important lesson from the field.

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Notes

The Old, Flawed Method:

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CRITICAL WARNING: Do NOT use a Power of Attorney (POA)

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3. Realtor Engagement & Strategy

Once you have the property under contract, the next step is to engage a real estate professional.

Interview Realtors: Don't just pick the first one. Conduct interviews to find an agent who understands your strategy and is motivated.

Develop the Listing Strategy: Work with the realtor to determine the best approach for marketing the property. This includes gathering high-quality pictures of the property to attract potential buyers.

4. Listing, Showings, and Offer Acceptance

With a strategy in place, the marketing phase begins.

Realtor Handles Showings: The hired real estate agent manages all listings and showings, fielding inquiries from potential buyers.

The Seller Signs the Offer: When an acceptable offer is received from an end-buyer, it is presented to the original seller. The seller signs the buyer's offer directly. This reinforces the principle of not using a POA and keeps the process straightforward.

5. Securing Your Interest: Notice vs. Invoice

You need to ensure your interest in the deal is recognized by the title company.

The Old Method (Optional):

Filing a "Notice of Interest," "Memorandum," or "Lien." This creates a formal, public record of your contractual interest in the property.

The Downside: This process is cumbersome. The document must be notarized to be filed. Later, when you are paid, a "Release of Lien" must also be notarized. It's time-consuming for both you and the title company.

The Modern, Efficient Method:

File an invoice. Most title companies that are familiar with novations are comfortable working with a simple invoice from you that details the fee you are owed at closing. This bypasses the need for multiple notarizations and simplifies the process. The presenter provides an invoice template in his training materials.

6. The Due Diligence Period

Once the end-buyer's offer is accepted by the seller, the deal enters the standard due diligence phase.

Inspection: The end-buyer will conduct their inspection of the property.

Appraisal: The end-buyer's lender will order an appraisal to verify the property's value.

7. The Settlement Statement & Fee Calculation

This is where your profit is officially calculated.

Receive the Preliminary Settlement Statement: The title company will produce a preliminary settlement statement (often called a HUD-1 or Closing Disclosure). This document itemizes all the credits and debits for the seller and buyer.

Calculate Your Fee: This statement is the key to calculating your exact fee. You will verify the numbers to ensure the seller receives their agreed-upon net amount, all costs (like realtor commissions) are covered, and your novation fee is accurately listed.

8. The Value of Outsourcing

As your deal volume increases, managing the closing process becomes a major bottleneck.

The DIY Trap: You can manage the coordination with the title company yourself. However, the presenter notes that the time spent on this administrative "boring stuff" is time you are not spending on your core competency: finding and locking up more deals.

The Pro Move: Use a transaction coordination service (the presenter uses and recommends "Easy REI Closing"). These services specialize in handling the paperwork and communication between all parties. The small fee is easily justified by the time it frees up, allowing you to focus on high-value, revenue-generating activities.

9. Closing & Getting Paid

The final steps to realize your profit.

Release Lien (If Applicable): If you filed a formal lien or notice of interest, you will execute the release.

Close: The transaction is officially closed by the title company.

Get Paid: Your fee is disbursed to you directly from escrow as detailed on the final settlement statement.

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Duscovery Call Novation

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Deliver Phase

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Contract

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