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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

— We take our content seriously. This article was written by a real person at BREL.

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

• Get your deposit back and lock in your profit sooner
• Avoid paying land transfer taxes
• Avoid paying HST
• Maximize your return if prices are declining and you expect them to continue to decline
• Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

• The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
• Marketing restrictions are annoying and reduce the chances of finding a Buyer
• Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
• Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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Assignment Definition

Investing Strategy , Jargon, Legal, Terminology, Title

Table of Contents

• What Is an Assignment?
• What is an Assignment in Real Estate?
• What Does it Mean to Assign a Contract in Real Estate?
• How Does a Contract Assignment Work?
• Pros and Cons of Assigning Contracts

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

An assignment or assignment of contract is a way to profit from a real estate transaction without becoming the owner of the property.

The assignment method is a standard tool in a real estate wholesaler’s kit and lowers the barrier to entry for a real estate investor because it does not require the wholesaler to use much (or any) of their own money to profit from a deal.

Contract assignment is a common wholesaling strategy where the seller and the wholesaler (acting as a middleman in this case) sign an agreement giving the wholesaler the sole right to buy a property at a specified price, within a certain period of time.

The wholesaler then finds another buyer and assigns the contract to him or her. The wholesaler isn’t selling the property to the end buyer because the wholesaler never takes title to the property during the process. The wholesaler is simply selling the contract, which gives the end buyer the right to buy the property in accordance with the original purchase agreement.

In doing this, the wholesaler can earn an assignment fee for putting the deal together.

Some states require a real estate wholesaler to be a licensed real estate agent, and the assignment strategy can’t be used for HUD homes and REOs.

The process for assigning a contract follows some common steps. In summary, it looks like this:

• Find the right property.
• Get a purchase agreement signed.
• Find an end buyer.
• Assign the contract.
• Close the transaction and collect your assignment fee.

We describe each step in the process below.

1. Find the Right Property

This is where the heavy lifting happens—investors use many different marketing tactics to find leads and identify properties that work with their investing strategy. Typically, for wholesaling to work, a wholesaler needs a motivated seller who wants to unload the property as soon as possible. That sense of urgency works to the wholesaler’s advantage in negotiating a price that will attract buyers and cover their assignment fee.

RELATED: What is “Driving for Dollars” and How Does It Work?

2. Get a Purchase Agreement Signed

Once a motivated seller has agreed to sell their property at a discounted price, they will sign a purchase agreement with the wholesaler. The purchase agreement needs to contain specific, clear language that allows the wholesaler (for example, you) to assign their rights in the agreement to a third party.

Note that most standard purchase agreements do not include this language by default. If you plan to assign this contract, make sure this language is included. You can consult an attorney to cover the correct verbiage in a way that the seller understands it.

RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts

This can’t be stressed enough: It’s extremely important for a wholesaler to communicate with their seller about their intent to assign the contract. Many sellers are not familiar with the assignment process, so if the role of the buyer is going to change along the way, the seller needs to be aware of this on or before they sign the original purchase agreement.

3. Find an End Buyer

This is the other half of a wholesaler’s job—marketing to find buyers. Once they find an end buyer, the wholesaler can assign the contract to the new party and work with the original seller and the end buyer to schedule a closing date.

4. Assign the Contract

Assigning the contract works through a simple assignment agreement. This agreement allows the end buyer to step into the wholesaler’s shoes as the buyer in the original contract.

In other words, this document “replaces” the wholesaler with the new end buyer.

Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler if the buyer backs out. While you can download assignment contract templates online, most experts recommend having an attorney review your contracts. The assignment wording has to be precise and comply with applicable local laws to protect you from issues down the road.

5. Close the Transaction and Collect the Assignment Fee

Finally, you will receive your assignment fee (or wholesale fee) when the end buyer closes the deal.

The assignment fee is often the difference between the original purchase price (the price that the seller agreed with the wholesaler) and the end buyer’s purchase price (the price the wholesaler agreed with the end buyer), but it can also be a percentage of it or even a flat amount.

According to UpCounsel, most contract assignments are done for about $5,000, although depending on the property and the market, it could be higher or lower.

IMPORTANT: the end buyer will see precisely how much the assignment fee is. This is because they must sign two documents that show the original price and the assignment fee: the closing statement and the assignment agreement, respectively, to close the transaction.

In many cases, if the assignment fee is a reasonable amount relative to the purchase price, most buyers won’t take any issue with the wholesaler taking their fee—after all, the wholesaler made the deal happen, and it’s compensation for their efforts. However, if the assignment fee is too big (such as the wholesaler taking $20,000 from an original purchase price of $10,000, while the end buyer buys it for $50,000), it may ruffle some feathers and lead to uncomfortable questions.

In these instances where the wholesaler has a substantially higher profit margin, a wholesaler can instead do a double closing . In a double closing, the wholesaler closes two separate deals (one with the seller and another with the buyer) on the same day, but the seller and buyer cannot see the numbers and overall profit margin the wholesaler makes between the two transactions. This makes a double closing a much safer way to conclude a transaction.

Assigning contracts is a way to lower the barrier to entry for many new real estate investors; because they don’t need to put up their own money to buy a property or assume any risk in financing a deal.

The wholesaler isn’t part of the title chain, which streamlines the process and avoids the hassle of closing two times. Compared to the double-close strategy, assignment contracts require less paperwork and are usually less costly (because there is only one closing occurring, rather than two separate transactions).

On the downside, the wholesaler has to sell the property as-is, because they don’t own it at any point and they cannot make repairs or renovations to make the property look more attractive to a potential buyer. Financing may be much more difficult for the end buyer because many mortgage lenders won’t work with assigned contracts. Purchase Agreements also have expiration dates, which means the wholesaler has a limited window of time to find an end buyer and get the deal done.

Being successful with assignment contracts usually comes down to excellent marketing, networking, and communication between all parties involved. It’s all about developing strategies to find the right properties and having a solid network of investors you can assign them to quickly.

It’s also critical to be aware of any applicable laws in the jurisdiction where the wholesaler is working and holding any licenses required for these kinds of real estate transactions.

Related terms

Double closing, wholesaling (real estate wholesaling), transactional funding.

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AssignToday Blog

10 Essential Things To Know About Real Estate Assignment Sale (For Sellers)

What is an assignment.

As the name implies, an assignment is when the original buyer of a property gives up their rights to that contract and assigns it to another buyer (Assignee). 

An assignment is different from a sale of property because in a sale both parties (the seller and buyer) are involved; and in an assignment, the seller transfers their rights, interest and benefits under their contract to another buyer. The seller can assign their contract before or after closing day.

When does someone need to assign a real estate purchase contract?

When should you assign your contract?

If you are unable to complete the purchase of a property for whatever reason, but would like to move forward with another buyer and give them an opportunity to buy the property at an agreed upon price, then an assignment may be right for you. Some common reasons why someone might need to assign a real estate purchase contract include:

• Financial hardship due to job loss or sudden illness
• Move to different city/ country
• Personal reasons like marriage, children or birth of newborn
• Death or incapacitation of the original buyer
• Loss of financing
• Original buyer looking to sell off to earn profit (speculative buying)

Is it legal to assign a contract?

The short answer is yes, it’s legal to assign contracts. However, there are certain things you need to know about how this process works before you decide whether or not you want to go through with it.

The first thing you should know is that assigning a contract isn’t a casual decision—it’s a legal document. When you sign an assignment agreement, you’re entering into an agreement with another party (the buyer) where they agree to take over your responsibilities under the original contract.

The second thing worth mentioning here is that while assignments aren’t necessarily uncommon occurrences––especially when dealing with multiple parties––they can be tricky because they often involve changing hands during different stages of closing proceedings which can make things unnecessarily complicated sometimes if not done correctly or thoroughly enough beforehand

How do assignments work?

An assignment is a transfer of a seller’s interest in the contract. In other words, it’s when a buyer assigns their rights under a contract to someone else. This can happen before closing or after closing and both scenarios have different implications for the original buyer (the assignor), as well as the new buyer who has taken over their position (the assignee).

Here’s how it works: The assignor transfers his or her interest in the contract to another person—this is known as an “assignment.” In order for this transfer to take place legally, four conditions must be met:

• Both parties must agree on how much money will be exchanged between them;
• Any existing obligations between either party must be transferred over without interruption;
• All future obligations that arise from signing onto this agreement must also be transferred over without disruption;
• And finally, if there are any fees associated with making this switch then those need to be paid

Are there any restrictions on assignments of purchase contracts?

The answer, in a nutshell: No.

The law does not restrict assignments of purchase contracts. In other words, if you want to assign your contract to another buyer or seller, you can do so freely and without penalty—as long as both parties have signed the contract and the sale has closed (or gone into escrow).

Can I assign my purchase contract to anyone?

The answer to this question is a resounding Yes.

You can assign your contract to anyone you like, as long as they meet the seller’s requirements for buyers.

For example, if your purchase contract requires that buyers have good credit and that they put down 20% in earnest money, then only someone who meets these criteria will be able to take over your contract.

So, who might assign their purchase contract? Here are some examples:

• Family members
• Friends (or friends-of-friends)
• Real estate agents (particularly agents who specialize in assignments)

Can the buyer and seller agree to set a price for the contract assignment before it happens?

The answer is Yes, but it’s not necessary or recommended.

The reason is that once an assignment has been documented, there are no further negotiations between the buyer and seller on that contract. So there’s no need for any further discussion about price in advance of closing (unless you want to include some kind of non-binding agreement).

If you want to see what your property might sell for when it comes time to assign your contract, talk with an agent who specializes in negotiating contracts after they have already been signed by both parties.

What happens to deposits paid by the original buyer (the assignor)?

• The deposit is usually returned to the assignor.
• The deposit is sometimes not returned to the assignor (typically if the buyer was a good one)
• The deposit is always returned to the original buyer if that person is still in contract with you and wants to take over as their own private party sale (PPS).

How do I find an end buyer for my property assignment?

There are several ways you can find an end buyer for your property assignment:

• Ask your real estate agent. Your agent should know of buyers interested in purchasing assignments, or at least be able to refer you to someone who can help.
• Ask your real estate lawyer (or real estate broker). Your attorney may also be able to refer you to a buyer’s attorney he or she knows and trusts personally, many lawyers have clients looking for properties like yours all the time
• Submit Your Assignment on Assign Today. Post your property on AssignToday.Com , lot of buyers are looking to take advantage of assignment sale via our website.

If you’re thinking of buying and selling a pre-construction home, you should understand how real estate assignment sales work.

In short: An assignment sale allows buyers who have already put down their deposits on a property to transfer their contract over to another buyer.

This means that while they are still legally obligated to complete the deal, they can make a profit by selling their right to buy the home at its current market value.

The seller will then go ahead with the original sale and collect an additional commission for facilitating this transaction.

While this might sound like an easy way for sellers to make money off of homes that haven’t sold yet (and potentially even get paid twice), there are some things you should keep in mind before taking advantage of real estate assignment sales yourself: you should connect with the Real Estate Professional who specializes in buying and selling preconstruction homes.

Meghna Negi

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Small Estates: How Does Assignment of Property Work?

When a person dies, they are called a decedent. A decedent leaves property behind. That property needs to be passed on to those who will inherit it. If a person has a small estate, then a shortened process, called assignment of property, can be used instead of the probate administration process.

Read this article to learn about how to use the assignment of property process. You can use our Do-It-Yourself Settling a Small Estate  tool to create the forms you will need for this process. Read the article An Overview of Small Estate Processes to learn more about the other ways a small estate can be distributed.

What is In an Estate?

The property a decedent leaves behind that can be distributed through the assignment process could include:

• Real estate (houses and other buildings, land and the things attached to it)
• Personal property (furniture, cars, and other things not attached to land)
• Bank accounts and cash
• Stocks and bonds
• Debts owed to the person

Some of the property is not part of the estate, which means it cannot be distributed through the assignment process. The estate does not usually include:

• Jointly owned property,
• Insurance policies,
• Retirement accounts, or
• Trusts that are not established by a will

Jointly Owned Property

Jointly owned property is property owned by more than one person. It is generally not included in an estate. Examples of jointly owned personal property are if you and the decedent are both listed on the title of a car or if you have joint bank accounts. When the decedent died, you automatically have full ownership of that property, so it is not part of the estate. You may want to take a copy of the decedent’s death certificate to the bank or Secretary of State (SOS) to remove the decedent’s name from the account or car title.

However, sometimes joint ownership is more complex. If you own real property with the decedent, or if you own any type of property with the decedent and someone else, ownership can be hard to understand after a death. Read the article Jointly Owned Property  to learn more about this, or use the Guide to Legal Help to find a lawyer or legal services in your area.

Small Estates

To use the assignment process, a decedent’s estate must be small. Whether an estate is small depends on the value of the property in it. The limit for a small estate can change each year. Use the limit that was in place on the date the person died. The limits for the last several years are:

• On or after February 21, 2024: $50,000
• January 1, 2024 through February 20, 2024: $28,000
• 2023: $27,000
• 2022: $25,000
• 2020-2021: $24,000
• 2018-2019: $23,000

Assignment of Property

Assignment of property is the small estate process you must use if the decedent had real property. However, even if there was no real property, you may choose to use assignment of property if an estate is small. This is the only small estate process where a Probate Judge reviews and approves the division of property.

To use this process, you must know all the property and the heirs the decedent had, and have information about the funeral or burial expenses. You must also be an heir or the person who paid the funeral bill.

You must list all real property and personal property with the value of each. You can estimate real property’s market value by doubling its State Equalized Value (SEV). You can find the SEV on property tax bills or assessments for the property. You can also find it on most county or municipality websites.

The value of the property in the estate is its market value. Any liens or loans on property will not be deducted when determining if the estate falls into the small estates amount. There is a separate calculation to determine the fees that the court will charge to file the petition. This is called the inventory fee. You are allowed to deduct the value of the mortgage or other liens on real property when you determine the inventory value. You are not allowed to make any deductions from the value of personal property. 

To estimate the value of personal property, think about how much you would ask for it at a yard sale or if you were selling it online.

Who Will Inherit?

After funeral and burial expenses have been paid, the court will order any remaining property to be divided among the heirs. The inheritance formula determines which heirs inherit property, and how much of the property each person will get. If there is a surviving spouse, that person inherits all the property.

If there is no surviving spouse, any property will be given or paid to direct descendants of the decedent, starting with the decedent’s children. If all of the decedent’s children are still alive, they will split the property equally. If a child died before the decedent, that person’s children will split the share equally. If the decedent had a grandchild who should inherit, but they died before the decedent, the grandchild's children will split the shares equally. If inheriting children or grandchildren die before the decedent with no living children of their own, the line of inheritance stops there. Their share will be divided between the remaining descendants.

If there are no living descendants of the decedent, the property will be split between the decedent’s parents equally. If only one parent is still living, that parent inherits all the property. If both parents died before the decedent, the property will go to their descendants, starting with the decedent’s siblings. The same rules of representation mentioned above apply.

If an inheriting sibling died before the decedent, that person’s child(ren) will split their share of the property equally. The same is true if an inheriting niece or nephew died before the decedent. If inheriting siblings, nieces, or nephews die before the decedent with no living children of their own, the line of inheritance stops there. Their share will be divided between the remaining heirs.

If no descendants of the decedent’s parents are living, the property is divided among the decedent’s grandparents. Half of the property will go to the decedent’s paternal grandparents, and the other half will go to the maternal grandparents. If only one maternal or paternal grandparent is living, they will take the full half of the property. If both grandparents on one side died before the decedent, their half of the property goes to their descendants, starting with the decedent’s aunts and uncles. The same rules of representation mentioned above apply.

If an inheriting aunt or uncle died before the decedent did, that person’s children will split the share of the property equally. The same is true if an inheriting cousin died before the decedent. If inheriting aunts, uncles, or cousins die before the decedent with no living children of their own, the line of inheritance stops there. Their share will be divided between the remaining heirs.

There are other rules too, including special rules if an heir dies after the decedent does. You can use our Do-It-Yourself Settling a Small Estate tool to help you figure out who will inherit and what share each heir will receive. You may also want to talk to a lawyer if you have questions about this. You can use the Guide to Legal Help to find legal services in your area.

Survivorship and the 120-Hour Rule

Survivorship affects inheritance rights of heirs and devisees. In Michigan, a person must live more than 120 hours after a decedent dies for that person’s survivorship rights to take effect. Generally, anyone who dies during the first 120 hours after a decedent’s death is considered to have predeceased (died before) the decedent and they lose their interest in the decedent’s property. The 120-hour rule is not followed if:

• A will, deed, title, or trust addresses simultaneous deaths or deaths in a common disaster;
• A will, deed, title, or trust states a person is not required to survive for a certain amount of time or it specifies a different survival period;
• The rule would affect interests protected by Michigan law; or
• The rule would cause a failure or duplication in distributing property.

Notice to Decedent’s Creditors

This process does not include any notice to creditors . If a creditor tries to collect a debt within 63 days of when the order is issued by the court, the person who got the property will have to pay the debt, up to the amount or value of the property the person got. This does not apply if the decedent’s spouse or minor children got the property. For example, if the decedent’s brother got $1,000, a creditor the decedent owed $500 could get the $500 from him. If the decedent had owed the creditor $1,500, the brother wouldn’t have to pay more than $1,000 to the creditor. If the decedent’s spouse or minor child got the property, they would not have to pay the creditor anything.

The Process

To start this process, file a Petition for Assignment with the probate court in the county where the decedent lived. If the decedent lived outside Michigan, file the Petition for Assignment in the county where the decedent had real property. You can use our Do-It-Yourself Settling a Small Estate tool to create this petition.

After you complete the form, print two copies. Date and sign both copies. The Do-It-Yourself Settling a Small Estate  tool will prepare a Testimony to Identify Heirs, but not all courts require it. Not all courts require a certified copy of the death certificate. You might want to check the probate court’s website or call and ask before you go to court to file the documents. You can find contact information for the court on the right side of this page if you have selected a county.

You will need to file the following documents with the probate court:

• Both copies of the petition
• The Testimony to Identify Heirs (if your court requires it)
• A copy of the death certificate
• Proof that the funeral and burial expenses have been paid or a bill showing the amount owed

There is a $25 filing fee. There is also an inventory fee. It is based on the value of property in the estate. If the property in the estate has no value, the inventory fee is $5. For example, if the decedent had a house that was worth less than the amount of the mortgage, the value of the estate could be zero. You can use the  inventory fee calculator  on the Michigan One Court of Justice website to see how much the inventory fee will be.

The petition is reviewed by a probate court judge. If everything is correct when you file the Petition and Order, the judge will sign it. You may be able to get your certified copy of the Order Assigning Assets on the day you file it. You need the Order Assigning Assets to distribute the property in the estate.

There is a fee to get a certified copy of the Order Assigning Assets. The fee to get a certified copy varies, but it is usually $15 to $20. You need a certified copy of the order to transfer the property in the estate. You may want to get more than one certified copy when you file the petition. Some courts charge less for extra certified copies if you get them at the same time.

The court will order the funeral and burial expenses be paid or reimbursed to whoever paid them. This means all paid and unpaid funeral expenses will be deducted from the value of the estate when determining if it is a small estate. If there is no cash available, something may have to be sold to pay those expenses.

Distributing the Property

Once the judge has signed the Order Assigning Assets, you will be able to distribute the property in the estate to the heirs. The Do-It-Yourself Settling a Small Estate  tool will tell you the shares each person is entitled to, but some things (like cars) cannot easily be divided. Decide how to divide the existing property so everyone gets the share they deserve.

Transferring Money from Bank or Credit Union Accounts

If the decedent had bank or credit union accounts that were not jointly owned with another person, take the certified copy of the order to the bank to close the account. The bank should release the money to the heir or heirs by writing a check or money order.

Transferring a Vehicle

If the decedent had a vehicle, the surviving spouse or heir must complete a Certification from the Heir to a Vehicle . If you use our Do-It-Yourself Settling a Small Estate  tool, you will get a completed certification form for each vehicle you are transferring.

Take it to the Office of the SOS with a copy of the death certificate. If you have a copy of the vehicle title, take that, too.

Transferring Real Property

If the decedent had real property, you will need to record a certified copy of the order to transfer the property. Take the order to the register of deeds for the county where the property is. Check the county’s website or call the local register of deeds office to find out how much the filing fee is.

You should not have to pay a transfer tax. Transfer tax is based on how much is paid for the property. Nothing was paid for this property when it transferred because the decedent died.

When the property is transferred, its value may “uncap.” The amount property tax can increase in a year is limited while the property is owned by the same person. When the property is transferred to another person, the property tax will be adjusted to the property’s current market value. You can learn more about property taxes on the State of Michigan’s Treasury Department website .

If the property was the decedent’s principal residence, it probably had a Homestead Tax Exemption attached to it. Under Michigan law, if you own your home you do not have to pay certain taxes on it.

If the person inheriting the property will be living there, they need to fill out a Principal Residence Exemption Affidavit . If whoever is getting the property is not going to live there but plans to continue owning it, they need to fill out a Request to Rescind a Principal Residence Exemption .

One of these forms must be filed with the city or township where the property is located within 90 days after the decedent’s death. If it is not filed, additional taxes and fees will be charged.

You may not have to file the Request to Rescind a Principal Residence Exemption for up to three years if the property is listed for sale during that time. If you are selling real estate in this situation, you may want to talk to a real estate agent or a lawyer. 

If you have a low income, you may qualify for free legal services. Whether you have a low income or not, you can use the Guide to Legal Help to find lawyers in your area. If you are not able to get free legal services but can’t afford high legal fees, consider hiring a lawyer for part of your case instead of the whole thing. This is called limited scope representation. To learn more, read Limited Scope Representation (LSR): A More Affordable Way to Hire a Lawyer . To find a limited scope lawyer, follow this link to the State Bar of Michigan lawyer directory . This link lists lawyers who offer limited scope representation. You can narrow the results to lawyers in your area by typing in your county, city, or zip code at the top of the page. You can also narrow the results by topic by entering the kind of lawyer you need (divorce, estate, etc.) at the top of the page.

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Assignment is a legal term whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “ assignee .”   This concept is used in both contract and property law.  The term can refer to either the act of transfer or the rights /property/benefits being transferred.

Contract Law   

Under contract law, assignment of a contract is both: (1) an assignment of rights; and (2) a delegation of duties , in the absence of evidence otherwise.  For example, if A contracts with B to teach B guitar for $50, A can assign this contract to C.  That is, this assignment is both: (1) an assignment of A’s rights under the contract to the $50; and (2) a delegation of A’s duty to teach guitar to C.  In this example, A is both the “assignor” and the “delegee” who d elegates the duties to another (C), C is known as the “ obligor ” who must perform the obligations to the assignee , and B is the “ assignee ” who is owed duties and is liable to the “ obligor ”.

(1) Assignment of Rights/Duties Under Contract Law

There are a few notable rules regarding assignments under contract law.  First, if an individual has not yet secured the contract to perform duties to another, he/she cannot assign his/her future right to an assignee .  That is, if A has not yet contracted with B to teach B guitar, A cannot assign his/her rights to C.  Second, rights cannot be assigned when they materially change the obligor ’s duty and rights.  Third, the obligor can sue the assignee directly if the assignee does not pay him/her.  Following the previous example, this means that C ( obligor ) can sue B ( assignee ) if C teaches guitar to B, but B does not pay C $50 in return.

            (2) Delegation of Duties

If the promised performance requires a rare genius or skill, then the delegee cannot delegate it to the obligor.  It can only be delegated if the promised performance is more commonplace.  Further, an obligee can sue if the assignee does not perform.  However, the delegee is secondarily liable unless there has been an express release of the delegee.  That is, if B does want C to teach guitar but C refuses to, then B can sue C.  If C still refuses to perform, then B can compel A to fulfill the duties under secondary liability.

Lastly, a related concept is novation , which is when a new obligor substitutes and releases an old obligor.  If novation occurs, then the original obligor’s duties are wiped out. However, novation requires an original obligee’s consent .  

Property Law

Under property law, assignment typically arises in landlord-tenant situations.  For example, A might be renting from landlord B but wants to another party (C) to take over the property.   In this scenario, A might be able to choose between assigning and subleasing the property to C.  If assigning , A would be giving C the entire balance of the term, with no reversion to anyone whereas if subleasing , A would be giving C for a limited period of the remaining term.  Significantly, under assignment C would have privity of estate with the landlord while under a sublease, C would not. 

[Last updated in May of 2020 by the Wex Definitions Team ]

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• assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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Answers to Frequently Asked Questions

What is a will.

A Will is a document where you indicate how you want your property distributed at your death. In a Will you designate who your beneficiaries and Personal Representative (a.k.a., Executor) will be. If you have not designated a person to serve as your Personal Representative in a Will, the Probate Court will designate a person to act as the Personal Representative with the authority to administer your probate estate.

For your convenience click HERE to view the California Statutory Will Form that is provided by the State Bar of California. Should you choose to use this form, please be careful to have the Will properly signed by two witnesses who are over the age of 18 and are not related to you.

Caution – A WILL DOES NOT AVOID PROBATE!

What is a Trust?

There are many different types of Trusts, but their common feature is that they all indicate how you want the trust assets managed and distributed to the beneficiaries.

The most popular type of Trust is called a Revocable Living Trust. As indicated in the name, a Revocable Living Trust can be changed or revoked entirely. It is called a "Living" Trust because it is created while you are alive. When the Trust is created, you are both the "Grantor" and the "Trustee." You're the one who transferred the assets into the Trust, and you're in control of your property. You will also designate "Successor Trustees" to be in charge of your assets when you are incapacitated and after you pass away.

One of the benefits of having a Trust versus a Will is that assets in a Trust do not go through Probate . This is because ownership of your property is transferred into the Trust, and you tell the Successor Trustee how to manage and distribute the assets. A court does not supervise the administration of the Trust. The only time your Successor Trustee should need to go to court is if there is ambiguity in the Trust document or if your beneficiaries contest the terms of the Trust.

What is Probate?

Probate is the court-supervised process of wrapping up one's affairs following their death. During this process, assets are inventoried and appraised, creditors are notified of the death, assets may need to be liquidated, debts are paid, and after attorney's fees and court costs are paid, any remaining assets are distributed to the beneficiaries. Because this is a court-supervised process paperwork must be filed with the court, affected parties must be served, and appearances are made before a judge. Unless sealed, all documents filed with the court are public information.

How much does Probate cost?

California lawmakers have imposed a minimum statutory fee that can be charged by attorneys in Probate cases. The fee schedule can be found at California Probate Code Section 10810. It is important to note that these fees are imposed on the GROSS value of the assets rather than the NET value. Therefore, encumbrances (debt) on the property are not taken into consideration when calculating the attorney's fees. Additionally, this schedule does not take into account the Personal Representative's (aka Executor) fees or additional compensation for extraordinary services that the Probate Court may choose to award.

What are the differences between a Will and a Trust?

Although both are instruments where you indicate how you want your property distributed, assets held in a Trust are not subject to Probate. If you only have a Will, then your remaining property will go through the probate process, and your Will becomes public record. Conversely, a Trust is a private document; since it is not recorded with the court, it can't be viewed by the public or by snooping family members.

Do I need a Trust?

This is another commonly asked question and the typical (and accurate) response is “it depends.” More completely, the answer depends on how expensive and complicated the Probate process will be after you pass away, and whether or not you want to prevent your family from dealing with the stress that's involved.

Without a Trust your assets may be subject to Probate before being distributed to your spouse or heirs. Probate can be a time consuming and frustrating process that can take from 9 months to several years and often requires the expertise of an attorney.

If you have few assets and you don't own a home, then the Probate process should be relatively straight forward and inexpensive. However, if you own a home or you have property valued in excess of $150,000 then you should have a Trust. California lawmakers have imposed a minimum statutory fee that can be charged by attorneys in Probate cases. The fee schedule can be found at California Probate Code Section 10810 and is illustrated in the table below.

As you can see, these statutory fees are owed to attorneys on a sliding scale based upon the value of the decedent’s assets. It is important to note that encumbrances (debt) on the property are not taken into consideration when calculating the attorney’s fees. Additionally, this schedule does not take into account the Personal Representative’s (aka Executor) fees or additional compensation for extraordinary services that the Probate Court may choose to award.

With a Trust your assets will be managed by your Trustee and distributed to your beneficiaries pursuant to your instructions. You determine who your Trustee and successor Trustees will be and the order of succession. You can easily change your Trustees by preparing an Amendment to your Trust. Your Trustee may be entitled to a fee but you decide how much the fee will be. In addition to freeing your loved ones of the expenses and burdens of Probate, you obtain the benefit of privacy by preventing your affairs from becoming public record in the Probate Court files. Finally, in almost all cases, the cost to prepare a revocable living trust is much less than the expenses of Probate.

Are there any income tax advantages of having a Trust?

A Revocable Living Trust is tax neutral and does not generate any tax advantages or consequences as long as the person who put the assets into the trust (commonly referred to as the Grantor, Trustor, or Settlor) is the primary beneficiary of the trust and retains the right to amend the trust. Satisfying these requirements makes the Trust a Grantor Trust for tax purposes, and all income and losses are reported on the Grantor's personal tax returns. However, once the Grantor passes away, the trust must obtain its own EIN, and it must file its own federal and state income tax returns. The federal income tax return for trusts is filed on Form 1041, and the California income tax return for trusts is Form 541.

Does a Trust provide asset protection from creditors?

A Revocable Living Trust does not provide asset protection from the creditors of the Grantor(s). There are other types of Trusts that can do this. However, a Revocable Living Trust can protect assets from the claims of your beneficiaries' creditors.

Doesn’t holding real property in “joint tenancy” avoid Probate?

Yes, but Probate is only avoided on the death of the first spouse. When the second spouse dies, the real property must go through Probate. If the house were placed into a trust while both spouses were alive, there would be no need for a Probate to be opened at either death. Additionally, there are negative capital gains tax consequences should the surviving spouse choose to sell the house, and it is held in joint tenancy.

Should I give my house to my children before I die in order to avoid Probate?

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Feel free to call us if you have additional questions. (949) 639-9606

NO! Many people think that this is an easy solution to avoid forming a Trust. However, it is ripe with problems. 1) GIFT TAX - The gift to your children is a taxable event, and you must file a Form 709 Gift Tax Return. Any tax penalty associated with the transfer is owed by the transferor, not the recipient of the property. 2) CAPITAL GAINS TAX - Your children's tax basis in the property would be your basis in the property. This can have horrible consequences should your children eventually choose to sell the property. However, if they were to inherit the property upon your death, their basis in the property would be the fair market value at the time of your death. This could eliminate any capital gains taxes owed when they choose to sell the property. 3) CREDITORS - Placing your children on title to your house will make it accessible to the claims of your children's creditors. The tax consequences and potential risks generated by giving your house to your children substantially outweigh the expense of a properly prepared Trust. Click HERE for more information concerning joint ownership of property between generations.

I have a trust that was drafted ten years ago or more. Do I need a new one?

Most likely, yes. Due to the changes in tax laws that have occurred over the past ten years, it is very likely that your trust is outdated and doesn’t properly take these changes into account. For example, in 1999, the per person estate tax exclusion amount was $650,000. Today this amount is $5,450,000. Your estate plan was likely drafted based upon the size of your estate and the estate tax exclusion amount at that time.

Because the estate tax exclusion amount has changed significantly over time, and because married people can now take advantage of the "Portability" of the deceased spouse's unused estate tax exclusion amount, your trust likely needs to be updated.

We would be happy to review your existing estate plan documents and provide you with our opinion on the status of your existing estate plan.

I recently moved from another state. Can I still use my old Trust?

No. Probate and Trust laws vary significantly between states. Although your Trust may have a clause saying that the trust can use the governing laws of the state where you currently live, this can cause confusion in the Trust provisions. The most prudent thing to do is to consider it a moving expense and have the Trust redrafted under California law.

Why do I need to hire a lawyer if I can prepare my Trust online?

An estate planning attorney is aware of the current tax laws and potential changes in these laws. Every person’s situation is unique, and their estate plan should be drafted to account for the changing tax laws. Therefore, we do not believe in taking a one-size-fits-all approach to estate planning. Rather every Trust is custom drafted for our clients to accommodate their specific needs and desires. Additionally, having an estate planning attorney prepare your Trust will provide a continuity of advice and someone for spouses and beneficiaries to turn to for guidance during the time of grief and turmoil following the death of a loved one.

I’m not married. Why should I have a Trust?

How do you want to be remembered when you pass away? Someone will need to take care of your final affairs. Do you want to force your friends, family, or other loved ones to appear in court to resolve your affairs? Show your loved ones you care about them by having a well organized and up-to-date estate plan.

What documents are included in an estate plan?

People typically people think of Wills and Trusts in conjunction with estate planning. However, these are merely two components of a complete and cohesive estate plan. A properly prepared estate plan should include at least the following documents:

• Revocable Living Trust
• Certification of Trust
• Trust Summary
• Trust Funding Instructions
• Pour-Over Will
• Durable Power of Attorney
• Assignment of Personal Property
• Personal Property Memorandum
• Health Care Power of Attorney
• Advance Health Care Directive ( Click HERE )
• HIPAA Authorization
• Property Agreement (for spouses only)
• Deeds transferring real property into the Trust
• Remembrance and Services Memorandum ( Click HERE )

What is a Pour-Over Will?

A Will tells the Probate court how to distribute your assets upon your death. Whereas a "Pour-Over Will” pours any of the assets that were not placed in your Trust during your lifetime into the Trust upon your death to be administered and ultimately disposed of pursuant to the provisions of your Trust. A Pour-Over Will is basically a clean-up mechanism, not a substitute for transferring assets into your Trust during your lifetime, and any assets that are transferred to your Trust under your Pour-Over Will will likely be subject to Probate. REMINDER: WILLS DO NOT AVOID PROBATE. A PROPERLY FUNDED TRUST AVOIDS PROBATE.

What is a Certification of Trust?

When dealing with assets held in your Trust, third parties often want evidence that you are the Trustee and have the power to enter into the transaction at issue (e.g., selling real estate, opening a brokerage account, etc.). In such a case, providing the person with a copy of the Certification of Trust rather than the full Trust Agreement provides them with the information they need, and keeps private the information with respect to the Trust’s beneficiaries and the disposition of the assets in your Trust upon your death.

What is a General Durable Power of Attorney?

A General Durable Power of Attorney authorizes the person designated as your "Agent" to act on your behalf with respect to your financial affairs. The version of this document we prepare is sometimes called a “Springing” Power of Attorney. This is because your Agent is not immediately given the power to manage your financial affairs upon you signing this document. Rather, the power “springs” into effect upon your incapacity. California has instituted the Uniform Statutory Form Power of Attorney Act under California Probate Code Sections 4400 - 4465, which provides the public with a form that they can use to give another person the authority to make financial decisions on their behalf. Click HERE to view the California Statutory Power of Attorney Form. If you choose to use this form, please read it thoroughly and do not sign it if you are under duress to do so, or if you do not fully understand the financial authority being conveyed under this document. Also, this form needs to be notarized or signed by two disinterested witnesses. We do not use this form at Winstead Law Group, APC. Instead, we prefer to use Powers of Attorney that are specifically drafted for each client's unique needs.

What is a Health Care Power of Attorney?

A Health Care Power of Attorney allows you to designate those individuals who will make health care decisions for you upon your incapacity. These people are referred to as “Health Care Agents.”

What is an Advance Health Care Directive?

An Advance Health Care Directive (also commonly referred to as a “Living Will”, “Physician’s Directive”, or a “Directive to Physicians”) is where you convey to your Health Care Agent and health care personnel your desires concerning life sustaining treatment and anatomical gifts. Click HERE to view the California Statutory Advance Health Care Directive Form.

It is important to note that no amount of legal documentation and preparation can guarantee that your health care wishes are followed. This is a very sensitive topic where strong emotions are involved. Therefore the best advice we can provide is for you to ensure that your Health Care Agents know what your wishes are and that they are willing to follow your instructions despite any personal feelings they may have to the contrary.

What is a HIPAA Authorization?

“HIPAA” stands for Health Insurance Portability and Accountability Act. A HIPAA Authorization provides the Health Care Agent named in your Health Care Power of Attorney with access to your medical information. Hospitals generally will not release your medical information to anyone, including a spouse or close family member, unless they are provided with a HIPAA Authorization. You may choose to provide executed copies of the Health Care Powers of Attorney, Advance Health Care Directives, and HIPAA Authorizations to your health care providers for their information and to retain in your medical records.

What is an Assignment of Personal Property?

An assignment of Personal Property is a document that is used to transfer all of your tangible personal property into your Trust. However, the Assignment is not effective at transferring title to assets that have their own evidence of ownership, such as real estate, bank accounts, vessels, and automobiles, which need to be individually transferred to your Trust.

What is a Property Agreement?

A Property Agreement only applies to married people. The Property Agreement is designed to clarify the manner in which your assets are held, whether Community Property or Separate Property. There are tax advantages to holding property as Community Property. A Property Agreement IS NOT a substitute for a Post-Nuptial Agreement.

What is a Personal Property Memorandum?

A Personal Property Memorandum is a form that can be incorporated by reference into your Will and Trust and is used to indicate how you would like your personal effects (e.g., clothing, mementos, jewelry, furniture, art, etc.) to be distributed on your death. These forms provide flexibility to your estate plan. If you change your mind about distribution, you can either prepare a new Personal Property Memorandum or amend the existing one by striking through to the name of the beneficiary and the intended gift, and initialing and dating the strike-through. The use of these forms avoids the need to prepare a formal amendment to your Trust if you have a change of heart as to the disposition of your personal effects. To avoid confusion and potential litigation, please inform your spouse of your desires to distribute certain tangible items to individuals and provide a copy of your Personal Property Memoranda to your attorney.

How do I designate a legal guardian for my children?

Parents should prepare Wills and Powers of Attorney designating the Guardian of their children upon their death or incapacity. Although a judge will still need to sign off on the appointment, most courts will respect the parents’ wishes. In support of their decision, parents should also write a letter that explains their reasons for designating the particular person as their children’s Guardian. Click HERE to learn more about Child Guardianship Planning.

Can I exclude a person as the legal guardian of my minor child?

Yes, you can specifically exclude people as your child's legal guardian. However, please keep in mind that the Guardian must still be approved by a judge, and they likely won't consent to the exclusion of a child's parent without good cause. Ultimately, the judge's primary concern is whatever is in the best interests of the child.

Why should I choose to work with Winstead Law Group, APC?

We are a boutique tax, asset protection, and estate planning firm. We offer clients the expertise found at larger firms and the personalized attention that is rarely found at any law firm. Each of our clients is important to us, as is educating them with their legal matters. Our commitment to educating our clients means that each and every client is provided with individualized attention. Because we spend a lot of time with our clients, this added time is reflected in the cost of our services. However, we feel this time is well worth the expense, and our clients agree. Read our client reviews to hear what they have to say.

What can I expect if I choose Winstead Law Group, APC, to prepare my estate plan?

Our commitment to educating our clients means that each and every client is provided with individualized attention over several meetings designed to:

• 1 Introduce clients to the Estate Plan concept, helping them understand why they may, or may not, need an Estate Plan;
• 2 Obtain information needed to prepare a complete and cohesive Estate Plan designed to meet the client’s specific needs, objectives, and concerns;
• 3 Educate clients with the provisions contained in their documents by reviewing the draft version of the Estate plan documents with clients prior to the documents being signed and notarized;
• 4 Impress on clients the need to transfer assets into their Trust because an improperly funded Trust does not accomplish one of its primary goals – Probate Avoidance; and
• 5 Assist in funding their trust through advice, discussions with bankers and financial advisors, and ensuring that Deeds are prepared to transfer title to real property into the Trust.

Click HERE to view a diagram illustrating the typical estate planning process.

What is the cost of an estate plan?

No one likes to be billed hourly for legal services. Therefore, whenever possible, we set a flat rate fee prior to beginning legal representation. However, we do not think it is fair to work from a Fee Sheet. As each estate plan is unique, it is difficult to quote a price until sufficient information is obtained to understand the scope of services involved. Generally, estate plans for individuals fall in the $2,500 to $3,000 range, and estate plans for married persons cost around $3,500 to $4,000. Please understand that these prices directly reflect the complexity of the plan and the amount of time involved, not only in drafting the documents, but also in meetings, teleconferences, and recording Deeds with the County Recorder.

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LIVING TRUST

The assignment of personal items to trust.

By John Stevens, J.D.

• How to Fund a Living Trust With Royalties

A living trust is a legal entity that holds property for the benefit of someone other than the person who created the trust. The process of transferring property into a trust varies depending on the type of property. For example, transferring a house into a trust calls for a process that is different than transferring a bank account. The process of transferring personal items into a trust is a comparatively straightforward one that is accomplished with a document typically called an "assignment of personal property."

Inventorying Personal Items

It is important to take an inventory of your personal items to determine which items you want to transfer into your trust. Generally, it is sufficient to list items using only general terms, such as “household furniture, furnishings, appliances and clothing.” You should specifically identify each individual personal item that is valuable, such as jewelry, antiques and collectibles. If you intend to leave a specific item to a specific beneficiary in your trust document, you should also describe that item with enough particularity so your successor trustee can easily identify it.

Assignment of Tangible Personal Property

Remember that you are transferring ownership of your personal items from yourself, as an individual, to yourself in your capacity as trustee of your trust. Begin your assignment document with language stating that you transfer your entire interest in the “following described items” to your trust. Use the name of the trust exactly as it appears on your trust document. For example, this language might read, “I, Mary Johnson, hereby transfer my entire interest in the following described property to The Mary Johnson Trust.” List those items you identified from your inventory after this introductory language. You must now include language stating that you, as the trustee of your trust, agree to accept the personal items into the trust. This language might read, “I, Mary Johnson, trustee, hereby agree to the above assignment.” Because you are acting in your dual capacity as an individual and as the trustee, you must sign the assignment document twice. First, sign your name as you usually do. Second, sign your name, followed by the word “trustee.”

Adding Property to the Trust in the Future

The vast majority of trusts allow the person who created the trust to add property to the trust in the future. So long as you are mentally competent, you are free to do so at any time. Consider contacting an attorney if you are unsure whether you have the power to add items. If you acquire an item that falls within one of the general category descriptions, such as “clothing” or “furniture,” there is no need to make a change. If you acquire an item that does not fall within one of those general categories, such as a new valuable painting, you must create a new assignment form and list that item individually. Read More: Who Can Sign a Deed Transferring Property Owned by a Trust for the Trustee?

Special Considerations with Corporate Trustees

The person or entity in charge of a living trust upon its creation is called the “initial trustee.” The person or entity that assumes administration of the trust upon the death or incapacity of the initial trustee is called the “successor trustee.” If you name a corporate trustee, such as a bank, to serve as the initial or successor trustee, you should contact that business before transferring personal items to your trust. Some corporate trustees are not willing to handle the transfers of personal items because of the liability risk associated with such property. Unlike with titled property, such as a house or bank account, personal items can easily be carried away or hidden. A corporate trustee may not be willing to deal with the possibility of a lawsuit from disgruntled family members who contend that a valuable coin collection that was stored within your home, for example, has suddenly gone missing. If the corporate trustee objects to handling personal property, ask the trustee whether it would handle the property if you exempted the trustee from liability with respect to those items.

• Funding a Revocable Trust; Continuing Education of the Bar

John Stevens has been a writer for various websites since 2008. He holds an Associate of Science in administration of justice from Riverside Community College, a Bachelor of Arts in criminal justice from California State University, San Bernardino, and a Juris Doctor from Whittier Law School. Stevens is a lawyer and licensed real-estate broker.

Related Articles

• How to Amend a Trust to Add a Co-Trustee
• How to Transfer an Inheritance to a Trust
• How to Void or Cancel a Living Trust

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What You Need to Know About Assignment Sales

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What is an assignment sale? We get this question quite often from both investors and end-users when it comes to the Toronto condo market, especially with the dramatic rise in condo buildings and pre-construction sales. Assignment sales can be a great opportunity for everyone involved, from the seller to the buyer. But working with a seasoned real estate broker is one of the most important things you can do. An assignment sale isn’t a typical transaction and there are many things you need to know before moving forward.

What Does an Assignment Sale Mean?

An assignment is a sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property (that is, where they take possession of the property). The assignee is the one who ultimately completes the deal with the seller. In other words, an assignment clause allows the buyer of a home to sell the place before they take possession of it. Although an assignment sale is possible for both home and condos, it’s much more popular among condo pre-construction buyers.

Why Would Someone Want to Sell Their Condo on Assignment?

With pre-construction condo purchases, the sale of suites typically takes place several years before the building is built. It’s a long time in between buying the suite and actually taking occupancy of it. And with this lag time comes life changes – a new job outside of the city or in a different province, a new family that’s expanding with children, etc. What worked for a particular buyer years ago may not be the current case at closing time.

Financial reasons is also another reason to sell on assignment. Perhaps the purchaser can no longer be able to close on the condo, or perhaps it’s an investor who bought pre-construction with no intention of closing on them, therefore using an assignment sale strategy to profit, based on quick appreciation in the area.

Often with pre-construction sales, there’s a long lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

How Do Assignment Sales Work?

We completed an assignment sale for a client at 87 Peter Street which was a new building that has occupied, but not registered yet. Our client purchased a 1-bedroom, 1-bathroom condo pre-construction for $320,000.00. He was looking to sell the unit on assignment and listed it at $525,000.00. We received an offer of $500,000 which the seller was comfortable accepting.

Typically, when assignment sales takes place, the seller is looking for a buyer who can provide him with a purchase deposit that equals what he had to put down – usually 20% of the original purchase price. After providing the seller with this sum, the deposit paid to the builder now becomes the new purchasers deposit. Any upside to the seller can be paid based on the negotiated terms – sometimes when the seller gets a mortgage for the condo, or even earlier – it’s all based on terms of the assignment deal.

Overall, assignments sales are not to be overlooked – there can be some fantastic opportunities to get into a highly desirable building that you may have missed out on or purchase a condo that you may otherwise not have had access to. But the importance of working with a realtor and lawyer who know the ins and outs of these deals is the key to making them work for you.

If you’re interested in learning more about Assignment Sale and some of the great opportunities currently available, simply fill out the form below – we’ll get in touch right away.

Assigning Real Estate Contracts: Everything You Need to Know

Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. 3 min read updated on July 10, 2020

Assigning real estate contracts refers to a method of earning money from buying and selling real estate. You find a seller who is eager to sell their property at a price that is far below its market value. Then, you find a buyer willing to pay a higher price for it.

How Contract Assignment Works

The first thing you need to do for contract assignment is to find a motivated seller. This is a person who owns a property, and for some reason, needs to sell in a hurry. This is generally because of a problem they are having, such as needing to move to a new home quickly. You'll need to be able to tell the difference between this sort of seller and someone who isn't in so much of a hurry to sell, and perhaps just wants to know what the property is worth.

You can find motivated sellers by placing ads in the newspaper, marketing on the internet, or sending direct mail. A combination of strategies works best.

The next thing you need to do is to obtain an assignment contract document. You can find templates on the web, but it's a good idea to have an attorney look it over before signing anything. That way, you will know that everything is completely legal. You will also be able to use that attorney if things don't work out as planned.

After the contract is signed, you submit it to a title company or an attorney who handles real estate closings. They will then do a title search. This ensures there are no existing liens against the property. This step is crucial because you do not want to buy a property that has a problem with the title. The title company is objective and independent and therefore makes sure everything is fair and legal.

At this point, you may search for a buyer. This will require more marketing strategies and can be a difficult process, but when you do find a buyer, you can move on to the next step - closing on the property. You'll need to collect a non-refundable deposit known as “earnest money” to make sure the buyer won't back out. If the buyer does change their mind, you get to keep the earnest money. This amount can be determined by you or the buyer.

Next, you get paid! The amount you receive will cover the amount you agreed to pay the property seller, along with an amount you get to keep in return for finding the buyer and making the transaction happen.

While this process takes place, you should make sure the seller understands how the process works , and that you will make a profit from the transaction. Otherwise, either the seller or buyer may decide they don't like the idea of your profiting from the sale and may back out. Reassure the seller that they are still getting the amount agreed upon for the sale.

Most contract assignments are done for $5,000 profit or less, but you can do it for a higher amount if you choose. If problems arise, it's possible to do a double or simultaneous closing, thereby keeping both parts of the sale separate and anonymous. Some title companies may not agree to do this, so if it becomes an issue, you should discuss it in advance.

Drawbacks of Contract Assignment

Contract assignment, or wholesaling, can be a  profitable venture , but there are a few pitfalls to watch out for, such as:

• You cannot make any repairs or renovations to the property because you do not own it at any point.
• You cannot offer any type of financing to the buyer.
• You must get the sale accomplished within a short amount of time before the contract expires.
• The process of closing on the property is detailed and can be complicated.
• You must find a buyer who is willing to pay in cash because it's hard to find a lender who will approve a mortgage for an assigned contract.

You also need to check the laws in your state, because in some states it is not legal to market a property that you don't own.

If you need more information or help with assigning real estate contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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How To Navigate The Real Estate Assignment Contract

What is assignment of contract?

Assignment of contract vs double close

How to assign a contract

Assignment of contract pros and cons

Even the most left-brained, technical real estate practitioners may find themselves overwhelmed by the legal forms that have become synonymous with the investing industry. The assignment of contract strategy, in particular, has developed a confusing reputation for those unfamiliar with the concept of wholesaling. At the very least, there’s a good chance the “assignment of contract real estate” exit strategy sounds more like a foreign language to new investors than a viable means to an end.

A real estate assignment contract isn’t as complicated as many make it out to be, nor is it something to shy away from because of a lack of understanding. Instead, new investors need to learn how to assign a real estate contract as this particular exit strategy represents one of the best ways to break into the industry.

In this article, we will break down the elements of a real estate assignment contract, or a real estate wholesale contract, and provide strategies for how it can help investors further their careers. [ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]

What Is A Real Estate Assignment Contract?

A real estate assignment contract is a wholesale strategy used by real estate investors to facilitate the sale of a property between an owner and an end buyer. As its name suggests, contract assignment strategies will witness a subject property owner sign a contract with an investor that gives them the rights to buy the home. That’s an important distinction to make, as the contract only gives the investor the right to buy the home; they don’t actually follow through on a purchase. Once under contract, however, the investor retains the sole right to buy the home. That means they may then sell their rights to buy the house to another buyer. Therefore, when a wholesaler executes a contact assignment, they aren’t selling a house but rather their rights to buy a house. The end buyer will pay the wholesale a small assignment fee and buy the house from the original buyer.

The real estate assignment contract strategy is only as strong as the contracts used in the agreement. The language used in the respective contract is of the utmost importance and should clearly define what the investors and sellers expect out of the deal.

There are a couple of caveats to keep in mind when considering using sales contracts for real estate:

Contract prohibitions: Make sure the contract you have with the property seller does not have prohibitions for future assignments. This can create serious issues down the road. Make sure the contract is drafted by a lawyer that specializes in real estate assignment contract law.

Property-specific prohibitions: HUD homes (property obtained by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-upon property), and listed properties are not open to assignment contracts. REO properties, for example, have a 90-day period before being allowed to be resold.

What Is An Assignment Fee In Real Estate?

An assignment fee in real estate is the money a wholesaler can expect to receive from an end buyer when they sell them their rights to buy the subject property. In other words, the assignment fee serves as the monetary compensation awarded to the wholesaler for connecting the original seller with the end buyer.

Again, any contract used to disclose a wholesale deal should be completely transparent, and including the assignment fee is no exception. The terms of how an investor will be paid upon assigning a contract should, nonetheless, be spelled out in the contract itself.

The standard assignment fee is $5,000. However, every deal is different. Buyers differ on their needs and criteria for spending their money (e.g., rehabbing vs. buy-and-hold buyers). As with any negotiations , proper information is vital. Take the time to find out how much the property would realistically cost before and after repairs. Then, add your preferred assignment fee on top of it.

Traditionally, investors will receive a deposit when they sign the Assignment of Real Estate Purchase and Sale Agreement . The rest of the assignment fee will be paid out upon the deal closing.

Assignment Contract Vs Double Close

The real estate assignment contract strategy is just one of the two methods investors may use to wholesale a deal. In addition to assigning contracts, investors may also choose to double close. While both strategies are essentially variations of a wholesale deal, several differences must be noted.

A double closing, otherwise known as a back-to-back closing, will have investors actually purchase the home. However, instead of holding onto it, they will immediately sell the asset without rehabbing it. Double closings aren’t as traditional as fast as contract assignment, but they can be in the right situation. Double closings can also take as long as a few weeks. In the end, double closings aren’t all that different from a traditional buy and sell; they transpire over a meeter of weeks instead of months.

Assignment real estate strategies are usually the first option investors will want to consider, as they are slightly easier and less involved. That said, real estate assignment contract methods aren’t necessarily better; they are just different. The wholesale strategy an investor chooses is entirely dependent on their situation. For example, if a buyer cannot line up funding fast enough, they may need to initiate a double closing because they don’t have the capital to pay the acquisition costs and assignment fee. Meanwhile, select institutional lenders incorporate language against lending money in an assignment of contract scenario. Therefore, any subsequent wholesale will need to be an assignment of contract.

Double closings and contract assignments are simply two means of obtaining the same end. Neither is better than the other; they are meant to be used in different scenarios.

Flipping Real Estate Contracts

Those unfamiliar with the real estate contract assignment concept may know it as something else: flipping real estate contracts; if for nothing else, the two are one-in-the-same. Flipping real estate contracts is simply another way to refer to assigning a contract.

Is An Assignment Of Contract Legal?

Yes, an assignment of contract is legal when executed correctly. Wholesalers must follow local laws regulating the language of contracts, as some jurisdictions have more regulations than others. It is also becoming increasingly common to assign contracts to a legal entity or LLC rather than an individual, to prevent objections from the bank. Note that you will need written consent from all parties listed on the contract, and there cannot be any clauses present that violate the law. If you have any questions about the specific language to include in a contract, it’s always a good idea to consult a qualified real estate attorney.

When Will Assignments Not Be Enforced?

In certain cases, an assignment of contract will not be enforced. Most notably, if the contract violates the law or any local regulations it cannot be enforced. This is why it is always encouraged to understand real estate laws and policy as soon as you enter the industry. Further, working with a qualified attorney when crafting contracts can be beneficial.

It may seem obvious, but assignment contracts will not be enforced if the language is used incorrectly. If the language in a contract contradicts itself, or if the contract is not legally binding it cannot be enforced. Essentially if there is any anti-assignment language, this can void the contract. Finally, if the assignment violates what is included under the contract, for example by devaluing the item, the contract will likely not be enforced.

How To Assign A Real Estate Contract

A wholesaling investment strategy that utilizes assignment contracts has many advantages, one of them being a low barrier-to-entry for investors. However, despite its inherent profitability, there are a lot of investors that underestimate the process. While probably the easiest exit strategy in all of real estate investing, there are a number of steps that must be taken to ensure a timely and profitable contract assignment, not the least of which include:

Find the right property

Acquire a real estate contract template

Submit the contract

Assign the contract

Collect the fee

1. Find The Right Property

You need to prune your leads, whether from newspaper ads, online marketing, or direct mail marketing. Remember, you aren’t just looking for any seller: you need a motivated seller who will sell their property at a price that works with your investing strategy.

The difference between a regular seller and a motivated seller is the latter’s sense of urgency. A motivated seller wants their property sold now. Pick a seller who wants to be rid of their property in the quickest time possible. It could be because they’re moving out of state, or they want to buy another house in a different area ASAP. Or, they don’t want to live in that house anymore for personal reasons. The key is to know their motivation for selling and determine if that intent is enough to sell immediately.

With a better idea of who to buy from, wholesalers will have an easier time exercising one of several marketing strategies:

Direct Mail

Real Estate Meetings

Local Marketing

2. Acquire A Real Estate Contract Template

Real estate assignment contract templates are readily available online. Although it’s tempting to go the DIY route, it’s generally advisable to let a lawyer see it first. This way, you will have the comfort of knowing you are doing it right, and that you have counsel in case of any legal problems along the way.

One of the things proper wholesale real estate contracts add is the phrase “and/or assigns” next to your name. This clause will give you the authority to sell the property or assign the property to another buyer.

You do need to disclose this to the seller and explain the clause if needed. Assure them that they will still get the amount you both agreed upon, but it gives you deal flexibility down the road.

3. Submit The Contract

Depending on your state’s laws, you need to submit your real estate assignment contract to a title company, or a closing attorney, for a title search. These are independent parties that look into the history of a property, seeing that there are no liens attached to the title. They then sign off on the validity of the contract.

4. Assign The Contract

Finding your buyer, similar to finding a seller, requires proper segmentation. When searching for buyers, investors should exercise several avenues, including online marketing, listing websites, or networking groups. In the real estate industry, this process is called building a buyer’s list, and it is a crucial step to finding success in assigning contracts.

Once you have found a buyer (hopefully from your ever-growing buyer’s list), ensure your contract includes language that covers earnest money to be paid upfront. This grants you protection against a possible breach of contract. This also assures you that you will profit, whether the transaction closes or not, as earnest money is non-refundable. How much it is depends on you, as long as it is properly justified.

5. Collect The Fee

Your profit from a deal of this kind comes from both your assignment fee, as well as the difference between the agreed-upon value and how much you sell it to the buyer. If you and the seller decide you will buy the property for $75,000 and sell it for $80,000 to the buyer, you profit $5,000. The deal is closed once the buyer pays the full $80,000.

Assignment of Contract Pros

For many investors, the most attractive benefit of an assignment of contract is the ability to profit without ever purchasing a property. This is often what attracts people to start wholesaling, as it allows many to learn the ropes of real estate with relatively low stakes. An assignment fee can either be determined as a percentage of the purchase price or as a set amount determined by the wholesaler. A standard fee is around $5,000 per contract.

The profit potential is not the only positive associated with an assignment of contract. Investors also benefit from not being added to the title chain, which can greatly reduce the costs and timeline associated with a deal. This benefit can even transfer to the seller and end buyer, as they get to avoid paying a real estate agent fee by opting for an assignment of contract. Compared to a double close (another popular wholesaling strategy), investors can avoid two sets of closing costs. All of these pros can positively impact an investor’s bottom line, making this a highly desirable exit strategy.

Assignment of Contract Cons

Although there are numerous perks to an assignment of contract, there are a few downsides to be aware of before searching for your first wholesale deal. Namely, working with buyers and sellers who may not be familiar with wholesaling can be challenging. Investors need to be prepared to familiarize newcomers with the process and be ready to answer any questions. Occasionally, sellers will purposely not accept an assignment of contract situation. Investors should occasionally expect this, as to not get discouraged.

Another obstacle wholesalers may face when working with an assignment of contract is in cases where the end buyer wants to back out. This can happen if the buyer is not comfortable paying the assignment fee, or if they don’t have owner’s rights until the contract is fully assigned. The best way to protect yourself from situations like this is to form a reliable buyer’s list and be upfront with all of the information. It is always recommended to develop a solid contract as well.

Know that not all properties can be wholesaled, for example HUD houses. In these cases, there are often anti-assigned clauses preventing wholesalers from getting involved. Make sure you know how to identify these properties so you don’t waste your time. Keep in mind that while there are cons to this real estate exit strategy, the right preparation can help investors avoid any big challenges.

Assignment of Contract Template

If you decide to pursue a career wholesaling real estate, then you’ll want the tools that will make your life as easy as possible. The good news is that there are plenty of real estate tools and templates at your disposal so that you don’t have to reinvent the wheel! For instance, here is an assignment of contract template that you can use when you strike your first deal.

As with any part of the real estate investing trade, no single aspect will lead to success. However, understanding how a real estate assignment of contract works is vital for this business. When you comprehend the many layers of how contracts are assigned—and how wholesaling works from beginning to end—you’ll be a more informed, educated, and successful investor.

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