Northridge, CA · Member since 2009 · 3 posts · 0 votes
I spoke with a lawyer in regards to the idea of "wholesaling" properties and his take was to just write an option contract outright rather than create what is essentially an option contract by including an escape clause. Any thoughts on the legal implications of this? Specificallly in regards to how the courts view such "purchase contracts" which are in essence functioning as an option to purchase. Does anybody know of cases where courts have found such lines as "contingent upon partner's approval" or "contingent upon securing financing" to be weasel clauses?
If anyone can provide some insight into this it would be greatly appreciated. At this point I'm deciding which path to take; outright option contract, or purchase contract with an escape clause. Thanks in advance!
In addition to what Richard stated, your "option contarct" does not give you equitable interest in teh property and therefore, you legally could not market the property for sale as if you were the owner and for example, have an open house. You could however, market your option for sale and sell off your option on the property.
Option contracts have their place and are a viable strategy, but you should consider what your goals are, exit strategies, and consult with a competant RE attorney on these issues.
Generally if someone is going to give you an option you must give them consideration (money). That consideration is theirs to keep whether the option is exercised or not. Writing a purchase contract with escape clauses will allow you to recoup your consideration (earnest money) if you back out using one of the escape clauses. Is your attorney experienced with real estate investing? Doesn’t sound like it.
In addition to what Richard stated, your "option contarct" does not give you equitable interest in teh property and therefore, you legally could not market the property for sale as if you were the owner and for example, have an open house. You could however, market your option for sale and sell off your option on the property.
Option contracts have their place and are a viable strategy, but you should consider what your goals are, exit strategies, and consult with a competant RE attorney on these issues.
Thank you both for your responses. I am familiar with the idea of consideration and am not too concerned about it. What I am more concerned about is how courts would legally view my activities should I ever be sued. What I was getting at was that even though there are people writing purchase contracts with assignment clauses, there are no doubt those that have no intention of buying the property and are, in effect, actually writing option contracts to purchase the property. This is where it gets a little bit grey for me. Investors writing purchase contracts with escape clauses whose true intentions are to, in effect, create an option to purchase the property.
Any recommendations for a competent and reasonably priced RE attorney in Los Angeles? I've been intending to get started doing wholesaling for a while now, but it's really important that I do it right the first time without any major oversights. I can't stand the 9-5, 3 hour drive in traffic anymore and am ready to make the transition. Thanks again!
I understand your concerns on this but in actuality, the PSA is a legal binding contract and when "and or assigns" is added to the agreement or written "this contract is assignable" gives you EVERY legal right to do so.
It does not matter what your "underlying" intentions are. You have the right to purchase and you have the right to assign the contract for another to purchase.
Your intentions are irrelevant as you "true intentions" are written to either buy or assign, both legal.
I appreciate everyone's input. The person that advised me with regards to the option contract was a friend, and did not specialize in real estate law. The reason he gave for advising me as such was that he thought it was best to be as honest and forthcoming as possible with the sellers. I will set up an appointment with an attorney who specializes in RE in a couple weeks. Any suggestions for one in Los Angeles? Thanks again!
Months later...Josh Cantwell, "rementor", (a guru) claims to be using this effectively in a short sale context, and claims in 70% of cases, a recorded memo of options satisfies title seasoning requirements too, as long as it takes 3+ months to get the SS approved/closed, not unusual at all.
It makes sense, but he's also selling a program which I've seen, this sort of thing is never easy until you've got a system in place like he does. In a back-to-back close, he uses hard money to close himself, then resells to his final buyer a few minutes later. For straight wholesaling, this might be tougher, as there's not much time for seasoning to occur; you're limited to cash buyers then.
***"Months later...Josh Cantwell, "rementor", (a guru) claims to be using this effectively in a short sale context, and claims in 70% of cases, a recorded memo of options satisfies title seasoning requirements too, as long as it takes 3+ months to get the SS approved/closed, not unusual at all."***
Ok, I must have missed something here. How are you going to record a memorandum of option on a SS that has not been approved?
***"It makes sense, but he's also selling a program which I've seen, this sort of thing is never easy until you've got a system in place like he does. In a back-to-back close, he uses hard money to close himself, then resells to his final buyer a few minutes later. For straight wholesaling, this might be tougher, as there's not much time for seasoning to occur; you're limited to cash buyers then."***
This is a standard simultaneous close. Save your $ on the Guru course and go talk to your local Title company for free.
I do not agree that options don't give you an equitable interest in property, Don;t take "website experts" opinions as a true fact. Courts have upheld the status of options time after time.
I do agree the reason that I would use a purchase agreement is so I could get back any earnest money, where option money would be forfeited. However, I usually don't put out enough option money to worry about it.
In those cases when I have put out a decent amount of option money I put in the option that the option money will automaticall be applied towards the earnest money deposit required in the attached purchase agreement upon exercise of the option.
So I exercise the option and let the purchase agreement become the controlling document and then escape from there and get my money refunded.
Weasel clauses are often poorly written and the courts have ruled many as constitutionally vague, and thus the clause is ruled as unenforceable and your still on the hook .
I saw a few on this site today that I said to myself good luck on that. The good news is almost all never reach the courtroom, but once there your odds of winning would be like betting green every time on the roulette wheel.
Weasel clauses are often poorly written and the courts have ruled many as constitutionally vague, and thus the clause is ruled as unenforceable and your still on the hook .
I saw a few on this site today that I said to myself good luck on that. The good news is almost all never reach the courtroom, but once there your odds of winning would be like betting green every time on the roulette wheel.
Does anyone have any information regarding court opinions on the "contingent on approval from money partners" weasel clause? Are there any more valid clauses that can be used? I'm not out to be a weasel, but I definitely can't afford to be forced to buy someone's house if I can't find a buyer.