Fort Wayne, IN · Member since 2010 · 6 posts · 0 votes
I live in Fort Wayne Indiana. Just last year J. T. Radebaugh was charged and jailed for assigning contracts on real estate properties. He made around 800K in 2 years. The local Attorney General filed charges saying that because he didn't have a realtors or brokerage license he couldn't collect fees such as his "assigment fee". That is how the paper described it. They went on to say that he was negotiating a price with the home seller and marking it up to a "cash" buyer and collecting an assigment fee. This sounds an awful lot like what I have been working to do for the past couple months.
Anyone out there have any insight? I would like to think that double closing would eliminate this argument becuase I would essentially take ownership of title and then simply sell again. This can't be any different from buying it myself and selling it a month later in the eyes of the law. Any thoughts. If you want to read the article look up his name on the Journal Gazette of Fort Wayne, IN.
There is definitely more to the story here. It would seem to me that the State of Indiana DID use the fact that he was using an option contract and then assigning the properties rather than being in the chain of title to prosecute him. Now the reason WHY they decided to prosecute was not because he was assigning properties but because his Ponzy scheme was collapsing. He made up to double the purchase price selling the properties on allegedly inflated appraisals (the appraisers had their licenses suspended) to investors that he would then buy the properties back from on land contracts and then rent them out at rents that would not cover the mortgage payments. He stopped paying the investors and they went to the attorney general.
Real Estate Investor · Akron-Canton, OH · Member since 2009 · 53 posts · 46 votes
15y
Could you provide a link to what you read? I search the Gazette's website but I couldn't find that person anywhere. I also search google and nothing came up.
If you email me I can also send a scanned copy of the purchased article. You will have to pay 2 bucks to purchase otherwise.
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Investor · Lehigh Valley, PA · Member since 2008 · 97 posts · 38 votes
15y
Like Johnny P. is saying.....there HAS to be more to this story.....like maybe not paying his taxes or something like that. I know someone who makes close to that and he puts in 60-70 hrs a week at this.
Wholesaling is 100% legal and there are many posts here discussing this topic. I know of Real Estate Lawyers that do settlements where wholesalers are involved.
I got my RE license last year and assigning properties is discussed, in a small part, in the studying materials.
I have personally done over 50 Wholesale deals in the last 4 years and the legality of it has never ONCE come up.
Talk to a good lawyer and RE agent.
This is the key here: You ARE not selling the property itself.....you are selling the paper , the contract, of which the property is attached to. Technically, once the assignment deal is assigned and you can collect your fee, if they back out of the deal you can keep your fee for selling the contract.
That's pretty much it....keep it simple.
Fort Wayne, IN · Member since 2010 · 6 posts · 0 votes
15y
Thank you all for your comments and experience. I am going to get the details of the case at the court house or library this week. If I learn anything else I will post it.
I have also met with a RE lawyer about wholesaling to have my contracts checked and he was the one who suggested I do my research locally on recent cases. I will need to get a second opinion.
Again though, I'm not looking for legal advice, but does anyone side with me on the fact that a double close would eliminate any of the reasons they sited for unlawful actions? I would be showing a vested and finacial interest in the property by taking title during the process.
Roofing Contractor · Spring, TX · Member since 2010 · 69 posts · 21 votes
15y
Then aren't you limited to the number of times you close per year without holding a license? You ain't trying to scare us is ya? I think your full of farts....
Residential Real Estate Agent · Buffalo, NY · Member since 2010 · 14 posts · 6 votes
15y
Wow, what a great posting this is. Scott, I'd like a copy of what you suggested that can be had by emailing you, however I'm new here and I don't know how to get your email. If you know how to do it, please email it to me.
OK, here's the deal on this. And before any of you "pros" out there snub me for being a Realtor, keep in mind that I specialize in your world and i've done hundreds of deals.
So, the law in NY State, which i believe is similar everywhere in the Country, reads as such "anyone who buys, sells, or rents real property for another and for a fee must be licensed." With that in mind, you can still assign any contract. I think that we all agree on this. What I'm talking about is when you have a Realtor write a contract and in the space provided for the buyers name you put "so and so AND/OR ASSIGNS". Anything other than that is not what i'm writing about and anything other than that is probably where your problem is.
Where it gets sticky is the fee. If you're trying to collect a fee for doing it, meaning a sort of side deal that works behind the scenes of the contract - you can easily get into trouble, especially if there's a bank involved in the final step, meaning that the end buyer is using a mortgage. In alot of cases, since no one is harmed there is usually no one to complain. However, there is a growing trend to stop this type of real estate investor activity. Here's the reason why. When you, as the original investor get into this type of deal, you have to remember that if your assignee fails on the contract, you still have a contract and you still have to buy it. As you can imagine, there has been a flood of deals that fail to close when assignee's fail on them and that has created a rally cry for someone to do something about it. So much so, that a lot of Realtors already think it's illegal. It's not, but there's so much bad press about deals falling through because of this there is a desire to put a stop to "and/or assigns" that goes all the way to Washington.
The easy way to avoid all of this hassle is to do a dual closing where you're buying it and selling it at the same time. This way, your purchase price is X on your contract to buy, and your selling price is X + $$$ on your contract to sell, and the $$$ is your "fee". This is clean. Here's a tip for those concerned about dual closing costs. Factor that into the end buyers purchase, get them to agree to pay your closing costs.
Real Estate Broker · Orlando, FL · Member since 2008 · 181 posts · 66 votes
15y
Ok this is why we are assigning the contract....
Why is a realtor involved?? You should be dealing directly with the homeowner as an investor. Unless you are bidding on REO's which are not assignable anyways. Here in FL it's as simple as checking a box on the Far Bar As Is contract that says "Buyer may assign and thereby be released from any further liability under this contract"
Everything is out in the open, there is no "side deal" - the seller knows your intentions and is grateful. The buyer also knows exactly what is happening when they sign the paperwork saying " I agree to pay an assignment fee in the amount of $5,000 to {insert company name} etc etc etc"
HONESTY WORKS PEOPLE, stop thinking you have to do something sketchy to make money!
Don't double close unless its an REO, why pay for transactional funding ( assuming you can't bring the funds to the table) when you can just assign the contract. ITS SO EASY A CAVEMAN CAN DO IT!!!!
There is definitely more to the story here. It would seem to me that the State of Indiana DID use the fact that he was using an option contract and then assigning the properties rather than being in the chain of title to prosecute him. Now the reason WHY they decided to prosecute was not because he was assigning properties but because his Ponzy scheme was collapsing. He made up to double the purchase price selling the properties on allegedly inflated appraisals (the appraisers had their licenses suspended) to investors that he would then buy the properties back from on land contracts and then rent them out at rents that would not cover the mortgage payments. He stopped paying the investors and they went to the attorney general.
So if I understand correctly, he optioned the properties and then assigned them without actually filling out a purchase contract with the seller?
I'm a bit concerned since I've been planning on using an option contract to tie up the property and then executing a purchase contract, before eventually assiging to an end buyer. I had an local Chicago real estate attorney look at my contracts and say it was fine but this does seem a bit alarming.
Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes
15y
I believe " Assignmenet of Contract " is fine as long as all parties involved are informed.
I disagree with Johnny's comment --yes people do make and can make over $400,000 in one year -actually in three months --as a wholesaler --if you have cash and concentrate on upscale homes --over $500,000 ---your spread - fee is much higher--
I am planning to get into whoelsalling this--if any one intereste d- just saw a house -previously valued at $330,000 --is now on auction with minimum bid of $70,000 ---nice to have at $100,000 and Resell for $150,000.
And about --Option Contract " -- yes that can also be assigned for a reasonable fee --such as $3000 or $5000 to other Invetsor-- at the
same price we offered to buy --
Always check with local realtor, RE Attorney and Specifically Hard Money Lender about Assignment VS Double Closing --now some people use the term - Back to Back closing --
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
15y
Originally posted by CHAMPAK SHAH:
I believe " Assignmenet of Contract " is fine as long as all parties involved are informed.
You believe this exactly why? Did you read the articles I posted? Jeff Radabaugh was using "Assigments of Contract" and he now owes almost $1 million in judgments. His buyers would have been signing an assignment which would have clearly informed the buyer of his fee. It would have also been on the HUD-1. This is NOT about disclosure.
Originally posted by CHAMPAK SHAH:
I disagree with Johnny's comment --yes people do make and can make over $400,000 in one year -actually in three months --as a wholesaler --if you have cash and concentrate on upscale homes --over $500,000 ---your spread - fee is much higher--
The only people you will ever hear about making anything close to that kind of money in wholesaling are gurus, and gurus say they make that much so you'll buy their product. I've actually never even seen a guru claim that they've even made that much profit. And upscale homes in this market? That's the hardest hit market in the country. I think you should get your money back, Champak. Somebody sold you a bill of goods.
Originally posted by CHAMPAK SHAH:
I am planning to get into whoelsalling this--if any one intereste d- just saw a house -previously valued at $330,000 --is now on auction with minimum bid of $70,000 ---nice to have at $100,000 and Resell for $150,000.
You haven't even done a wholesale deal and you are on here telling people what they should and shouldn't do and what they can and can't do? WHAT?!?! Really, Champak, you should try talking less and listening more.
Originally posted by CHAMPAK SHAH:
Always check with local realtor, RE Attorney and Specifically Hard Money Lender about Assignment VS Double Closing --now some people use the term - Back to Back closing --
Ahh, no. In the case of doing assignments in Indiana, check with a qualified real estate attorney. I would actually ask them specifically about this case, and see what they have to say about it. Asking a realtor about anything but comps is a mistake. They won't even know what an assignment or double closing is. And hard money lenders? I'm not sure why you would ask them about whether you should assign or double close.
In every state other than Indiana, I would recommend assigning unless you are going to show a large profit, and then I would recommend double closing. REO's and short sales you have to double close, so those are a different category.
The bottom line being that if you are wholesaling in Indiana, you need to seek competent legal advice about doing assignments solely because of this specific case.
Also I talked with the Indiana Attorney General's Office and they wouldn't give me any straight answers on the issue (which I kind of expected) but they did send me over the official complaint, judgment, and punishment. The woman I talked to said that she didn't know of any other cases since or pending that are relevant to assignments but she said that she is unable to verify completely that there aren't any others.
If anybody is interested, message me and I'll send you the file the Attorney General's office sent me.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Ryan Webber:
...
In every state other than Indiana, I would recommend assigning unless you are going to show a large profit, and then I would recommend double closing. ...
Although assignments in PA haven't been prosecuted as in the Indiana case, there are other issues stemming from PA dept of Revenue rules that stipulate colection of Real Estate Transfer Taxes on the assignment. Not illegal in PA, but they want to collect more RTT on an assignment.
An example of how one title company in PA handles this:
http://www.landmarkabstract.com/current_news_and_informatio.html
Investor · Lehigh Valley, PA · Member since 2008 · 97 posts · 38 votes
15y
Originally posted by Jon Frame:
I hear ya Steve, I was in the middle of that when they changed the law a couple years ago. None too happy about it.
There is another way to sell a bank owned property under contract that is cheaper than doing a double close. Has anyone ever created and placed the property in the name of an LLC and then sold the LLC? The contract is attached to the LLC not you. I have acquaintances in the business that use this strategy quite often, I am looking into it more to see what it entails, a good settlement Attorney should be able to arrange the entire transaction. It's worth looking into.
I'm reposting because the ads kept intruding on my post..... :cry:
Real Estate Investor · Aurora, IL · Member since 2008 · 125 posts · 14 votes
15y
I know that here in Illinois you need a real estate license to do a wholesale deal or birddog. According to the Illinois Real Estate Act of 2000, if you sell or are involved in a real estate deal for COMPENSATION then you must have a real estate license. There are exceptions to this law as if its a personal reseidence, etc. I was unaware of this before I started my schooling. What is legal in some states is illegal in others. Though the chances of wholesaling in illinois and getting caught with out a license is slim just depends if you have a complaint filed by a jealous sales agent I guess.
But like you said there is probably a lot more to the story in this case