Seller and Wholesaler Keeping Investor Earnest Money

[Kristine Cassar]

Hi All,

I have a problem that hopefully this community can help me out on. My partners and I recently found a property through a wholesaler. We executed a LOI with this wholesaler with a 14 day option. We sent $10,000 earnest money to the title company. So far, so good. We received the rent rolls, financials, etc 2 days after this. We started our due dilligence and decided on the 10th day that this investment was not a deal that we wanted. We then signed a release with the wholesaler and sent the signed release to the title company. 13 days later we got an email from the seller (who we did not know or have any dealings with) stating that he would not release the earnest money because we had tied up the property for 23 days. We contacted the title company and the wholesaler to try to figure this out. We were under the impression that the EM was being held at the title company under our contract with the wholesaler. Not a word was said about the title company putting the money in escrow under the original contract that we had nothing to do with. Now the wholesaler has gone dark and we just need to find out if anyone else has experienced this or something similar, and how it was rectified. By the way, avoid Dandre Butler (wholesaler) and Michael Johnson (seller). We've been told online that this is a scam they have been running.

[Sean Ross]

Sorry you went through this. Did you submit an LOI only ? No contract ? Get an attorney and be prepared to go to court

[Jay Hinrichs]

first figure out where your 10k went to in reality..  did you wire it to a title company and verify they are real .. or did you simply wire it or send a check to the wholesaler ??? 

you said you contacted the title company..  did they say they had your money ?? 

keep in mind if it is at a title company ( a legit one) it cannot be released without your written authorization.. 

so if you have a contract dispute on time lines.. and the seller wont cooperate  then you have to Sue in small claims or get a lawyer..  keep in mind lawyer fee will eat into your 10k. 

[Scott Mac]

If you think it's a scam, go down the front desk of the Police Department and ask to file a complaint.

[Tom Gimer]

"Not a word was said about the title company putting the money in escrow under the original contract that we had nothing to do with."

IMO, whether or not this statement is true actually depends upon the precise language in both the contract and the assignment. Was the contract assigned with the consent of the seller and the original buyer released? Or is the original buyer still obligated to close?

If the latter, and your assignment included an unconditional right to terminate (and you did so timely), get an attorney to send a demand letter to title for a return of the deposit.

[Patricia Steiner]

Geez...and this is one of many reasons that wholesaling is considered illegal in my state.  Who is your contract with?  Who is your seller?  It sounds like the wholesaler has a contract with the seller and you placed HIS escrow with the title company.  Your contract will stipulate when the inspection period is over and your escrow is no longer eligible for return.  I've never seen an inspection period longer than 15 days and in my market, it has been cut to 5-10 days if you fight for it.  Unless your contract gives you the right to an inspection period of 23 day - or whatever the seller is claiming - you have no legal right.  If your contract states something different, your cure would be with the wholesaler.  You're going to need an attorney if you're within your contractual rights.

And, go get a Realtor/Broker who works with investors and quit paying a wholesaler who has no skin in the game.  You need bench strength - not an unlicensed middle man.  

[Chris Seveney]

A letter of intent is typically non-binding agreement. As mentioned I do not believe the title company cannot release the funds to the seller of the property without your approval. In any case, get an attorney involved. What state is this in, I probably have an attorney that can assist.

[Kristine Cassar]

Quote from @Jay Hinrichs:

first figure out where your 10k went to in reality..  did you wire it to a title company and verify they are real .. or did you simply wire it or send a check to the wholesaler ??? 

you said you contacted the title company..  did they say they had your money ?? 

keep in mind if it is at a title company ( a legit one) it cannot be released without your written authorization.. 

so if you have a contract dispute on time lines.. and the seller wont cooperate  then you have to Sue in small claims or get a lawyer..  keep in mind lawyer fee will eat into your 10k. 

Yes, We verified that it is a real Title Company before we wired the money. Every time that I have used a wholesaler, my contract has been with the wholesaler and earnest money (if required) was deposited based on my contract with the wholesaler, not for the seller contract. 
We are filing in small claims court tomorrow. I was just wondering if it's normal for a title company to take funds from someone and apply them to a escrow account that has nothing to do with us.

[Kristine Cassar]

Quote from @Patricia Steiner:

Geez...and this is one of many reasons that wholesaling is considered illegal in my state.  Who is your contract with?  Who is your seller?  It sounds like the wholesaler has a contract with the seller and you placed HIS escrow with the title company.  Your contract will stipulate when the inspection period is over and your escrow is no longer eligible for return.  I've never seen an inspection period longer than 15 days and in my market, it has been cut to 5-10 days if you fight for it.  Unless your contract gives you the right to an inspection period of 23 day - or whatever the seller is claiming - you have no legal right.  If your contract states something different, your cure would be with the wholesaler.  You're going to need an attorney if you're within your contractual rights.

And, go get a Realtor/Broker who works with investors and quit paying a wholesaler who has no skin in the game.  You need bench strength - not an unlicensed middle man.  

 My contract is with the wholesaler. My contract stipulates that I have 14 days to terminate the contract and receive my earnest money back. I terminated (and got the termination signed from the wholesaler) on the 10th day. My contract was not with the seller but even the contract between the wholesaler and seller states that earnest money is fully refundable and the wholesaler had an option to terminate the contract for any reason, at any time.....

[Kristine Cassar]

Quote from @Chris Seveney:

A letter of intent is typically non-binding agreement. As mentioned I do not believe the title company cannot release the funds to the seller of the property without your approval. In any case, get an attorney involved. What state is this in, I probably have an attorney that can assist.

 State of Texas

[Greg H.]

So my guess is the wholesaler used your earnest money as “his” earnest money.  The seller probably thinks he is keeping the EM of the wholesaler. 
I would try to get the Title Company to explain the situation to the seller. However, you might has a problem on your hands if the seller does not cooperate. 

[Wayne Brooks]

@Kristine Cassar To be clear….we’re you buying this through 1) an Assignment of the original contract(which is different than a purchase agreement) or 2) a straight purchase agreement contract between you and the wholesaler as the “seller”? 
If you signed the latter, a straight purchase contract with the wholesaler as the Seller, then yes, title company screwed up, as the actual owner was not even a party to your contract.

You said you signed a LOI, which is odd for simple house purchase, so maybe you signed kind of hybrid/convoluted agreement?

[Kristine Cassar]

Quote from @Wayne Brooks:

@Kristine Cassar To be clear….we’re you buying this through 1) an Assignment of the original contract(which is different than a purchase agreement) or 2) a straight purchase agreement contract between you and the wholesaler as the “seller”? 
If you signed the latter, a straight purchase contract with the wholesaler as the Seller, then yes, title company screwed up, as the actual owner was not even a party to your contract.

You said you signed a LOI, which is odd for simple house purchase, so maybe you signed kind of hybrid/convoluted agreement?

It was an assignment of original contract. I was told by the wholesaler that he required $10,000 earnest money. He never said that I was paying the earnest money for his contract with the seller. Also, sorry for the confusion, this was for the purchase of a 24 unit apartment complex, hence the LOI.

[Wayne Brooks]

Quote from @Kristine Cassar:

Quote from @Wayne Brooks:

@Kristine Cassar To be clear….we’re you buying this through 1) an Assignment of the original contract(which is different than a purchase agreement) or 2) a straight purchase agreement contract between you and the wholesaler as the “seller”? 
If you signed the latter, a straight purchase contract with the wholesaler as the Seller, then yes, title company screwed up, as the actual owner was not even a party to your contract.

You said you signed a LOI, which is odd for simple house purchase, so maybe you signed kind of hybrid/convoluted agreement?

It was an assignment of original contract. I was told by the wholesaler that he required $10,000 earnest money. He never said that I was paying the earnest money for his contract with the seller. Also, sorry for the confusion, this was for the purchase of a 24 unit apartment complex, hence the LOI.

So, did you execute an "assignment of contract" or did you do an "LOI"….I don't know how you could do both.

Did you get a copy of the “original contract” that is being assigned?