Oklahoma City, OK · Member since 2017 · 47 posts · 21 votes
I'm in the final stages of buying my first investment property here in Oklahoma City, where I live. I'm buying from a wholesaler, who has been very unreliable. I thought the deal was going to fall through several times. We are scheduled to close next week, and all along she led us to believe that she would close on the same day as us at the title company of her choice, and then we would close later that same day at our title company (turns out its the same company, just a different office). Now she says she needs us to close first so that she has the money she needs to close the other deal. This seems a little backwards to me, but okay, fine. Should I insist that she close at my same title office at the same time as me though? I feel like I might be a sucker if I give her all that money and let her walk away without any real guarantee that she is going to close her end of the deal. I suspect my bank my have a problem with that too. Am I being paranoid?
@Chris Sullens you cannot CLOSE FIRST & give her money its impossible to do that. She must be very new to this. She doesn't own it. She's probably worried about you or the sellers finding out how much she's making, and probably doesn't have the funds to close, which is technically illegal in Oklahoma. But if its a good deal for you, you can make the deal work.
Its a simple wholesale deal really. You will need a title co that knows what they're doing though. You need to do a "simultaneous close" with A-B, B-C, and C's funds are funding the entire transaction. A: Owner, B: Wholesaler, C: YOU (Buyer). The wholesaler only ever owns it on paper for a matter of minutes.
You will all close with the same title and escrow agent. All three parties will sign, there will be two sets of closing docs.
Set 1: From SELLER (A) to WHOESALER (B)
Set 2: From WHOLESALER (B) to BUYER (C)
You'll pay your money to the Title/Escrow company.
The wholesaler will sign both sets 1st one transferring from A-B and 2nd one transferring from B-C. Example: First set is for $50,000 plus closing cost, second set is for $55,000 plus closing cost. You'll pay $55K + Closing Costs (minus any prorated taxes), Seller will receive $50K - any prorated taxes; Wholesaler will receive the $5K difference.
You are not being paranoid, there is a lot of risk for you in this transaction. You should insist on both closings happening at once in the same office. PM me if you need a contact for a good title attorney/closing company that understands this transaction.
Do you have a copy of the contract between the wholesaler and the seller? Even assuming there is a good contract there, you still need the seller to show up and sign the deed at closing. If he/she doesn't show, you have bought a lawsuit instead of a house.
I was under the impression that in Oklahoma, signing a purchase agreement without access to the necessary funds to close the deal, was illegal. In this case, wouldn't the way she's doing business as a wholesaler be illegal, sense she doesn't have the funds until AFTER the buyer closes?
@Chris Sullens you cannot CLOSE FIRST & give her money its impossible to do that. She must be very new to this. She doesn't own it. She's probably worried about you or the sellers finding out how much she's making, and probably doesn't have the funds to close, which is technically illegal in Oklahoma. But if its a good deal for you, you can make the deal work.
Its a simple wholesale deal really. You will need a title co that knows what they're doing though. You need to do a "simultaneous close" with A-B, B-C, and C's funds are funding the entire transaction. A: Owner, B: Wholesaler, C: YOU (Buyer). The wholesaler only ever owns it on paper for a matter of minutes.
You will all close with the same title and escrow agent. All three parties will sign, there will be two sets of closing docs.
Set 1: From SELLER (A) to WHOESALER (B)
Set 2: From WHOLESALER (B) to BUYER (C)
You'll pay your money to the Title/Escrow company.
The wholesaler will sign both sets 1st one transferring from A-B and 2nd one transferring from B-C. Example: First set is for $50,000 plus closing cost, second set is for $55,000 plus closing cost. You'll pay $55K + Closing Costs (minus any prorated taxes), Seller will receive $50K - any prorated taxes; Wholesaler will receive the $5K difference.
This is what you get when you deal with unlicensed brokers. Most have NO education and many have NO money. They want to broker real estate without a license by skirting laws. She is a perfect example. You will find a thousand FRAUDS AND SCAMMERS playing this same game on BP. I would bet 1K she led the seller to believe she is a "buyer". If she LIED TO THE SELLER, what are the odds she has LIED TO YOU? Why deal with these types in the first place? Here is what I suggest before anyone deals with these types of operators:
BEFORE you deal with any unlicensed broker consider these ideas:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
6. Always demand to see a copy of their contract.
Remember, these are middlemen trying to play RE agent without a license. Make sure they provide GOOD comps. Make sure if they are representing an ARV value make them provide ARV comps. If they make claims about rehab costs, make them provide WRITTEN bids from contractors. They are brokering real estate so make them PROVIDE good quality information like you could get from a licensed broker. Many of these unlicensed brokers simply make up figures that sound good but cannot back them up.
Unlicensed brokers generally have no insurance. From personal experience most just pull their ARV out of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.
I hope you didn't get them a non-refundable deposit. Personally, I would turn them in to the state.
If you help a scammer out, you will be promoting future scams by them.
You should change the title of your thread to "UNLICENSED BROKER WANTS ME CLOSE FIRST"
I believe what she wants is illegal. I am pretty certain there was a federal law enacted several years ago to stop this type of transaction. @Bill Gulley
@John Thedford Not sure, just know I've purchased a few through wholesalers that went through that process. I personally didn't care what they were making, all I cared about was what it was costing me and that I got a clear title.
The only reason most would want to do this would be so buyer and seller do not know what they're making. But yes, if she doesn't have the ability or intentions of ever closing, its wrong.
If I had on going issues with her like he has, I'd probably look up who the owners are and go direct to them myself.
I am 99.9% sure it is ILLEGAL to close using the buyers funds (if you are an unlicensed middle-man). @Bill Gulley or @Jay Hinrichs may have some input. You know my feelings about most of these scammers but I would give you credit for not using deception and walking away.
Thanks Jay. I just verified with another person that this is ILLEGAL in all states. My information came from the owner of a title company...and they stated this is not FL law but instead federal law.
This is called a double close, and your wholesaler needs to come up with their own money first, which is where hard money lenders can help. This is only important to a wholesaler when they don't want you to see how much money they are walking away with.
You said this wholesaler has been a challenge, and I'd guess this might be there first deal.....
normally these types of transactions are facilitated with transactional funding.. although I would think a state could take the case your selling RE without a license if you advertise the home forsale prior to closing on it.. but who knows each state is different.
@Jeff Filali, how does this help them prevent me from seeing how much they are making on the deal. If they closed the deal first, I still wouldn't know right? Is there another way of doing this deal that is more typical but where I would know how much the wholesaler made?
This is called a double close, and your wholesaler needs to come up with their own money first, which is where hard money lenders can help. This is only important to a wholesaler when they don't want you to see how much money they are walking away with.
You said this wholesaler has been a challenge, and I'd guess this might be there first deal.....
Actually this transaction is called a simultaneous closing as a double closing is where buyer B funds seller transaction A with their own funds or borrowed funds then sellers to party C who funds with their own funds. The simultaneous closing is where party C funds ar used to close the A-B and up until a few years ago, FL was the only place you could still do that as all other states and or title companies do not allow it anymore. Now, to my knowledge, it is illegal in any state ( I may be wrong thee but definitely illegal in your state perhinfo provided by others).
If this wholesaler has been anything but reliable or upfront with you, why on earth would you even consider continuing to deal with her? I don't care how good the deal looks to you, if it goes bad, you will be one sorry party.
Why not just close on the property between you and the real seller. Period.
Just put the wholesalers fee on the HUD statement. Why would they be closing at all?
Chris Sullens you mention a bank. Are you just referring to you funding the deal from your account and wiring funds? Or is the bank actually funding the deal putting a mortgage on it? If it's the latter then the bank is gonna see that he wholesaler is not title and they will not fund. Some hard money lenders might consider doing that but not the experienced ones. As far as letting a wholesaler use your funds to close the First transaction (AB transaction or Frontside Escrow whichever you want to call it) - I would highly recommend you to not do that. You lose control of the deal and that is not legal in many states like these other gentlemen have pointed out.
I'm assuming this is a great deal and you do want to close. You also don't want to lose out on the deal or your earnest money if it is non-refundable by now. The simple way to get this transaction done is to have the wholesaler do a name change addendum (change the vesting) where she changes the name from her entity or personal name (however she contracted the property) to your entity or name. You can also direct the title company to put the wholesalers fee on the settlement statement by writing up an agreement between you and the wholesaler of the fee/invoice that is to be paid to the wholesaler at the close of escrow.
Unless it's an assignment, vesting being changed to your name or the wholesaler is using his/her funds to close on the first transaction, I would not recommend this type of transaction. It gives you less control and a much higher exposure to risk when you're letting someone else pass-through your funds to close the first transaction.
I would definitely call a real estate attorney or a local broker who has experience with wholesaling before proceeding as laws are different from state to state.
Chris Sullens That deal is not going to close. The underwriter(bank) is going to see that the wholesaler is not on title and they will not fund. Bank will see that the chain of title shows the original owner as owner of record and your contract shows the wholesaler as the seller who you're in contract with. I flip and wholesale properties for a living. I'll be the first to be admit if I'm wrong but I've come across this same issue multiple times in Texas where I'm from and California where I currently reside. Every time this is the case the deal hasn't closed because the bank will not fund.
@Saad Khan, I'm afraid of exactly that. My mortgage agent already knows that we are purchasing from a wholesaler who is purchasing the house and selling it to us on the same day. She said that it was unusual, but that "it is done." I don't think she realized that we would be doing this at the same time and the the wholesaler would not have their own funds. We are going to discuss with my mortgage agent and title company to see what options there are here. I really hope we can close this deal. After this thread, one thing I know for sure, if this is going to work at all, we are going to have to close at the same time in the same office. Either that, or convince them to use an assignable contract.
