Buyer went behind my back

Buyer went behind my back

Investor · New Orleans, LA · Member since 2012 · 51 posts · 29 votes

I had a contract with the seller.  Put it out there and found a willing buyer that I've never worked with.  We signed an assignment contract and I gave him a copy of the contract.  I always feel funny about giving a new buyer I don't know the actual contract, but they need it because it is the contract they are taking over so I guess I have no choice (unless someone can give a tip how to handle this for the future.)  

The buyer then told me that he wanted to get a conventional loan for the property.  I told him since im wholesaling it, I only deal in cash.  He tried to see if he could get the money together but was unsuccessful.  So after a couple days, me and the buyer cancelled the contract. 

Couple days later, I get a text from the seller.  He wanted to get out of the contract cause of tax purposes and plus his wife just got a promotion at work so now they are able to afford to keep it.  My inspection was about to run out and I still haven't found a back up buyer, so I thought Ok i'll cancel the contract and move on.  

Well lo and behold, a few months later I check the assessors office and find the buyers name I was dealing with as the new owner's name.   

I technically do not have any legal recourse since I cancelled the contracts, but its a down right shady move.  I've had this happen only one other time in almost 5 years of wholesaling and it was when I first started out.  

Should I start whiting out the seller's information on the contract before I give it to the end buyer?  

I guess this is what I get for being nice...

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James MasottiPro Member
Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
9y

@Joe Gee - A lot of the wholesalers I know require 10% down at the time of executing the contract for this exact reason. You probably have some sort of escrow with the seller and this 10% from the buyer should more than cover that. This way if both contracts cancel you have deposit from your buyer and you pay the ernest money you gave to the seller. Then you still make money and who cares if your deal fell through, you just got paid for doing nothing. 

Sounds to me like you just need to spend a bit of time sharpening your pencil and updating your systems and expectations. 

To address your other point...yes that's shady of the sell. I recently paid a wholesaler and didn't even have a contract. I'd say it was all done on a handshake but we never even met in person. He just fed me the led, I closed it, and then wrote him a check and said thank you, please come again. This benefits both of us, but not everyone will see business relationships that way. 

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  • Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    9y

    Could you not close on the deal yourself? Sounds like you need to find a money partner or a lender. These issues won't come up if you close on the property, it will be less stress for you and the seller, and you won't get backdoored. 

    I don't know if I'd consider what you did "being nice." You were trying to make money. Nothing wrong with that, I believe in capitalism, but being nice is a stretch.

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    If you were a license to you might have more protection working as an unlicensed broker has its problems.  I never feel sorry for people that skirt the rules to broker without a license

  • James MasottiPro Member
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    9y

    @Joe Gee - A lot of the wholesalers I know require 10% down at the time of executing the contract for this exact reason. You probably have some sort of escrow with the seller and this 10% from the buyer should more than cover that. This way if both contracts cancel you have deposit from your buyer and you pay the ernest money you gave to the seller. Then you still make money and who cares if your deal fell through, you just got paid for doing nothing. 

    Sounds to me like you just need to spend a bit of time sharpening your pencil and updating your systems and expectations. 

    To address your other point...yes that's shady of the sell. I recently paid a wholesaler and didn't even have a contract. I'd say it was all done on a handshake but we never even met in person. He just fed me the led, I closed it, and then wrote him a check and said thank you, please come again. This benefits both of us, but not everyone will see business relationships that way. 

  • San Antonio, TX · Member since 2015 · 35 posts · 12 votes
    9y
    I always stress the fact that it's a cash or hard money deal only before an assignment contract is signed. Once they are aware of this and still want to continue through with the purchase of the property, I would ask for proof of funds. If they're purchasing with a hard money lender, you can request a letter from that hard money lender. Other than that, the only other way to make sure that does not happen is to close on the property yourself and double close. Reputation is everything in the investing world as I'm sure you know, you always want to believe that everything will be ok, but unless you've delt with the person before, there's no way of knowing.
  • El Cerrito, CA · Member since 2015 · 257 posts · 129 votes
    9y

    @John Thedford we don't know if he has his license or not. Don't be so quick to judge. 

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Doug Woodville

    His profile doesn't show any licensing..but boasts of "wholesaling" which for the most part means unlicensed brokering. Note the post a couple above this stressing to get non-refundable deposits. What a sleazy way to do business in my opinion. How many agents require that? None that I know of..but they are licensed...AND following laws rather than skirting laws to broker without a license. Florida is putting an end to this kind of garbage..and thankfully so. 

  • Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    If you put a property under contract you can't close on and don't even intend on closing on then you're doing so with the hopes you can find someone to "buy" the contract before your option period ends While that buyer is kind of a deek, you have no recourse other than not dealing with him again and letting anyone you know in this biz to be careful. There will always be people out there willing to screw someone to save a buck. Those people don't last long and lose in the long run. I had a broker at a big firm screw me over when I was starting. I haven't forgotten and still won't do business with him or anyone in his team. I know he's lost 6 digit commissions he would have made if he didn't screw me. All to make a few extra bucks on an earlier deal. Can't avoid those people. Just move on when you find one.
  • Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    John Thedford come on man. Lay off the guy. Who cares if he doesn't have his real estate lic. Those are dumb requirements meant to protect the old guard status quo. Like the whole MLS structure and the "secret" 'agent notes'. I say this as an agent myself. I personally don't think the governments role is bless me before they'll "let" me sell a property. Or hell, even cut hair. This kid (I don't say that despairingly) made a few key errors to not protect his interests. He'll live and learn and not make that mistake again.
  • Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    "A down right shady move"  .. from someone who promised to buy someone's house without the ability to perform .. lolz

  • Investor · New Orleans, LA · Member since 2012 · 51 posts · 29 votes
    9y

    @John Thedford

    Boasts about wholesaling?  Where do you get that from?  If you're anti-wholesaling, maybe you shouldn't respond to my post.  You're no help.  

    Oh and since you think so highly of licensed agents, this buyer so happen to be one.  Just cause your licensed doesn't mean you're ethical.  

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Cody L.

    Out or curiosity, there is NO license number and state listed on your profile. You also talk about laws meant to protect the public like that is a bad thing. 

    As to the OP,  it appears they are brokering without a license. Good thing for them they are not in FL because they could not get away with this. I turn in 3-5 people per week for unlicensed brokering and several have got a cease and desist. I just saw one unlicensed broker that has a house tied up until July. I am sure the seller had NO idea what this FRAUD is doing, as do most sellers that sign contracts with other FRAUDS making false representations to get a contract--in legal terms this is called FRAUD BY INDUCEMENT. As to agents doing illegal or unethical actions, I report them as well:)

  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    It is pretty rare and not good business but if you speak with an attorney and really care to do so, I believe you can file to cloud title if you have a contract .  I have only heard of one person actually doing this, but it did work.

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y
    Originally posted by @Ian Walsh:

    It is pretty rare and not good business but if you speak with an attorney and really care to do so, I believe you can file to cloud title if you have a contract .  I have only heard of one person actually doing this, but it did work.

     I would be VERY careful screwing with someone's title. That could lead to a lawsuit by the affected party. Whats wrong with operating HONESTLY---being licensed, and CLOSING if you sign a contract. Note one of the posts above where they talked about non-refundable fees---and making money EVEN IF there is no sale of the property. SLEAZY!

  • Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y

    To the OP - You willingly gave up the contract because you couldn't purchase the property and couldn't find a buyer.  The buyer couldn't go through you because they didn't have the cash.  The seller wasn't benefiting from you because you couldn't buy the property or find a buyer.

    While you brought the property to a buyer, you didn't bring it to the right buyer (one with cash).  I don't think it's shady at all.

  • Investor · New Orleans, LA · Member since 2012 · 51 posts · 29 votes
    9y

    @William Walker

    It is my fault to some degree that I trusted this "buyer" with the seller's information. Its why im writing this post so others can protect themselves if dealing with buyers they don't know.  I've done this many times without incident and work with several repeat buyers who I trust.  I didn't think that the "buyer" would call the seller, and they would come up with a plan to lie and get me out of the deal.   Lesson learned.  

    I understand some of you are against wholesaling.  I get it.  It is a legal gray area.  But im pretty sure the lawyers and title companies I work with wouldn't be risking their licenses to work on these deals if they weren't legal.  

    Maybe I should have posted in the most popular real estate strategy, the wholesaling thread that BiggerPockets offers to its members. I probably would have gotten better support instead of criticism on how I should invest in real estate.  Maybe we'll report them too for offering a platform for this kind of disgusting "garbage" behavior. 

    Thanks to the members who did offer some advice.  Much appreciated. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Ian Walsh  you don't want to cloud a title if you really have no money.

    and your sole purpose in business is to tie up properties on an inspection contingency when you are REALLY tying it up to try to assign it..

    that's what gives me the heartburn.. is these contracts are entered into fraudulently.  And frankly they are not enforceable if a trier of fact were to get involved.. tell the judge Hey I tied up the home I don't have the money to buy it but I told the seller I am a cash buyer.. and my inspection contigencie is really to buy time to flip it... LOL>.

    For those that do this and its legal in their state and they are UP FRONT with the Seller about their intentions.. IE they have no intention of personally closing. well that's one thing.

    @Cody L. fairly certain the state of CA will shut down folks for advertising homes they don't own. there is a link right on the website.. and there was a module about it when I did my CA brokers CE.

    regardless if its good or bad to license real estate it is the law.. for most folks the real estate is the most significant possession or investment... so some regulation is warranted.

    you need a medical license, a license to practice law, a license to do tax's , a license to fly a plane, a license to drive a car..   do people do all of those activities without the proper licenses for sure they do.. but when they get caught they get  in trouble.. :)

    it really comes down to how states want to regulate their industry.. its apparent FLA ( which has seen massive real estate lending fraud) is cracking down.. OHIO same.. Oregon you will get in massive trouble advertising a property you don't own.. and I suspect if I go to the BRE website and turn in a unlicensed wholesaler who is advertising on their website or craigslist a home they don't actually own they will get a visit as well.

    simple solution in states were they could give a rip about wholesaling the way its taught or those that go about it is to simply be honest with the seller.. in states that enforcing the laws that are already on the books.. then close then resell.. simple as that.

  • Real Estate Agent · Sarasota, FL · Member since 2016 · 91 posts · 26 votes
    9y

    @Cody L. Hey Cody, going forward there are a couple points which people have hit on.  1) Have a mentor/partner that is willing to close on a good deal you have under contract should you not be able to find a suitable buyer within your contingency period. 2) Require a non-refundable escrow deposit in the form of cash or cashier's check from your buyer and get this when the contract is signed. 3) With a buyer, you've never done business with before you can ask for proof of funds, but this goes back to the escrow deposit requirement.

    @John Thedford What Florida rule changes are speaking of?

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Dane Peterson

    The state has addressed the unlicensed brokers using contracts as a way to circumvent licensing laws. It is addressed specifically in 475.43. Here is the statute:
    475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

    What happens when people violate the statute? Usually a cease and desist the first time but the state does have the option of asking for a prosecution.

    This guy was using contracts to circumvent licensing law and advertising properties he did not own:
    https://www.myfloridalicense.com/sto/unlicensedact...

    This is why most of these guys have gone underground. They know darn well they are breaking the laws but don't care---not exactly the type of people I would trust!

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Dane Peterson  there is some FLA statue that John quotes.

    however when you read virtually any states regs for what activites require a real estate license

    it will be a version of this:

    For any individual or company that for expectation of monetary gain is bringing two parties together in a real estate transaction a license is required.

    Its really licensing 101.

    This wholesaling as its taught caught fire on the internet and guru's and of course there is never a mention of the legalities of it.. LOL... so people just follow the lead of others Oblivious to the law and or they hide behind the equitable interest theory.

    Which will get shot down if you have an entire business that is created to basically make compensation bringing parties together and you never actually buy anything.

    I have funded many hundreds of wholesale deals in and around the Orlando area.. but the wholesalers were all licensed RE companies... Altura being the largest... they have since closed since wholesaling in any volume is done in that market.

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y
    Originally posted by @Jay Hinrichs:

    @Ian Walsh  you don't want to cloud a title if you really have no money.

    and your sole purpose in business is to tie up properties on an inspection contingency when you are REALLY tying it up to try to assign it..

    that's what gives me the heartburn.. is these contracts are entered into fraudulently.  And frankly they are not enforceable if a trier of fact were to get involved.. tell the judge Hey I tied up the home I don't have the money to buy it but I told the seller I am a cash buyer.. and my inspection contigencie is really to buy time to flip it... LOL>.

    For those that do this and its legal in their state and they are UP FRONT with the Seller about their intentions.. IE they have no intention of personally closing. well that's one thing.

    @Cody L. fairly certain the state of CA will shut down folks for advertising homes they don't own. there is a link right on the website.. and there was a module about it when I did my CA brokers CE.

    regardless if its good or bad to license real estate it is the law.. for most folks the real estate is the most significant possession or investment... so some regulation is warranted.

    you need a medical license, a license to practice law, a license to do tax's , a license to fly a plane, a license to drive a car..   do people do all of those activities without the proper licenses for sure they do.. but when they get caught they get  in trouble.. :)

    it really comes down to how states want to regulate their industry.. its apparent FLA ( which has seen massive real estate lending fraud) is cracking down.. OHIO same.. Oregon you will get in massive trouble advertising a property you don't own.. and I suspect if I go to the BRE website and turn in a unlicensed wholesaler who is advertising on their website or craigslist a home they don't actually own they will get a visit as well.

    simple solution in states were they could give a rip about wholesaling the way its taught or those that go about it is to simply be honest with the seller.. in states that enforcing the laws that are already on the books.. then close then resell.. simple as that.

     The legal term is FRAUD BY INDUCEMENT. We have a local seller who is counter-suing alleging not just that but violation of FDUPTA (unfair trade practices), as well as other claims. 

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    Once the trial is finished in Collier County, provided the defendant wins, I am going to encourage owners to start suing these FRAUDS that put houses under contract with no intention of closing. Education will go a long ways in helping sellers from being victims and once one of these fraudulent operators get sued I am sure the news will travel fast. I turn in an average of 3-5 per week and several have already gotten cease and desist letters. 

    This guy was in trouble before, and is now under investigation for a second time. If found legally culpable, the state very well could file a 3rd degree felony charge of brokering without a license. He is the plaintiff in the case in Collier County mentioned above:

    https://www.myfloridalicense.com/sto/unlicensedact...

    https://www.myfloridalicense.com/sto/unlicensedact...

    If you want to look up anyone for allegations of unlicensed brokering here is the link:

    https://www.myfloridalicense.com/sto/unlicensedactivity/index.asp?SID=

  • Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y

    @Joe Gee I'm really not anti wholesale. I'm against shady wholesalers who lie and deceive buyers and sellers and I'm not saying that is you at all. 

    What I'm stating regarding your original post is that you didn't provide a service to the seller in that you didn't bring a buyer, and you didn't provide the buyer with a service in that you didn't bring them a house they could buy. That is without going through a mortgage, and they couldn't do that through you.  So it's difficult to side with your frustration when you weren't really helping either party. I'm not saying that because you're a wholesaler, I'm saying that in business you have to provide something to make money. 

    You seemed fine with dropping your contract with the seller, so why are you upset he then sold the property??  Because that's what this is really coming down to. If he sold it to someone else would you be just as mad?  Either way you didn't make any money. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @John Thedford  that's an interesting statue.. it gives the wholesaler a way to do business.

    they simply need to make contracts with NO contingencies and put up a big non refundable EM up front.. then the state feels that have a true interest in the property that can be resold prior to owning it.. that's the way I read this.

    so the 50 dollar EM and 17 contingencies does not fly.

    but the idea of mirroring a real estate brokerage activity with website and craigslist adds.. I suspect even with those non contingent offers and substantial non refundable EM .. would still get looked at and probably shut down.. other wise why even have a real estate industry... it could be like China were there is no RE industry anyone can do anything they want at any time.

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Jay Hinrichs

    They still cannot ADVERTISE the property! If they do and are reported, the state has a presumption of brokering and they must PROVE they are not. I am not sure how to do that:)

  • Los Angeles, CA · Member since 2016 · 147 posts · 27 votes
    9y

    Did you disclose you were going to assign it?  Could you have really closed on it?

    If no, then not a shady deal. 

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