Wholesale deal turned to be a mistake! (What would you do?)

13 Replies

We (My wife and I) bought an off market property for flip from a wholesaler with 5k down (non refundable if we back out). 

4 days before closing, wholesaler called us to let us know that the seller doesn’t want to sell the property anymore; I quote ‘probably has dementia'. But they still wanted to proceed with the closing as they assume that seller ‘may come around’. As per the contract, they still have 14 more days from the settlement date in case of any issues. I assume they want to pressure the seller on selling as per the binding contract. However, at this point we want to back out now because:

1) The whole deal seems sketchy

2) The rehab quotes from GCs ended up being much higher than our estimates 10-15k higher

3) Utilities are not turned on so there is a BIG possibility of more unknown expenses coming our way.

4) This will be a case of double closing so we won’t really know if the seller actually closed with the wholesaler. We will need to wire the funds a day before closing and if the seller doesn't show up on closing then wholesaler would extend closing to a future date and our funds will be stuck...

The dilemma here is if should we wait for the seller to back out so we can get our 5k back or back out anyways and loose 5K because of all the above reason.. leaning towards later.

What would you do? TIA. 

I bet your 5k is long gone unless its in escrow with clear escrow instructions.  if you wire in the money to close its not stuck.. you can ask for it back. Earnest Money though is stuck without mutual release.  red flags all over the place on this one

They’re saying they think their seller has dementia? I think I would hang on to that email/text and ask for my money back. I don’t think they’re going to want to stand in front of a judge and say we had a deal with this person who had dementia so we’re not returning any money.  

Even if you do close, if the seller has dementia, that sale can be reversed and you can loose everything you put into the rehab. No judge will have mercy on you buying from an incompetent seller. If that seller has friends or family you could lose out a lot more than $5k. I'd let the scammer, or wholeseller, know that you require that the seller be evaluated as competent since he brought it up...or ask if the seller has someone with a POA that is signing for the seller. (And that person should not be the scammer.)

Lots to unpack here. First, you are only on the line for $5,000. You should be willing to walk if you have serious doubts about completing the transaction. You don't mention how much you think you will net on this once you turn it, but for us we always anticipate estimates going over, and we don't even consider doing a deal unless we see netting $50k on the deal... so $10k over still means netting $40k. Point being, you need good margins to do flips. If the seller is wanting to back out, it would be up to the wholesaler to sue the seller to perform. Long story short, they are likely to not want to spend the money to try that - especially when they are questioning the mental capacity of the seller, and given 14 days of additional time your contract would expire and you could request your escrow back. It would also take WAY longer to bring that action and you would be off the hook after the 14 days where they were trying to get him to perform. I see far more of the challenges with the wholesaler. I wouldn't worry about wiring your funds to much. At any time you could walk and just notify the title company you were walking and you would only be out the 5k and they (should) immediately return your excess funds. I think you need to ask yourself - is the property worth it - not worrying about the seller... just the property. If yes, keep going... if not... walk away and consider the $5k an opportunity cost that you are willing to give up to break free from the deal. If someone acts on behalf of the seller after the fact regarding the dimentia claim, I would see it being the wholesalers problem... not yours. Your transaction is technically completely separate from theirs. With all that said, I would go to the wholesaler and just tell them - from everything you are hearing from them you don't think this is a deal they should try to be completing and they should agree to back out of the deal with their seller. That might give them the incentive to do just that. Let them know you would be in favor of that outcome. That you don't feel comfortable knowing the potential mental capacity of the seller might be compromised. But if they don't, I would wire your money (only to a legit title company - not the wholesalers themselves) so that you aren't held liable for not completing your obligations and forfeit your escrow unless you are just willing to do so. All the best! Randy
Originally posted by @Bill Brandt :

They’re saying they think their seller has dementia? I think I would hang on to that email/text and ask for my money back. I don’t think they’re going to want to stand in front of a judge and say we had a deal with this person who had dementia so we’re not returning any money.  

Any competent  escrow officer or closing attorney that gets any whiff of this IE send that e mail to them..  Will REQUIRE a third party evaluation before they close the transaction  Been there done that .. 

 

Originally posted by @Bill Brandt :

They’re saying they think their seller has dementia? I think I would hang on to that email/text and ask for my money back. I don’t think they’re going to want to stand in front of a judge and say we had a deal with this person who had dementia so we’re not returning any money.  


It's tricky. In email the wholesaler said that seller changed his mind but when I spoke with him he said the seller is a very old person and seems to have dementia. Also, when I spoke with paralegal regarding closing he said that he is not very clear on what's going on and will get back to me.... very weird! 

I would try to bail. The “seller has changed their mind” should be enough to get your earnest money back as well. If they can’t sell, you can’t buy and it’s their fault not yours. Heck, you might be able to sue them for failure to fulfill their contract. But unless you used a Realtor’s association contract, they probably covered their butts. 

@Randall Alan - Great feedback! Thank you. The margin in this deals is not so high. Its a very small property and with 15-20K increase in the estimates I am bound to lose money. The chances are more expenses will show up once we start rehab and much more money at stake. I definitely have some good lessons learned by this experience and might just think 5k as the opportunity cost and move onto my next deal.. not worth the time and hassle to fight it with wholesaler.

@Jay Hinrichs - I tried to tag you in my response to Bill but it didn't work. Anyway - it's tricky. In email the wholesaler said that seller changed his mind but when I spoke with him he said the seller is a very old person and seems to have dementia. Also, when I spoke with paralegal regarding closing he said that he is not very clear on what's going on and will get back to me.... very weird!

Originally posted by @Bill Brandt :

I would try to bail. The “seller has changed their mind” should be enough to get your earnest money back as well. If they can’t sell, you can’t buy and it’s their fault not yours. Heck, you might be able to sue them for failure to fulfill their contract. But unless you used a Realtor’s association contract, they probably covered their butts. 

They are popular nationwide wholesaler and definitely got everything covered for their own protection. I had a very long conversation and wholesaler would just not agree to call this deal off. They think it might be sellers remorse and they are going to make it work somehow...ugh.. 

@Saurin Pandya If they believe seller has dementia then they should get an able family member involved to be clear that selling is in sellers best interest.

You should not move forward if you believe you're "dealing" with such a seller and wholesaler who doesn't know what to do in these situations.

Too many red flags. I would have wholesaler prove that seller and family are ok with the sale. I wouldn't even accept anything written. I would want to be on a call with seller and a family representative and wholesaler.

Seller has "backed out" wholesaler cant perform and seller may not be competent. You should be able to get out of this.

Also, why put 5k down without completing your due diligence? That's hustling backwards.

I hope it all works out. Goodluck!