Who is liable to close in a contract assignment wholesale

Question

If you place a house under contract and attempt to wholesale the deal to another party by assigning the contract to purchase, which party is legally obligated to close? A contract assignment addendum has been signed by both the original buyer and the new assigned buyer, but the new assigned buyer is refusing to close. Is the original intended buyer obligated to close or the new assigned buyer?

Jay Hinrichs · Answer

IF you have no intention or ability to close on the deals your contracting for then this is a bummer for the actual seller many times.. and frankly what gives wholesaling or Assigning a bad name..   Each state has their specific rules on this acitivty so its not one size fits all.. much of this issue is if your really selling real estate without a license some states thats what you would be doing and its not legal..  IE business plan is to tie up property with NO ability or intention to close on it..

So in essence bringing a buyer and seller together for compensation..  I would run this by the CO  real estate authorities and see what they say.  Thats usually free and you hear it from the actual regulators..

Dan Maciejewski · Answer

What does the initial contract say?  My state Realtor / Bar contracts have a liability clause.  You have to select whether or not it is assignable, and whether or not the original signer gets released from liability if it does get assigned.

If you are using your own P/S, I would think you would want that addressed, especially if your business plan is built around assignation of contracts.

I am not a lawyer but I would think that without that wording, the contact forces the signer to perform if the assignee doesn't.

If you haven't already, get a lawyer to draw up a P/S agreement that will hold up under scrutiny.

Alicia Harrington · Answer

@Chris Gomes, I agree with others on this post, check the laws in your state, check with your attorney if the other party backs out, you may be on the line to purchase since you are the one who initially signed as the buyer.  Good luck and keep us posted on the outcome.

Alicia J. Harrington

Steve K. · Answer

@Chris Gomes totally depends on the contract and how far into the deal you are. If you’re using the CO state-approved form, it depends on whether you’ve checked the “contract is assignable” box/ how and when you’ve assigned the contract, and also whether or not you’ve checked the “specific performance” box. It also depends what contingencies there are (inspection, appraisal, due diligence, financing, insurance, etc.) and what the deadlines for those are/ if they’ve passed or not. If you’re not using the state-approved forms then it depends on how the contract is written. If the buyer is in default of a legally binding contract, the seller can sue for specific performance and if they’re successful they can hypothetically enforce the terms of the contract. That’s not very common though, especially if it’s apparent that the buyer doesn’t have the ability to close anyway. The seller can potentially also sue for damages (if they’ve suffered any), but that’s not very common either in my experience. The buyer has a lot more “outs” than the seller does, but it’s obviously bad form and frowned upon to back out of deals without a legit reason.

Jay Hinrichs · Answer

Ya just call down and give a hypothetical.. LOL..  in our market our real estate Board has a hot line manned by local attorneys so pretty easy to get free advice that is not tainted by those trying to sell their systems.

Nick C. · Answer

The contract will dictate who is legally liable. The verbiage you're looking for will read something like: "may assign will be released/not be released from liability".

Having said that, if this scenario ever escalated and got in front of a judge regardless of what the contract says, a seller is going to have a much stronger case against the wholesaler than the wholesaler will have against the end buyer.

Johnson O. · Answer

@Chris Gomes, find out why the assigned buyer refused to close on the deal. Maybe the deal didn't may sense after thoroughly inspection. If there's still time, look for a new buyer.

Wayne Brooks · Answer

Assigning a contract does not necessarily remove the middleman from his obligations in the original contract with the seller

Matt M. · Answer

I have a feeling he isn't going to turn himself in;)

It depends on the contract. The one's I've seen, the new buyer assumes the role of the original buyer. Hopefully he/she put up some earnest money and not you.

Who is liable to close in a contract assignment wholesale

Most Popular Reply