Ethics always win out

2 Replies

I’ve been wholesaling properties for almost five years and it is wholesalers I’m about to tell you about that give wholesalers a bad name, and as you’ll see, agents too. I'll cut to the chase...

July 7th, 2020; I entered into contract with my sellers and set closing to occur by Aug 7th, 2020. It’s worth noting here that I have a clause in my contract that allows for an unspecified extension of closing as required to complete required paperwork or clear liens or encumbrances. ISSUE ONE: My attorney says this clause may be too vague, but it is clear wording so he is on the fence with how the court might view it.

July 22; As is often the case with wholesaling, title search results revealed lien issues on one of my two sellers. As we approached Aug 7th both I and the sellers were fully aware this would not close as lien settlements had not yet been reached with the lien holders. We stayed in communication through this process of several weeks of delay with no mention from them desiring to cancel.

Aug 19; Once lien payoffs were approved we prepared to close. Only to find out my buyer was using a private lender who wanted to use a different property the buyer owned as collateral, not the house I was assigning my buyer.

Between a death in the lender’s family and a vacation this caused another few weeks of delay as a new title search had to be completed on my buyer’s other house being used as collateral.

Now we’re at approx Sept 1; All along the way this information was communicated to the sellers as we moved through this entire process and they never once objected or took issue with the unforeseen delays. They actually reiterated, more than once, they were not in a hurry.

Sept 10; Sellers were scheduled by title to close the following Tuesday via remote close (one is long distance and the other is an open road truck driver who was working). Paperwork was to be emailed to the sellers, printed and signed with a notary and mailed one day air back to title. Again, all is good with sellers in our conversation.

Unbeknownst to me three days earlier, Sept 7; Enter wholesaler number two (also a real estate agent). We'll call him Bill.

Bill somehow connects with my sellers and meets seller 1 in the house. Seller 1 explains to Bill they are in contract with me. Bill convinces seller 1 to provide a copy of my contract for his review. After his review he informs them it is no longer valid since the closing date had expired. ISSUE TWO: Bill - an realtor - provides them legal advice on the spot regarding their contractual obligations with me. Realtors are under a code of ethics that forbids them from providing legal advice. And not only that, he clearly did not read the contract.

Bill then advises them that he is prepared to buy their house and in seller 1’s words, “I felt very intimidated into signing Bill’s contract. It felt like I didn’t have a choice.” ISSUE THREE: According to my attorney, this is known as “undue influence.”

Bill's contract as it turns out is less than bulletproof (as I'm sure no contract is) but hear me out: 1) Seller 2's name is incorrect, 2) the property address is wrong, 3) the parcel ID number has been corrected as it is scribbled through, 4) there is no deposit amount on the contract, 5) the offer on the contract was only good for the day of 9/7/2020 (more on that in a minute), 6) the contract is not assignable. ISSUE FOUR: The contract has many faults and the incorrect address is, according to my attorney, the biggest fault of them all.

Oh, and back to the aforementioned date of offer expiration on Bill’s contract as 9/7/2020, ISSUE FIVE: Seller 2 (who is remote) did not sign until 9/14/2020 only after, in seller 1’s words, Bill made her feel like she had to sign it. More undue influence.

9/15/2020; With none of this being communicated to me by the sellers we closed with the buyers and mailed the sellers paperwork the same day. ISSUE SIX: Never close with your buyers before your sellers. Lesson learned.

9/21/2020; After attempting to reach the sellers for several days, Seller 2 finally replies that they are selling to Bill. I inform them it is not really that easy as we have already closed since no one had ever canceled our contract. I told them both we need to get on the phone to figure this out together. I call Bill (yep, we know each other) to inquire if he in fact has written a contract (at this point I did not yet have a copy of his). He informs me he did so with the sellers “several weeks ago” (Actually 7 days earlier!!) and he has already assigned this to a buyer that is scheduled to close. I explain our status as having already closed with my buyer. He replies that the sellers told him our contract had been canceled. And that his buyers intend to close on the house.

9/22/2020; After a review of my contract my attorney advised me to immediately file a memorandum of interest at the courthouse (which is allowed for in my contract) to freeze the other transaction from occurring and then notify Bill. Also the sellers finally begin to communicate with me and all of the above dots begin to connect. I have another conversation with Bill to notify him of the filed memorandum and he reiterates that his buyers are scheduled to close and that he really has nothing to do with it any longer. Later in the day he calls back asking, on his buyer's behalf, what it would take to buy me and my buyer out of the deal. He also informs me the sellers provided him screenshots of messages they sent me canceling our contract and copies of emails they sent me canceling our contract. ISSUE SIX: My sellers never sent me anything requesting the cancellation of the contract. Bill's lies are all starting to compound.

Between the delays we had encountered and the pressure applied by Bill I guess my sellers felt trapped (my words). For what reason they did not call me or even mention to title they had signed another contract I’ll never understand. Seller 1 even told me on the phone he didn’t know why he did it. And he said he didn’t know why he didn’t call me or tell me he had signed Bill’s. Other than he mentioned he felt like Bill telling them our contract was invalid was enough for him to believe we were out of contract. When I asked about Bill’s comment of them sending copies of messages to him where they had canceled our contract they said, “We never canceled with you. We should have contacted you but we didn’t. Bill asked us to send him a text saying we canceled but we didn’t send him anything.”

9/23/2020; After I had many conversations with my buyer's attorney, my own attorney and the title agency, the sellers agreed to sign the documents based on the feedback these attorneys provided. Note, I continuously reminded them, in texts, I am not an attorney and they need to seek advice as they see fit.

9/24/2020; All the paperwork was received from the sellers and we recorded the transaction. At least the sale is done.

As I mentioned earlier, I know Bill. He has my number. I know he does because he texts me properties when he has them. All it would have taken was a phone call or a text. Something. Tell me what is up. Ask me if the contract was cancelled. Anything.

I’ve built my business around being up front with sellers and buyers to the best of my ability with the information I have available. I’m ethical to a fault and it has cost me deals more than once.

But when you run into wholesalers or agents like this you begin to understand why people have a poor opinion of what we do. Or for that matter why people have a negative opinion of agents.

For what it is worth, in an effort to improve and remain ethical, I have revised my contract to provide more precise language regarding a closing extension and the steps required for the seller to cancel a contract if it extends beyond the original closing date.

I certainly never want to be in this situation again, but more than that I never want a seller to be subjected to such intimidation tactics or lies.

Sadly the reality is this may not be over yet. This could very well result in my first court appearance as a defendant. If it does, I’m going to bat for my sellers and my buyer.

I hope you have learned something from my mistakes that you can glean from this experience. And hopefully you pursue something different than Bill’s completely unethical practices in your own business.

Epilogue: 9/28/2020; My title company followed up with Bill's title company - they know each other - to warn them we had closed. My title company knows Bill as well and they already will not conduct business with him since they have had multiple issues previously with his transactions being, in their words, "less than ethical." And on this one it turns out Bill didn't have anything ready to close, had not assigned the contract and had not communicated any of the above to his title company. Bill now has at a minimum of three attorneys, two title companies, a local mortgage lender, and a broker with all this information in hand. Good luck with that Bill.

Wake me when you get to the part where you show wholesalers have ethics.

You're offering a guy 70% of FMV, not telling him who the buyer is or how much you're pocketing.

Now you complain about ethics?  Swim with the sharks and you get bit sometimes.

Forgot one more thing since I'm a licensed broker, you tell them you're not licensed, but were expecting a fee for arranging the sale of real estate you don't own?

I've been deposed between a buyer and seller, lawyers are always on the hunt for sinners especially those with money in their pockets.

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