How Do I Wholesale Pre-Foreclosure Properties?

29 Replies

Ok, I have two good deals but they are pre-foreclosure properties and I'm a Wholesaler. How do I close the deal with a Pre-Foreclosure? I'm lost because I know about closing deals with FSBO properties. Do you do pre-foreclosure the same way, Contract with seller

Can’t help you, since I try to discourage wholesalers, those without the ability or intent to buy anyway, from dealing with people in foreclosure. Since the most likely outcome is that you get it under contract, you can’t wholesale it, the owner incorrectly thinks they have actually sold their property and solved their problem, made plans to move, you bail and now they don’t have time to sell it to a real buyer. Not a good thing to be running around doing to people.

Write an all cash offer with quick closing, and then resell what you OWN. Quit drinking the koolaid.

I was told as long as you have a cash buyer ready to buy you can wholesale the deal and that's legal in my state Arizona. So example if the homeowner owns $25,000 on their house and I put it under contract for $35,000 to sell to an end buyer then I can wholesale it to the end buyer and now the foreclosure process stopped and the loan is paid completely off. The homeowner just has to move out.

what folks are alluding to.. is what happens when your deal craters like they do sometimes .. the seller is really hurt thinking they had it sold but it does not close and they lose the house.

in Oregon its illegal for someone like you to even talk to anyone in foreclosure .. you must be a licensed foreclosure consultant and your income is established by the state.. every state is different of course.

I think what others are suggesting in these scenerios were timing is critical you get funding in place buy the thing so your sellers are not harmed then simply resell it..

as @Jay Hinrichs stated..and the reason I am so against this is:

1. often the "buyer" gets under contract by deception with no ability to close
2. sellers are OFTEN harmed. I met many of them personally

There is also something known as FRAUD BY INDUCEMENT. We just had a local case settled where one of the allegations was FRAUD BY INDUCEMENT.

Here are the problems you may face:
1. you may need to lie to the seller. WHO would sign a contract if approached by someone telling the truth that they had no intention of purchasing the property but simply wanted to act as an unlicensed broker?
2. if you do trick them into signing, what do you tell them if one of your "buyers" wants a look inside? You can try the old "inspector" lie. We just had a case where a guy took through FIVE "inspectors". His deal fell apart...there was a lawsuit and counter lawsuit. The unlicensed broker LOST, incurred legal fees, and is now facing investigation by the state for acting as an unlicensed broker (a 3rd degree felony in FL). The seller just sent a letter to the state urging to bring felony charges and I hope they do. These types of operators are NO VALUE to anyone.

PARTICULARLY in a foreclosure scenario, sellers may be desperate. Are you prepared to walk in, lie, and potentially cause them problems because they were deceived? This is the M/O of mostly FRAUDS AND SCAMMERS. IMO, this is a BAD way to start any career in RE. 

"wholesaler" is simply code for unlicensed broker. 

I agree with the other posters here to a certain degree. Wholesaling has a bad rap and it's largely well earned due to gurus pushing this as THE way to break into RE without money or experience. 

This is a partial truth...is it possible to wholesale without money, YES. But, the more likely scenario is you need some cash to market, etc. in order to bring in leads.  

Is it possible to wholesale without experience, YES. But, you really need to have an advanced awareness of rehab scope and costs as well as values to get something quality under contract AND turn it around quickly so you, the wholesaler, do not get stuck with the contract. 

As a flipper I have been passed along several "deals" from who I am guessing are well-intentioned wholesalers, but had no real concept how to 1) source a great deal 2) get it under contract with appropriate outs on both sides 3) distribute to cash buyers with enough meat on the bone to make sense for all parties involved 4) take to closing without a hitch.

If or when you can navigate the transaction without being unreasonable and providing value to buyer and seller you are a valued wholesaler who the market demands a necessity. After all, most (not all) rehabbers do not want to spend tons of time sourcing great deals, they want to work the deal and make money on the improvements/value add. 

I disagree with some on the side of "wholesalers are unlicensed realtors", not because of legalities, but because a realtor's motivation is not typically, especially in a bull RE market, to price with the investor in mind, but to price as high as possible to necessitate a sale, thereby leaving many possible buyers priced out. 

Working as a middleman, bringing buyers and sellers together, is EXACTLY what agents do. Doing so without a license is indeed acting as an unlicensed broker and many states are clamping down on this. They are doing so not to protect the licensees, but to protect the public. A recent conversation with the state investigators resulted them in referring to people as "VICTIMS" of these types of operators. I have met many myself. 

These posters refer to themselves as "wholesalers" because that sounds a lot more legitimate than "unlicensed broker". Many won't admit the truth:)

An agent's job is act with skill, care, and diligence. Pricing is up to the seller, as well as what price will be accepted. Personally I have purchased well under market with educated sellers. Motivation is the key.

Agreed @John Thedford however, I think there is a fundamental difference that needs to be addressed. 

There are very few realtors in my area that can truly represent the investor perspective, Therefore, the pricing they often advise uneducated sellers to list at is out of range. They simply look at neighborhood comps and may or may not consider the condition appropriately to engage a buyer. After all they don't care the same way as the seller if the house sits on the market. Then they list at a price that may or may not bring appropriate offers which is often based on the list price! 

If the seller doesn't have time and for example needs to sell prior to mortgage or tax foreclosure they need a quick resolution which at least in my area is often not afforded by going to the MLS. An experienced wholesaler could solve their problem.

So, my answer to the fundamental difference is to have some sort of credential realtors could earn that shows they are well versed in investor transactions. Could be a rigorous exam that also requires some evidence of experiential knowledge. Seems simple, but say they are a FL realtor with a CIR (Certified Investor Representative - made up!) credential so industry experts know what they are coming to the table with and that knowledge could more effectively bring a deal to closing. 

@Marshall Downs

From your post: "If the seller doesn't have time and for example needs to sell prior to mortgage or tax foreclosure they need a quick resolution which at least in my area is often not afforded by going to the MLS. An experienced wholesaler could solve their problem"

So--licensee should give up their license to be better at bringing buyers and sellers together? SORRY--i hear the same ole same ole all the time that unlicensed brokers can do a better job LOL. Do some agents overprice homes? You bet! However, agents are instructed by sellers as to pricing most of the time. I would never accept a foolishly overpriced listing. That is a waste of time. At least, in this state. if an agent or his broker is sued and loses, the state has a recovery fund. The amount is up to 50K per transaction, and 150K total per agent or broker. The victim would be made whole up to that amount. Unlicensed brokers have a recovery fund of ZERO! Furthermore, the agent's or broker's license would be SUSPENDED until the recovery fund was reimbursed. 

I have no intention of giving up my license in the hopes of doing a better job! Maybe others will:)

I never said I was doing anything untruthful, I am NOT that kind of Wholesaler. Any client that I do business with will know my title and what I will be doing to help them get their property sold. Thank God I live in Arizona where there are tons of Wholesalers and it's legal here, the most important part is having the Contract with the seller filled out correctly and truthfully with clauses in the contract.

I think I will just stick to FSBO owners to get deals done and when I have the funds available to purchase then I will consider pre-foreclosure homeowners.

Thank you all for your advice and I have my answer now!

@Marshall Downs   you already have those designations for brokers...

however in low value assets I can see where wholesalers can thrive..

agents can't make enough money on regular commissions and wholesalers can mark them up and make some better money.. depends on the area..

I think agents are missing the boat  not all but many.. you simply need to tell the owner your flat fee of 5k or 10k or what have you.. the issue with wholesalers is they don't disclose what they make until some seller sees it on a hud or in a double escrow never..

and money and greed do strange things to god fearing people..

@Olivia Darling Who says that wholesaling in AZ is legal?  I know of many people that do it, but then again I also know many people that speed down the highway, but that doesn't mean speeding is legal.

Arizona Revised Statues: 32-2122. License required of brokers and salespersons

A. This article applies to any person acting in the capacity of a:

1. Real estate broker.

2. Real estate salesperson.

3. Cemetery broker.

4. Cemetery salesperson.

5. Membership camping broker.

6. Membership camping salesperson.

B. It shall be unlawful for any person, corporation, partnership or limited liability company to engage in any business, occupation or activity listed in subsection A without first obtaining a license as prescribed in this chapter and otherwise complying with the provisions of this chapter.


A.R.S. § 32-2101.47

“Real estate broker” means a person, other than a salesperson, who, for
another and for compensation:
(a) Sells, exchanges, purchases, rents or leases real estate or timeshare
interests.
(b) Offers to sell, exchange, purchase, rent or lease real estate or timeshare
interests.
(c) Negotiates or offers, attempts or agrees to negotiate the sale, exchange,
purchase, rental or leasing of real estate or timeshare interests.

...It goes on to list about two dozen other activities that are reserved for brokers only.

Don't mess around with people in foreclosure, especially if you don't know how to handle it.  These people are on the brink of losing their homes and need to speak with qualified people who can actually close the deal 100% of the time. 

I do know some wholesalers who do not hurt the homeowner and end up helping them. Just curious, if wholesaling is illegal than why is there a wholesaling calculator on this site?

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Originally posted by @Ben Zimmerman :

@Olivia Darling Who says that wholesaling in AZ is legal?  I know of many people that do it, but then again I also know many people that speed down the highway, but that doesn't mean speeding is legal.

Arizona Revised Statues: 32-2122. License required of brokers and salespersons

A. This article applies to any person acting in the capacity of a:

1. Real estate broker.

2. Real estate salesperson.

3. Cemetery broker.

4. Cemetery salesperson.

5. Membership camping broker.

6. Membership camping salesperson.

B. It shall be unlawful for any person, corporation, partnership or limited liability company to engage in any business, occupation or activity listed in subsection A without first obtaining a license as prescribed in this chapter and otherwise complying with the provisions of this chapter.


A.R.S. § 32-2101.47

“Real estate broker” means a person, other than a salesperson, who, for
another and for compensation:
(a) Sells, exchanges, purchases, rents or leases real estate or timeshare
interests.
(b) Offers to sell, exchange, purchase, rent or lease real estate or timeshare
interests.
(c) Negotiates or offers, attempts or agrees to negotiate the sale, exchange,
purchase, rental or leasing of real estate or timeshare interests.

...It goes on to list about two dozen other activities that are reserved for brokers only.

Don't mess around with people in foreclosure, especially if you don't know how to handle it.  These people are on the brink of losing their homes and need to speak with qualified people who can actually close the deal 100% of the time. 

 Umm...check out that it says "negotiates the sale of REAL ESTATE" not the sale of a CONTRACT. Or some state laws say "REPRESENTS OTHERS in the sale of real estate".

There's nothing wrong with assigning a contract to another (if the state allows) or in buying and then reselling a property AS LONG AS you are actually acting as a buyer when you buy and a seller when you sell. Agents take commissions for representing others. Investors buy and sell for themselves. Big difference.

Having said all that, I agree with the others here. It's deceptive to act like a buyer if you don't plan on actually buying. Trolling for buyers and then giving yourself an "out" when you can't find one, without 100% fully disclosing that to the seller (and getting it in writing in my opinion) is deceptive and harmful, both to sellers and the industry.

Originally posted by @Olivia Darling :

...when I have the funds available to purchase...

 Find someone to give you the funds. Get a hard money lender or a private money lender and learn how to rehab.

I wouldn't even try wholesaling unless I was prepared to buy myself. I'll go in with the intent to actually buy and flip it myself...IF I end up finding a buyer then, fine, I can assign. OR I'll explain to the seller than I can't personally buy right now but I might be able find them a buyer.

You can do these things as long as you are UP FRONT with everyone.

I was just listening to podcast episode #2. Go listen to it. She has 150 properties now. But she started out just trying to help people solve their problems. She tried to fend off her first deal because she was scared. She told them, look I might not be your best option. Maybe you should list it. But they still let her buy it for 65 cents on the dollar because she was honest and willing to help and solve their problem. BE LIKE THAT.

Originally posted by @Norma H.:

I do know some wholesalers who do not hurt the homeowner and end up helping them. Just curious, if wholesaling is illegal than why is there a wholesaling calculator on this site?

The type of wholesaling being discussed in this thread is the version where the wholesaler gets a property under contract and then markets the sale of that contract interest to a third party ... without having the intention of closing the original deal in the event the contract cannot be assigned. That type of activity violates some (and perhaps all) state brokerage laws. Add the element of a desperate homeowner and you can see where this goes sideways.

Nobody is saying that an investor can't find a deal, go to settlement, and then re-sell a property to another investor. That type of wholesaling does not violate any laws. And that is what the calculator on this site is for.

I’m not a fan of this approach but I think some of you may want to be less dickish in your responses. Someone may need education on something, and may Boy consider certain ramifications. Try not treating them like they’re crumby people. Take a page from @Jay Hinrichs

@Tom Gimer   do you allow buyer C to fund seller A and let middle man B walk off with the delta ?

@Ben Zimmerman   this verbatim in virtually very state in the US.. if you did not need a license there would be no need for any real estate industry.

I get the contract assignment.. I just paid 125k for an assignment..  but there is a huge difference in those type of transactions as those representing they are going to solve problems for home owners .

I just got an e mail from a wholesaler in Washington who send out a mass e mail on a property in Portland quick check of public records they don't own it.. the e mail is a marketing piece with the house bed bath the price no mention of assignment etc.. I forwarded it on to the state.. this is clearly selling real estate with out a license and I don't spend hours and money to keep my licenses good to allow unlicensed folks to just try to do this..

now if I got an e mail with a copy of a contract that said I want to assign this contract I can kind of get behind that.. but how many wholesalers can actually do business that way.. ??? Not many.

there is a reason transactional lending became a thing this is how these folks can do this legally.. get into title sell what you own.. if you don't own it .. get a license and sell it.. seems pretty simple and straight forward.

but as long as you have guru's  and BP folks saying its legal and fair then there is no way to stop it as there is not enough man power.. in most states... to do that..

Ohio FLA CA are on this I am going to see how Oregon reacts to this unlicensed wholesaler... I  will follow up and report back.

Account Closed thank you so much. I appreciate your advice and referral as well. I know it can be done and I know that Wholesaling is not illegal because if it was then why are so many people doing it, advertising it, and local attorneys are helping wholesalers.

I have learned to be careful who you get information from these days.Thanks again Roger!

@Shawn Clark thank you for your advice

@Olivia Darling   have you bothered to call or write your department of real estate explain exactly how you market and how you present your deals to buyers and get their blessing ??? if not you don't know if its legal or not.. just because everyone does it.. and attorneys are not always right..  remember they are paid to argue  LOL... I don't think many will contact the state because its not what they want to hear.

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