OMG IM BEING SUED!!

Wholesaling
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OMG IM BEING SUED!!

Juliana Cortes
North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes

I went under contract with my seller. He hasnt paid the mortgage in a few years. His statements show he owes 262k so we go under contract at 268k since all lis pendens were dismissed without prejudice. I find a buyer who is using a buyers agent. I told him about the assignment but he doesnt know what an assignment is so after consulting with his attorney, they say to use the FARBAR and we'll assign it at closing instead. I told them multiple times that I was still waiting for the payoff from my title company. Fast forward 2 days and we finally get the payoff at $377k! I let the my buyers know of this problem and let them know i cant close because of the WAY HIGH payoff. The lawyer now wants me to pay for his buyers fees and damages / sue for specific performance. WHAT DAMAGES?? IF I CAN CLOSE AT 270K I WOULD.

What direction should i lean towards? I used the standard FARBAR that states that my buyer pays closing costs, fee, title search, and doc stamps. I know that since you are not my attorney, this is not legal advice. I just need to figure out if im actually in the wrong for this or if im safe and wont be forced to pay ... I dont even know WHAT im paying for since I ran the title and lien search with my title company. Technically this is a nonmarketable title right?? I know this is not my fault but will the judge see it the same way??

please help :(

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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
10y

Not sure why you figured the payoff would only be a few thousand more than the original principal balance when the mortgage hadn't been paid in years and a foreclosure case had been filed. Tack on all back interest, legal fees, property preservation, taxes, insurance, etc and you're going to going to have a payoff amount much larger than just the UPB.

This is what happens when you don't do you research and when you start dealing in things you aren't qualified to handle.  If you had a license you'd probably know to get a payoff before you start trying to sign contracts with someone else.  You'd probably have the buyer sign disclosures and add a condition about the maximum payoff amount to sell at that price.   Instead you're running around acting like an agent without a license and without the understanding of what you're doing and of course you're going to open yourself up to being sued if you screw up.  

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    I would assume (non-legal information follows):

    • you would need to make the escrow company whole - - pay for services already performed and their fees
    • resend your offer for lack of funds at the minimum
    • pay the lawyer (yours or there's just doesn't matter

    Sorry this is the outcome you are facing, but these things happen when "you go under contract with a seller".  There's lots of risk with this approach

    0Reply
  • Juliana Cortes
    OP
    North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes
    10y

    but thats the thing - everything was handled at my company. i already AM paying for a useless title and lein search. they were under contract for a week! no services have been rendered as of yet. thanks so much @Jeff B.for shedding some light, this is crazy. i had no idea how important it was to have an attorney on retainer...smh

    0Reply
  • Neil G.
    Investor · Socal · Member since 2015 · 222 posts · 34 votes
    10y

    Isn't wholesaling all about going to contract as a 'buyer' CONTINGENT upon assignment to another? =L

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Juliana Cortes:

    but thats the thing - everything was handled at my company. 

    HUH?  

    (A) what company, NOT the name, but the business type and how are you attached to them?

    (b) If they participated, they are 'COMPLICIT' - - ask what ARE they going to do to support you?

    0Reply
  • Juliana Cortes
    OP
    North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes
    10y

    @Neil G.yes you can double close or assign. I told the buyers realtor ALL OF THIS and he came back saying the attorney says to use FarBar instead. I was totally transparent about EVERYTHING and still this happens?? the attorney claims the realtor never said anything about this being an assignment. 

    0Reply
  • Juliana Cortes
    OP
    North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes
    10y

    @Jeff B.i use a regular title company to close my deals. i sent this deal to my title company 2 weeks prior to finding this buyer. my title company informs all of us that the payoff just arrived and it was WAY higher than estimated. the buyer who i assigned/sold my deal to instantly comes after me with this "pay my bills" stuff. my buyers attorney literally held on to the buyers deposit. nothing else was performed because my title company already did everything.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    So it's a wholesale deal with you in the middle.  You have nowhere to hide! :sigh:

    Never been too found of these kinds of deals as there's just too little control for me to gamble my hard earned money.

    0Reply
  • Juliana Cortes
    OP
    North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes
    10y

    @Jeff B.im not trying to hide, just trying to figure out where I went wrong. i gave full disclosure, performed all due diligence, and because of something that is out of my control, im liable to pay for my buyers "damages" ? The realtor lied about informing the attorney and im in hot water here??

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    I didn't mean you did something wrong, but was thinking "duck and cover; hide in the closet".

    • i gave full disclosure, performed all due diligence, and because of something that is out of my control, i'm liable to pay for my buyers "damages"

    The relationships are; The property owner --> you -->your buyer.

    But for the seller it's property owner --> you(as buyer)

    and your buyer it's you(as seller) -->your buyer

    We all would like the owner <-->your buyer to eat the liabilities, but that's not the contract.

    2Reply
  • Renee Cato
    Professional · Atlanta, GA · Member since 2015 · 85 posts · 15 votes
    10y

    @Juliana Cortes, what type of contingencies you have in your contract?  Did the payoff information come outside the due diligence period? 

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Juliana Cortes It's quite simple, you signed a regular purchase agreement with your end buyers, as opposed to signing an assignment agreement, correct?  Your mistake was not putting In The Purchase Agreement, subject to seller obtaining clear title within x time period".  As per a clause in the FARBAR regarding your "inability to deliver clear title" they can't prevail on a specific performance action.  You are however now responsible for any Actual expenses they incurred, such as inspection services, and their attorney fees for any contract review.  Yeah, the agent screwed up as he should have been more diligent, and you screwed up because apparently you didn't realize the statement you were reading was for the Principle balance only, without the years of deferred interest, taxes, force placed insurance, etc., or you took the sellers word for it, both your fault.

    3Reply
  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    Wow, what a way to make my point regarding wholesaling. Very few REI's know exactly how to conduct a real estate transaction let alone a wholesale/assignment transaction. It only takes one bad transaction to screw you big time! I have yet to see a "guru", mentor or coach that is teaching this the proper way, not say there aren't some out there that are teaching it properly. But this is a big reason why you should save your money and learn from a real investor and not someone who makes their living "teaching". I hope you can minimize the damage.

    1Reply
  • Sarah Ziehr
    Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
    10y

    It doesn't matter what you and the agent talked about, always get everything in writing.

    They can sue you for non performance because as far as they are concerned, you agreed to sell them this house for $268k and signed the contract as the seller. 

    Your biggest mistake was not confirming the mortgage amount yourself, and something tells me that next time you will be sure to look up the last recorded mortgage as part of your due diligence. 

    Depending on your local laws and the judge, he/she may not look too kindly upon wholesalers in which case you open yourself to even more risk.  

    I would hire an attorney to represent you and fix this mess. 

    2Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    How much is the buyers attorney asking for? Likely the buyer is trying to cover legal costs as they do not want to pay on a failed transaction. So the buyers attorney is fishing for money as it will be hard to get it from the buyer.

    It depends on if the attorney got an advanced retainer with the initial engagement letter.

    If this is a small amount you might want to get an attorney to draw up  a release of liability form and settlement. If it's a large amount you might want to ask a real estate litigation attorney and pay a few hundred for a review of all the paperwork to determine your liability if any in the transaction.

    I know a lot but I am not an attorney. On my commercial deals that are 3,5,10 million etc. for my clients I tell them they need an attorney. I am there but you need the attorney for many facets of a transaction. Residential isn't as complex but some deals get messy in SFR where you need an attorney.

    No legal advice given.  

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    0Reply
  • Leigh C
    Brooksville, FL · Member since 2012 · 429 posts · 220 votes
    10y

    @Juliana Cortes    Welcome to the school of hard knocks.    It's typically easier than actually learning how to do this correctly, but sadly at times a bit more costly.  

    0Reply
  • Maricela Chavez
    Real Estate Agent · Tucker, GA · Member since 2016 · 90 posts · 144 votes
    10y
    I'm very confused. How would you adding a contract when you don't know the actual payoff? Why would the payoff on the mortgage not be the first thing you look into? This is very scary! Sounds like an easy way to lose your a$$.
    0Reply
  • Maricela Chavez
    Real Estate Agent · Tucker, GA · Member since 2016 · 90 posts · 144 votes
    10y
    Assign! Sorry!
    0Reply
  • Juliana Cortes
    OP
    North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes
    10y

    @Account Closed

    Thanks so much for the advice guys. I got an attorney to look over the paperwork and see what options we can take. Thankfully, the buyers changed the locks on the property a few days ago (its vacant and they live RIGHT NEXT DOOR) so that may give us some leverage in getting them to drop this. I also informed my seller who, luckily, is understanding of the situation because he gave up on this home years ago. One thing I can guarantee, is no more ms-nice-lady. I mostly felt betrayed after how accommodating I was to these people - I went out of my way to make sure they were satisfied. Regardless of the outcome, my lesson has been learned.

    0Reply
  • Juliana Cortes
    OP
    North Miami Beach, FL · Member since 2015 · 10 posts · 0 votes
    10y

    @Jeff B.

    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    If you take title first, these problems can't happen.  Also, you mention nonmarketable title. Owing more than you anticipated does not make the title nonmarketable. You are brokering...and got caught in the middle:) 

    2Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    @Neil G...not in Florida. Those types of arrangements are illegal and the state is going after these people operating in that manner. This has occurred due to all the frauds deceiving and victimizing homeowners. If you have a clause stating if you cannot assign you can back out, you are brokering real estate without a license according to state regulators.

    @Account Closed

    @Wayne Brooks

    @Bill Gulley

    @Brian Gibbons

    1Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Sarah Ziehr:

    It doesn't matter what you and the agent talked about, always get everything in writing.

    They can sue you for non performance because as far as they are concerned, you agreed to sell them this house for $268k and signed the contract as the seller. 

    Your biggest mistake was not confirming the mortgage amount yourself, and something tells me that next time you will be sure to look up the last recorded mortgage as part of your due diligence. 

    Depending on your local laws and the judge, he/she may not look too kindly upon wholesalers in which case you open yourself to even more risk.  

    I would hire an attorney to represent you and fix this mess. 

     The principal balance owed on a mortgage statement and the balance due to clear title at the time of payoff is different so she should have obtained a borrowers auth on the sellers behalf so she could have ordered a payoff in advance to confirm the payoff earlier or used an assignment contract or specific language that the sale be contingent upon seller obtaining clear title. 

    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y

    Appears folks are mixing the buy and sale side to me. 

    You went under contract to buy, yes it is contingent on you getting clear title or you don't have to buy.

    But, you offered to sell the property at 270, now you are obligated to provide good title and deliver good title to a buyer, that becomes your obligation as a seller.

    Deals close everyday where a seller has to pay more than they receive, at a loss! 

    While you have recourse against your seller (the owner) and their Realtor, you're still responsible to sell to your buyer. 

    I'm sure that buyer's attorney saw this from the start as you were wholesaling, offering a property for sale that you didn't own. 

    Forget about assigning the contract as that has no bearing on your responsibility to deliver good title under a sale contract, how you transfer in settlement is irrelevant so long as you deliver as a seller. 

    Too bad, but most likely you're hung failing to deliver good title, looks like it would cost you about $107,000 to deliver title to your buyer. 

    It will probably cost you less to get an attorney and sue the owner and Realtor, the Realtor is insured by the way for errors and omissions. 

    However, you have another problem trying to take someone else to court over this matter, or go to court to defend yourself, you're a wholesaler, so the court will also be looking at your intent and ability to buy, if you were acting as a broker without a license and offering real estate for sale that you didn't have title to. 

    You're now the example of disaster by following some guru wholesaling tactic nd not understanding the basics of real estate and contract law. 

    Your best approach would be to settle out of court and pay the attorney fees, you might need to work something else out with your buyer, but you really need to try and sty out of court as you are in a no win situation and it may easily get worse! You need to see an attorney!

    After this, if you decide to stay in real estate, learn real estate basics, not guru junk! 

    Another one bites the dust! :(   

    3Reply
  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @Juliana Cortes

    Sorry you took my post so personal, it was directed to every wholesaler out there that has learned to "wholesale" from a "guru". I have been trying to warn others that what they teach will get you in trouble, either civilly, regulatory or criminally. You just happened to be the one that posted your story. Believe me you wont be the only one this happens to. Where did you learn this?

    @Bill Gulley

    @John Thedford

    @Wayne Brooks

    @Brian Gibbons

    @James Wise

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    10y

    These are the kinds of things that can happen when one is running around wearing a broker hat when they shouldn't be.

    Had you became a realtor, found a motivated seller and listed their property in the legal manor with a disclosed commission a title issue coming up would not put you in this situation.

    License law exists for a reason folks. Instead of spending all of our time asking how to circumvent it we should study and understand it!

    2Reply
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