Is Wholesaling HUD Now Illegal? 3 Wholesalers Indicted!!!

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Is Wholesaling HUD Now Illegal? 3 Wholesalers Indicted!!!

Wendell De Guzman
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes

I found this news article that every wholesaler SHOULD read:

3 Wholesalers Indicted for HUD Flipping

I emailed this article to my attorney to see the actual ruling and advice me if wholesaling HUD is truly illegal now in the state of Illinois. My (non legal opinion) guess is, the crime that these wholesaler-crooks committed is that they filed false liens on HUD properties so buyers can't buy them from HUD. Also, they committed fraud by submitting FALSIFIED proof of funds.

What are the lessons?

1. Get REAL proof of funds. Partner up with people with CASH and not rely on these "GURU POFs" that are nothing more than BOGUS POFs. When I submit a POF. I submit our BANK STATEMENT. That's also what I look for in a buyer - real bank statements, not a letter from a "financial institution" saying that my buyer has a line of credit (even though there's none).

2. Be careful who you listen to - specially to some gurus. I heard from a guru the strategy of filing a lien on a wholesale deal so your buyer can't go around you or your seller can't sell the property without asking for a release of lien from you in exchange for your wholesale fee. I guess these 3 wholesaler-crooks followed that advice to the letter - even on HUD owned properties and it landed them in JAIL! So be careful who you listen to - even here on BP.

3. There's a growing number of states cracking down on wholesaling. It's time to get funding or line up funding. Wholesalers should learn how to raise money or line up funding sources, specially transactional funding. Or get a business line of credit. Or partner up with someone with the cash. Bottomline, you need cash to do a deal - and now depending on your state - even a wholesale deal.


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Greg H.Pro Member
Moderator
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
10y

There was already another thread on this. 

100% of the reason they we indicted was for filing false liens. The other stuff has been going on forever and HUD just keeps the earnest money and moves on

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    There was already another thread on this. 

    100% of the reason they we indicted was for filing false liens. The other stuff has been going on forever and HUD just keeps the earnest money and moves on

    1Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    I agree with your points 1 and 3, but I think you may be overlooking something about the liens. 

    What these guys did was put liens on the properties AFTER their own contract had expired. That's fraud. 

    What the guru likely told you about is recording an affidavit or memorandum at the courthouse, that you have a contract to purchase, signed x date and to be closed on or before some date. That will cloud the title and keep the seller from selling behind your back. I don't see anything wrong with that, because you do have a valid contract and that's all you're stating. You article is a different scenario

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    Interesting that the fake preapproval letters is part of what got them.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Michaela G.  I have been down the road of someone filing a lien on my property like you describe and it did not end up well for that person... someone did that to me.. their would be hell to pay.

    you have remedies in the breach of contract but this BS of liening someone's property just to keep someone from going around you when most of the time the wholesaler get into these deals using all sorts of half truths and other smoke and mirrors I think its a stain on the industry frankly.

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  • Scott D Fitts
    Investor · Saco, ME · Member since 2016 · 47 posts · 21 votes
    10y

    As in any profession, there are good and bad people. I am a huge believer in full disclosure, being up front and completely transparent. There is no need to be sneaky and secretive in dealing with people, as it will sooner or later come back and bite you, just like it did with these guys. The problem is, when guys like this try cheating, it reflects on everyone and can force changes over time.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    @Jay Hinrichs , while I understand that you wouldn't want this from a half-baked buyer like some of the wholesalers, is there anything illegal about filing a declaration of having a contract, that has to be closed by a certain date? 

    I do that and I have twice found sellers trying to go around me and I had to sue for performance. I'm very glad that I did file those affidavits. 

    You may not like someone doing it, but if they have a bonafide contract, why should that be a problem for you? The problem would be a wholesaler that isn't following through, but that is a separate issue, which pisses me off, too. If they don't follow through with closing on the mentioned date, then the affidavit doesn't have any legal standing. 

    If someone puts a cloud on a title fraudulantly, then they're the problem. But it's not the ability to file an affidavit that in itself is the problem. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    for many reasons I don't like it... its clouds title and what happens if the wholesaler does not perform say with increased EM at the right time.. his contract is still on title for the say 60 day period.. but he defaulted at 14 by not increasing EM... but he is a flake and just goes dark... Now try to get that removed now your stuck with 45 days to wait it out.  Just try to explain to the title company but hey they did not perform gurantee they will want to wait it out so they have no liability and can issues a clean title commitment.

    there are many other scenarios.. I had someone do that to me and I sued their butt.... was not happy and I don't sue. but this I did not like..

    If you have a contract and I breach it you have remedies.. its only this part of the industry were people are so unsecure that they think they need to do this stuff.. it sucks. IMHO>

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    Again, what is illegal about filing an affidavit that I have a valid contract? You may not like it, but that's what I record. When I put something under contract I'm ready to close. I don't ******** and I have the funds or access to them and I follow through. What's illegal about that?

    It's like a bad person having a gun in their hand or a 14 year old unlicensed driver driving a stolen car and potentially crashing. It's not the fault of the gun or the car, but the person that miss-use the tool.

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  • Laura A.
    Investor · Stone Ridge, VA · Member since 2013 · 20 posts · 3 votes
    10y

    why would you ever show a seller your bank statement???? Aren't you showing your hand and inviting larger demands when they see you have far more $$ in your bank than what you are offering?  Do you black out acct #s? I like the idea of this but not sure how it could impact negotiations. Thx in advance for answering. 

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    I have been buying cheap properties, so, my offer is all cash and I get a letter from the bank, stating that I have X amount (my offer amount) in my account. That way they don't know, if I have more or if this is the best I can do. 

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    This is about HUD properties. Any bank statement presented to HUD is only after the bid is accepted so "no hand was shown". This has been the procedure for the 25+ years I have been buying them. These guys filed fraudulent liens on the property is the only reason the are charged with a crime. For me as someone who tries to figure out their angle, I cannot imagine what their end game was?

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  • Wendell De Guzman
    OP
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Greg H.:

    There was already another thread on this. 

    100% of the reason they we indicted was for filing false liens. The other stuff has been going on forever and HUD just keeps the earnest money and moves on

    I agree - my attorney just replied this morning. There's nothing illegal about wholesaling HUD. As I suspected, the crime was because of filing false liens and using falsified POFs.

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  • Wendell De Guzman
    OP
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Michaela G.:

    I agree with your points 1 and 3, but I think you may be overlooking something about the liens. 

    What these guys did was put liens on the properties AFTER their own contract had expired. That's fraud. 

    What the guru likely told you about is recording an affidavit or memorandum at the courthouse, that you have a contract to purchase, signed x date and to be closed on or before some date. That will cloud the title and keep the seller from selling behind your back. I don't see anything wrong with that, because you do have a valid contract and that's all you're stating. You article is a different scenario

    I'm not sure exactly what they did. Legally, you cannot file a memorandum of purchase contract when your purchase contract has expired already. The memorandum becomes invalid anyway. Regardless, filing a lien on HUD properties is downright dumb.

    0Reply
  • Wendell De Guzman
    OP
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Jay Hinrichs:

    @Michaela G.  I have been down the road of someone filing a lien on my property like you describe and it did not end up well for that person... someone did that to me.. their would be hell to pay.

    you have remedies in the breach of contract but this BS of liening someone's property just to keep someone from going around you when most of the time the wholesaler get into these deals using all sorts of half truths and other smoke and mirrors I think its a stain on the industry frankly.

     I agree with you Jay on this point. That's why I never do this with properties I intend to wholesale. If the seller goes around me and sells the house he has sold to me already, he'll get a phone call from my attorney and then maybe I can file a suit against him. Putting a lien on the seller's property does not feel right to me. 

    We got to be able to trust the people we do business with including sellers - and if some of them flake out - it's their loss, not mine.

    0Reply
  • Wendell De Guzman
    OP
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Laura A.:

    why would you ever show a seller your bank statement???? Aren't you showing your hand and inviting larger demands when they see you have far more $$ in your bank than what you are offering?  Do you black out acct #s? I like the idea of this but not sure how it could impact negotiations. Thx in advance for answering. 

     Quite the opposite happens. When the seller sees that I can close because I truly have the cash, then the seller trusts me more and is wiling to lower his price. I got a seller come down $30,000 on the phone and another $15,000 when I met him and showed him my bank statement. Of course I showed him my bank statement but I did not allow him to keep the copy of it. If you're going to email it, of course blot out the account number for security purposes.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Greg H.  cloud title and get title insurer to pay them some money.. I have had it happen to me.

    I don't want to explain in detail what crooks do as we know there are nefarious folks who troll these sites looking for ideas.. but suffice it to say there is a bunch of fraud that goes on that us honest guys don't see but title companies have to deal with

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    I think the moral of the story is do not mess with the government and flaunt it!!  Most of those committing fraud ultimately get charged with mail fraud as it seems to be the easiest way to assure a conviction

    Personally, I have had my hand slapped a couple of times for marketing a HUD prior to closing. I never put up a sign(That was dumb!) . I just said I am sorry and proceeded to closing

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