Being paid outside of closing for a flip: is it illegal?

I have a deal that has a few wholesalers that are bringing me buyers that have to pay conventional. As many of you know, you can’t wholesale a property with conventional lenders because they do not pay assignment fees. Well, the wholesalers tell me that they could close in 2 weeks and that the contract would be between the seller and buyer directly. The buyer would be me once the deal closed.

Is this illegal?

I tend to think it is but I may learn something here. I have another investor that told me that I can invoice the buyer as a consultation fee or marketing fee and that this is totally legit. Please advise.

PS. I spoke to a RE attorney and he did say that if it’s not disclosed on the hud there is some potential for fraud.

Get creative. Call it a consulting fee or some other term that is vague and equal to your compensation.

I read your post a couple times…still not sure I am completely following though (just call me slow :beer). It sounds like you are saying that you have a house under contract and you were trying to wholesale it. When you tried to wholesale it, a couple other wholesalers stepped in and said they have buyers that will take the deal off your hands, but those buyers would have to get conventional financing?

The contract would need to be structured in such a way that the end buyer, which is someone who was brought into the deal by your wholesaler (call him wholesaler #2), would sign as buyer and the current owner of the property wold sign as seller. To collect your fee, you would need to collect it outside of closing. I assume there is another fee somewhere which would be paid to wholesaler #2 who brought the buyer?

That’s pretty complicated and I am not 100% sure I am interpretting what you are trying to say correctly? You mentioned that “the buyer would be me once the deal closed”? If the buyer is you, would it be a double close of some sort or…?

I could give you much better input on your question if I understand how you are trying to structure this deal. However, from what I gathered so far it definitely sounds like you would be in a “grey” area at best. Realistically, if you are knowingly doing something without the lenders consent, it is probably loan fraud. If all else fails, ask yourself “if the lender knew we were doing this, would they still fund the deal just like they are funding it without knowing what we are doing”? If the answer is yes, then you have nothing to worry about (the answer will probably never be yes). Also, if it’s yes it could go on the HUD. If the answer is no, I would recommend just finding another buyer.

If your numbers are good, as they should be when you are talking about wholesale deals, you shouldn’t need to be working with buyers who need conventional financing anyways.

Best of Luck,
Sean Flanagan

P.S.- Conventional deals rarely, if ever, close in 2 weeks or less

As many of you know, you can't wholesale a property with conventional lenders because they do not pay assignment fees.

I have assigned a property and received an assignment fee at closing, using conventional financing from a small local bank. Many times, small local banks can do things that are hard to accomplish with mortgage brokers or larger banks.

Good Luck,



Sorry about the confusion regarding “the buyer would be me once the deal closed”. That was a typo. I never intend to be the buyer.

To be clear, you are understanding correct. There is another wholesaler that brought me a conventional buyer who would go directly in contract with the seller. They would pay me outside of closing and the assignment fee would not show up on the HUD. I am not comfortable with that because it smells fishy.

I have had two offers from buyers like this. One was brought from a mortgage broker who owns his own company and the other was a wholesaler.

From what I understand, many people title this fee “consultation fee” or something that and it’s suppose to be perfectly legit.

Please enlighten me.

First, these other “wholesalers” sound a little fishy to me. If this is a real deal, I’d be holding on to it TIGHT because it sounds to me like people are trying to pull it away from you.

Second, running it through multiple wholesalers is going to create a problem. I can assure you. How, exactly does the 2nd wholesaler intend on getting paid if YOU put in a “consulting fee?” To do as described, you need to know where ALL the money is coming from and going to.

My suggestion is to simply assign the deal to the next wholesaler for an upfront fee. Don’t know your numbers or what you’re expecting out of it, but an example as follows:

You agree to take $3K upfront as an assignment, assign the contract over to the 2nd wholesaler and they take it from there. If they have an end buyer, great. If they don’t, then it’s still their responsiblity to close it, not yours.