Heres the scenario. I was contacted by a wholesaler about a property that he had under contract and was willing to re-assign. There was a stipulation that it had to be closed in 20 days. I thought that was long enough to get funding before closing. I first signed a addendum that stated that he would re-assign the contract for 10,000 dollars (which I miss understood the verbage and should had specified it be contingent upon closing). I wasn’t able to get the funds under terms that I found( due to all the new underwriting regulations) siutable and decided not to buy the property. Now the contract assignor is threatening to sue for the 10,000 dollars for assigning the contract. I would like to know if anyone feel this suit would have any teeth. Or if it infact is legal to go after me.
All depends on the wording of your contracts. Go talk to your real estate attorney.
The wording of the contract is a very typical purchase agreement. It’s the addendum, that is what I am concerned with. It says. " Will assigne the conttract for a fee of 10,000 net". Is an addendum part of the purchase agreement or is it a contract seperate to the purchase agreement. If it i is subordinate to the contract then wouldn’t the addendum be void if the purchase agreement wasn’t exercised. I hope this made sense.
This falls under contract law and each state is different. Like Rich said, it is for a Real Estate Attorney to give you an advice. I however would wait for him to actually sue before I would hire an attorney.
If the contract did not reference the addendum, there could be a case to be made that the addendum is not part of the contract. It is all based on state law and case law.
Get specific…does the addendum even say that YOU will pay $10,000? Sounds like it says that he will assign it for $10,000, but did you agree to specifically be the assignee?
Was there any consideration given for entering into the addendum?
Was the original contract even assignable?
Are you a signer only to the addendum but not the original contract to which the addendum is added? If not, how can you amend something to which you were not an original party?
The reality is that most wholesalers are one-man operations with more guts and desire than legal know-how. I’d wait for him to do something about it, then send a certified letter outlining why you don’t think you’re liable.
The reality is that you entered into an agreement that you could not live up to, but if he didn’t make it air-tight, then that’s his fault.
It is possible to sue for “specific Performance” of the contract. But not likely. The seller may not be so smart though…he thought you could get financing in twenty days. Either you led him to believe you could or he is a moron and should have realized average joe can’t get financed in 20 days. More time qualifying you may have been a good move on his part. He may have set himself up for failure not knowing what it took to get financing today.
Your case can only be settled on your contracts merits which none of us have to see. Did you have earnest money in escrow, what is the specifics on that part.
I am not a lawyer I only play one when it is dark and between 9:27 and 9:29pm wednesday the 10th
Darin
The original sales contract states the buying party is the wholesaler and or assignee. The wholesaler then wrote up an addendum which states " wholeseller will assign the contract for 10,000 dollars" thats all its very vauge. It doesn’t state when (though we verbally agreed it would be paid at closing). there is nothing on the original purchase agreement with my name or signature. Just an addendum. There was no ernest monies so I felt I had nothing to loose since it was presented to me in this way. The wholeseller got the contract under his name for 130,000 with the option to re-assign. Then he re-assigns it to me then at closing and I finance 140,000 and he get paid 10,000. Very straight forward. There is no specifics on performance on my part. The property ended up being a 55+ community and I couldn’t get financed because of my age. I decided it was best to walk away since I didn’t wasn’t interested in a investment property in a retirement community. I could of produce the funds one way or the other but I didn’t like the numbers. I believe this contract has tons holes in it and since the sale price is 65% LTV I figured he would have another invester quickly snatch it up with hard money. He threatened to sue and I kinda chuckled thinking, why would he tie up this property to sue when there so much money in it. He can’t sue me for non performance and still sell the property.
Sounds like you have it handled. Sounds like he has a lot of room in the deal and will move on unless he goes beyond his option period…
Darin
Sounds to me like he could care less whether you purchase the property. He’s suing for his assignment fee which he probably deserves because he did his part in assigning you the contract. When you signed the assignment addendum you agreed to pay the fee and complete the terms of the contract. You stated in your original post that you realize the fee was not contingent on you being able to close on the property.
His mistake was trusting you and not getting a deposit. This is really what the gurus that like to get paid warn us about. After assigning the contract to you he was no longer able to “sell” the contract to someone else. So not only is he out of his fee, he has lost credibility with the seller, and most likely the contract. When you finish chuckling put yourself in his position and try to see the situation from there. The investment community in any location is small. As frustrated as you are about his threat of a lawsuit he just might be on another message board (possibly a local one) bashing you.
If I were in your position I’d definitely try to make this right with him at something other than the $10,000. It may just take an apology, an acknowledgement of his frustration, and $1,000 for his trouble.
SJB
I did put myself in his position. I relized his intentions were to mislead me. I am not an invester he knows. Infact I am just a regular joe. He intentionally misled me into signing a contract. I knew what he was trying to do but because his contract says nothing about performance I figured I had nothing to loose. He (i believe) figured I would not get financed in 20 days and set this up for me to fail. If I went to court he would have to prove intent and it is his responsibility to make sure the contract is air tight. I think he intentionally left out verbage that would make it an air tight contract for him so he could get some joe shcmoe like me to sign and then hen it falls through he can muscle some funds out of me.
If he was a wholesaler, then I don’t think the 20-day deal was intended to make you fail.
Rather, most wholesalers have only 30 days themselves to make good on their contracts (the contract between themselves and the original seller). Most sellers want to close in 30 days, if not less.
So, my guess is that your wholesaler had written the contract 10 days prior to when you got involved. That is why you had 20 days to close.
Also, most people who buy properties from wholesalers (I’m going to go out on a limb and say 99%) either use cash or hard money; they don’t need to go through a formal financing process. And most wholesalers will even go so far as to say in their marketing, “Cash/Hard Money ONLY.”
He probably thought you were using cash or hard money and didn’t think twice about a 20-day close as being unusually fast.
It really isn’t fair to blame the wholesaler if you didn’t understand the agreement. You should have run the agreement by your attorney for clarity. We are responsible for our own due diligence. There is basic information an investor especially a novice investor should gather to determine if a property is a deal for them. Obviously you didn’t do that. Don’t blame it on the wholesaler.
SJB
[b]I did put myself in his position[/b]. I relized his intentions were to mislead me. I am not an invester he knows. Infact I am just a regular joe. [b]He intentionally misled me into signing a contract. I knew what he was trying to do but because his contract says nothing about performance I figured I had nothing to loose[/b]. He (i believe) figured I would not get financed in 20 days and set this up for me to fail. If I went to court he would have to prove intent and it is his responsibility to make sure the contract is air tight. I think he intentionally left out verbage that would make it an air tight contract for him so he could get some joe shcmoe like me to sign and then hen it falls through he can muscle some funds out of me.
You are going to have to take responsibility for your own carelessness. You said you knew what you were doing and what he was doing. You set yourself up to fail and he didn’t tie you down and force you to sign. You are wrong if you think you can get out of this because the contract is not “air-tight”. You said it all when you said you thought you had nothing to lose (not “loose”). It is your responsibility to know what you are signing. You had better consult with a lawyer.
Well, plenty of blame to go around.
The wholesaler should have prescreened you to find out how you were going to close. Like Paul said, wholesalers mainly assign to people with cash or HML not conventional, unless otherwise specified. The wholesaler should have collected a hefty earnest money upfront too (lesson to beginners here).
He is probably demanding the wholesale fee because you did did not know what you were doing, and from the sound of it, you were not sure you even wanted the house to begin with. You should not look for wholesale deals using conventional lending, or at least make it clear to the wholesaler.
I think you owe the wholesaler some money, but not the whole amount.