Wholesale transactions process????

General Real Estate Investing
1

Hey Community
I am just starting my wholesaling business and its proven to me so far that it could actually work out for me. I am just having a little trouble understanding this (i know you can mess up but there are certain risks you just don’t want to take ex: looking like a deer in a headlight when handling paperwork). So I have a list of Sellers that I am ready to pull the trigger on prospecting for Gold for. I just have some HUGE PROBLEMS. to my understanding the flow of the sale goes like this:
:beer

  1. Find Seller

  2. Come to terms with Seller and get the property under “Assignment Contract” and “Memorandum of Contract” with the Seller (ex: stating I’ll pay 40K for the house)

  3. Submit the “Assigned Contract” to Title company for title clearance approval and see if any other debts are on the Property to see if the Seller can legally sell the home.

  4. Find Buyer (seems to be the easiest part so far. these people are everywhere lol) then assign the contract to them with an Assignment Fee (ex: stating they’ll pay 50K for the home) (Then send them the 3 Clause Standard Assigned contract, Assignment of Contract Addendum, and Purchase of Sales-Agreement) (or include Option Agreement and Split Agreement if working with another Wholesaler who has a buyer lined up already)

  5. Buyer submits check for the Property paying for

  6. The Assignment fee (a part of which is non-refundable),

  7. The Property from the Seller.

NOW I have a few questions.

  1. Do I have to legally notarize the “Assignment Contract” (before submitting to title company) at the title company or is it as simple as both parties signing it in the Sellers kitchen with no real witness to show the signing? (the Memorandum will be notarized however)

  2. Once I got the Property under contract and want to submit it to a Buyer do I have to in turn show them the property (They inspect) or just submit data on it?

3. What parts of the closing process calls for me to be present at the Title company?

4. When I am sending the “Assigned Contract” and other paperwork to Buyer do we also have to notarize the documents at the Title company or is it the same deal as them simply signing it then going to the Title company with it to purchase it?

  1. When I am sending the “Assigned Contract” and other paperwork to Buyer do I have to make any phone calls when we are sitting down and closing out the property in the signing room with the attorney and End Buyer?

  2. When Buyer submits the check how do I get it? Do I walk into the Title company and ask if they have any thing for me or will they call me immediately?

  3. After the Buyer closes on the Property do I have to pay the Seller directly or will the Title company handle that and just give me a check.

Please help me out here if I am missing anything. I would be alone in this world of real estate if not for the mentoring program that I have online and I have to wait until friday to have a conference call which is two days from now. Business never sleeps and waiting’s no option so I am trying to be as pro-active as possible without asking a million of questions from the wrong people (those whose body languages and tones discourage you from your goals) from now until then. Also I would rather not call busy ppl asking questions without some sort of delivery of product or service. I can only guarantee that I’ll work hard but cant guarantee that I could get someone a row of deals a month (which is not impossible just not in this phase as I have none).

I have over 30 leads so far as Sellers (they have abandoned and fore-close/pre fore-close properties) and I started about 5 days ago so I feel I am progressing nice. I just don’t want to send these postcards and put out bandit signs and do all the research and lose money I don’t have to unnecessarily. So please help me out you can that would be the bomb. Thanks!!! javascript:replaceText(’ :beer’, document.forms.postmodify.message);

2

How have you gotten 30 leads in 5 days?

3

I don’t know what training you took to become this confused.

Issue: I can say with metaphysical certitude that you did not actually find 30 sellers. At best you found 30 suspects that you hope are prospects that you can convert into sellers. There’s a difference.

No suspect is a seller until he’s signed your purchase agreement. Then he can be called a seller.

Issue: You are complicating the technical parts of this process like crazy.

Issue: Memorandums are for large-equity steals, or higher-end real estate in a competitive market; where the seller is apt to shop your offer and/or you’re dealing with a dishonest broker.

On a teensy $40k deal with a $10k upside, recording memorandums is a waste of time and money, if not just too much grief.

Let’s say, “You’ve got a signed offer in hand.” A seller cannot legally sell to someone else, until your purchase agreement has expired. Why?

Any purchase agreement (contract to buy) becomes an ‘option to buy’ contingent on various factors that the buyer and seller agree to.

As a result, the seller cannot sell to anyone else while the option period is still open. That is, and get a marketable title. So, without the contract buyer’s cooperation, and/or again until the contract buyer’s ‘option’ expires’, or the contract buyer has failed to exercise his option to buy, the seller is stuck with you.

In the event you contract with a jackass whom abandons your signed contract to ‘sign up’ with a competing buyer with ostensibly a ‘better offer,’ you have the option to cloud the seller’s title by recording a Memorandum Of Agreement, (it’s called something different in every state), using your purchase agreement as support.

When the competing buyer’s title company does their final title search, and scours for real-time liens, they will find your Memorandum Of Agreement recorded, and will refuse to insure the title, much less close on the deal, until the lien has been satisfied.

Of course, you’re the only person who can release the lien, short of a court order. [Insert evil laugh here]

Of course, too you’ll already have recorded a lien against the property within an hour of discovering the seller has been unfaithful to your agreement, and you will have informed the seller of such. Adding that without your cooperation he won’t be selling that property to his great, great, great grandchildren, or anyone else for that matter, anytime soon.

Meantime, the seller has an apoplectic aneurysm over what you’ve done, and threatens to sue you. You respond by saying, I am ready, willing, and able to close on your hell hole, but if you really don’t want our deal, I’ll understand, as soon as you give me a cashier’s check for five thousand dollars, I’ll release my liens and walk away. Deal?

In that case, it’s win/win/win. The competing buyer wins; you win; and the jackass wins.

Issue: Get the purchase agreement in writing, and take the signed paperwork to the Title Company. They will handle all the rest of the details without you having to advise them. They will call you when they’re ready to get signatures from everyone, and upon closing they will issue you a check, and deliver the title.

Issue: There are various ways you can arrange to get paid on a wholesale flip, and I’m not going to tackle that here. That should come with any training you purchase, which you need to do.

You should consider purchasing one of the following wholesaling training courses to guide you.

http://fastcashwholesalinghouses.com/
http://www.reiclub.com/products/502
http://www.reiclub.com/products/504

4

The way I learned wholesaling was from a free online book (forget which one), then I read all the wholesaling articles at this site and watched all the free videos here.

None of my self training provided proper paper work for doing the deals (I somehow pieced together my own contract, which has not been reviewed by any experienced investors)

None of them walked me through how a deal actually sounds (like the wording between seller and buyers)

I dont understand if I need two contracts signed (the legal notes)
I dont understand if the two contracts are typed differently for buyers and sellers

I dont understand why anybody with half a brain would sign some homemade contract and sign away their house
Signing over a house with professional contracts with a Realtor or Broker makes sense
Signing over a house with a two page homemade contract with somebody who says they are “an investor” seems totally insane on their part

The majority of homeowners do not know Jack about “wholesaling” and other investor strategies

5

You’re still thinking like a seller with options. That’s not who you’re pitching offers to.

Few sellers trust investors who seem to know more than they do. That includes pulling out fancy ‘investor’ contracts; writing with expensive pens; or worse, wearing a Rolex.

If a seller gets tripped up over your two-page offer contract, you’re in front of the wrong seller. Motivated sellers don’t care what they sign, as long as it solves their problem.

I routinely negotiate using nothing more than a yellow-lined note pad. And you’ll eventually discover this is quite a common way for professionals to start and end a negotiation. It’s all recorded on a yellow note pad.

If you really want to push it, you can have the seller sign the last page of your notes, after you sign it, and as long as there’s a agreement date, a closing date, and a price listed, that’s all you need for a bonafide contract agreement that is legally enforceable in most states.

Frankly, that’s exactly how I closed on my first apartment building. The seller and I listed everything we agreed to on one page of a yellow note pad, and I providentially had him sign after my signature, and we were both locked in.

Doing that, allowed me to close out all other potential bidders on that deal. And that was important, because the seller had a slew of phone calls on his property, and told me he had changed his mind and wouldn’t close. He wanted out so bad, he offered me ten grand to walk. That was after I informed him that I was ready, willing and able to close on ‘our’ deal; that I had recorded a Memorandum of Agreement against his property; and that he wasn’t going to sell his building to his great grandchildren without my cooperation.

That’s when the seller offered me money not to buy. I refused, but I could have walked away with ten grand, and only spent four hours screwing with the deal. That’s uh, $2,500 a hour for not buying.

There’s not much room for pride in this business. It’s all about solving problems, not fussing over contract appearances. And those that are fussy, aren’t gonna give you the deal you want anyway. Fussiness is an automatic disqualifier for me.

6

Original poster, my appologize for asking so many questions in your topic but it is all related here

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Jay, that is some real mad hattery you describe writing contracts on the spot.

One thing that confuses me is how such a simple contract can be legally binding? I mean, anybody can just forge signatures. You know? It seems like those contracts should all be Notarized…

Also aren’t you supposed to have two (2) contracts signed & dated, one for them to keep and one for you to keep? The way you describe these yellow letters is mad hattery. You get it signed and walk away with some handwritten contract taking ownership of their property all in a matter of minutes.

7

Purchase agreements are never notarized. Get that out of your head.

God invented copy machines to makes copies of yellow pad contracts. Or God offers an alternative, which includes carbon paper, to make copies. Whichever works.

Otherwise, if everyone agrees and signs the paper, regardless of what it is, it’s a deal you can take to the bank literally.

Signing a contract does not give the buyer ownership on the spot. It gives him control on the spot (until the scheduled closing date, or expiration of any contingencies occurs. After that the buyer’s control interest is extinguished, if he doesn’t actually close on the deal.

Meantime, the only way the buyer can get ownership is to get a deed from the seller, which by the way must be notarized in order to be valid and record-able.

8

Jay, a little further down this rabbit hole… Lets say I write up a contract and the seller and myself sign it. Later that evening, the seller is panicking and thinking what the heck did I just do. They decide they did not want to sign my contract.

What goes on now?

They could pay me a fee to shred up the contract and forget about it?

How about taking it to Court? What kind of court would it go to? How expensive is a court hearing going to run to contest the contract?

A handwritten contract just seems very flimsy. What do most judges (in court of law) think of this style of Willie Nilly handwritten contracts?

Im just trying to fill in the gaps of questions about the contracting portion of wholesaling. It seems like one of those joke cups of water at the magic stores, where there are a bunch of holes drilled into the sides of the cup and it does not hold any water…

9

Issue: Seller changes his mind:

Once a seller signs, he’s legally committed, but the buyer is not (effectively speaking).

In the law’s mind, a seller must sell, but a buyer doesn’t have to buy.

I know this from personal experience as a seller; forced to return a buyer’s $2,500 earnest deposit; whom was outside his window of opportunity when he decided to bail on the deal.

Worse, I got a judgment for $2,500 on my credit report!!!

The judge ignored the terms of our contract, and simply decided that the buyer should have his money back, if he didn’t want to buy.

That’s when I first understood that the seller has to sell, but the buyer doesn’t have to buy. You can take that to the bank.

Issue: Giving the seller a way to abandon the contract.

Yes, you could tell the seller that you’ll walk with “x” dollars, or you’re prepared to close as agreed. Make it their choice.

Issue: Going to court.

Google “Specific Performance.” This applies to sellers mostly.

When I write up an offer on a yellow pad, I’m not looking for a way out. I’m also not offering an earnest deposit, or binder deposit. Sellers don’t think about those details, and I don’t bring them up. So, in the end, the extent of my damages, in the event I want to bail, is whatever I spend checking the title, and doing whatever due diligence I’ve not already done.

That said it’s always important to include one ‘weasel clause’ in your offers. You just need one. And if you can’t close, or don’t want to, for any reason, you can rely on your weasel clause to get out of the deal. Without that clause, and failing to close, opens you to a lawsuit for specific performance.

Residential sellers ‘never’ have the ability or willingness to sue for specific performance, much less the willingness to hold up the sale of their house while they sue. I mean, the buyer would immediately record a lis pendens against the seller’s hell hole, and cloud his title until the lawsuit was settled.

Well, a seller who needs money from the sale of their house, will hardly want to blow money suing a ‘bad’ buyer, much less hold up a subsequent sale with a ‘good’ buyer, etc.

BTW, yes it’ll cost the seller $15k to $20k to sue for specific performance. And he’ll be in court for at least two years. And all things being equal, no attorney is going to tell a seller that he’ll win, because he won’t win.

Meantime, the seller will NOT be able to sell his house to anyone else in the meantime, after the buyer records a lis pendens against the real estate. Worse, if the seller does find and close on another buyer, that will undermine, if not upend his argument for damages.

So, a seller suing for specific performance, for all practical purposes, is a non-starter.

It’s conceivable however, that if the seller could prove damages, a buyer could be forced to pay those damages.

Will you ever get into that kind of situation with your typical amateur seller? The answer is, “No, you will not.”

Issue: Using ‘Willie Nilly’ handwritten contracts:

A signed contract is a signed contract. It makes no difference the medium, or appearance. It’s legally binding. Again, mostly on the seller’s part.

10

awesome post Jay. This is gold.

11

Thanks Jay. I printed your response out so I can read that over several times. There are some terms in there that I have to look up the definitions.