If I put in an offer on a short sale through a RE agent and it is accepted by the bank, the owner signs the contract, would it be wrong of me to open escrow in my name knowing I cannot finance the purchase and my intentions are to wholesale the property?
Am I protected from an investor circumventing me from this deal by doing this?
DavidG
You need an LLC. I NEVER. Let me repeat…NEVER put anything under my name. Ever. Cost of about 500 but well worth it. If your going to be flipping start an S corp instead.
Does your contract say that it’s assignable?
No…this is not assignable as banks on short sales do not allow this. With that said, the offer to the bank does say “subject to partners approval”. We then switch the names in escrow. My question is…does this work and is this ethical?
I’m not sure about it “working” b/c I’ve never structured a deal like that. Yes, I’m a short sale n00b. I was just asking to see if you were able to use an assignable contract. I know of one investor that has been able to use an assignable contract, but it may be a rare case. As far as ethics goes it would suck for the home owner if you don’t complete the deal. You’ve now taken time away from them that they could have used with another investor that would have been able to go through with it.
Uhm…Well, i know a fair bit about law, but very little about real estate law…Also, things vary from state to state (especially corporate law) sooo, take this with a grain of salt…
Imho, this is not a good idea… It sounds a bit like commonlaw fraud (intentional misrepresentation of fact, designed to induce reasonable reliance, which is in fact reasonably relied upon, resulting in damage). If you get sued for fraud, you are not only liable for actual damages (not huge in this instance i’d say, because the benefit of the short-sale bargain is not huge i dont think?) but you’re also liable for attorney’s fees and Punitive damages, which very often far exceed the actual damages. Fraud is tough to prove, but if it can be shown that it was impossible for you to perform on the contract at the time you made the deal and that you knew that, he’s halfway there already. Additionally, hiding behind a business entity will not protect you from raud liability, because fraud is an intentional tort, and if the agent of a corp. commits an intentional tort on behalf of the corporation, the corp and the individual (you) are joinly and severally liable (meaning your both equally on the legal hook).
If fraud cant be shown and you just get sued for breach, then you’ll be liable for the actual damages (speculative), which is basically the difference between where the seller finds himself after your breach, vs. where seller would have been had you followed through. Dont know how big or small these might be but again, I wouldnt expect much protection from the corporate entity here either… If the business entity is just an ‘alter ego’ for you, if theres been significant intermingling of assets (i.e. your personal funds go to fund everything crop does) or if the corp is undercapitalized (a MAJOR ONE and one that seems to apply here since the entity wouldnt have enough money to make the purchase)… lots of ways to get by the corporate entity in a situation like this, if this situation is anything like i think it is…
Basically, without knowing the exactly applicable law, it sounds bad enough that i wouldnt do it…
BTW, as far as ‘working’, contracts in general are freely assignable, which means that unless there is some very specific language in the contract voiding all assignments, then you can assign it without getting the approval of the other party… the problem is you cant delegate your duties under the contract without approval of the other party, which means that you are still on the hook no matter what—so basically if you assign the thing and the assignee breaches, you are liable for that breach, and for all his misconduct, for that matter…He ‘stands in your shoes’ after the assignment, which = everything he does, it is just as if you had done it, and you are liable just as if you had done it. Also, if the required language is in there voiding all assignments and you assign it anyway, the person you assign it to can sue you for breach of warranty…just FYI…
Also, is there an attorney’s fees clause in your contract, and if so what’s it say? Thats another big factor here…