Great course Scott!!! Contingency clause question
I received Scott Rister's "Instant Cash Wholesaling Houses" course and am very pleased with the thoroughness with which he covers the subject of wholesaling. I haven't finished studying it but had a question with regard to a particular contingency clause that could be used. You say, and I agree, that one should be committed to performing all the obligations contained in your contract and if you cannot close in the case where you cannot locate a buyer it should be made clear to the seller that your purchase contract is contingent upon you being able to find a buyer. I had thought of using this particular clause in my purchase contract but wondered whether if this was in writing it might look like a "listing agreement" and since I'm not a licensed real estate agent I could be susceptible to charges of practicing real estate without a license if the contract found its way into a realtors hands that wanted to cause me problems? Would it be better if this contingency was made clear to the seller by mouth and not be in writing? I like the contingency because it is straight to the point and totally honest with the seller and at the same time gives you a legitimate out if you cannot find a buyer. I'm just getting started and do not have the ability to close on a property if I cannot locate a buyer. After I wholesale a few properties I could afford to close on a property if I could not locate a buyer and could write the contract up with no contingencies other than a standard financing contingency. If having the "must find a buyer" contingency clause in my contract costs me getting the deal I can live with that. What I don't want is to run afoul of the real estate commission. Any comments from Scott or others who have experience with this issue and know how to best structure such a contingency so as to both protect me legally and at the same time be an ethical wholesaler by being totally honest with the seller would be most appreciated.
Brennan Kopp
Jom,
Here is a Deed with my Corporate Entity on it. When I said my name it was only for illustration purposes.
There are several methods you can use to take title to a property. Corporations, Trusts, Partnerships, etc.
Did not mean to confuse anyone.
Johnh $Cash$ Locke
Brennan,
Would you be kind enough to tell me what State you are in.
The State Statutes in your State describe what 'Brokering Without A License' is.
I am not familiar with what Scott's progam is about, he is a very knowledgable investor so he should probably answer your question, but I am curious because of the questions you asked.
John $Cash$ Locke
Thanks for the response John. I'm in North Carolina.
bkopp66,
Maybe I am confused about what Wholesaling is in regards to what questions you are asking.
Wholesaling means you buy the house wholesale and then sell it retail.
Why would there be any contingincies about finding a new buyer, this sounds like a glorified Lease/Option deal. If you are just signing some paperwork with the seller so you can sell the house then this is not wholesaling.
Bottom line if you do not hold the deed in your name or company name and you advertise the house for sale then you could be considered as Brokering Without a License. I can understand your concerns, please give me a little more detail, cause I might not understand what you are doing.
Regardless I will help you assess the situation either way.
John $Cash$ Locke
Brenan,
Good question and let me just get right to the point on contractual contingencies and supposedly being held liable in a legal manner for practicing real estate without a license. IN WHOLESALING HOUSES YOU HAVE A LEGAL AND VESTED INTEREST IN THE PROPERTY!!!!
No, I'm not an attorney and always seek counsel. However, it's been my experience and those in legal profession of real estate (attorneys) verify that I do need to have monetary consideration binding a contract making sure I have a legal and vested interest in the property.
In addition when it comes to contractual contingencies (ie...weasel clauses) for me personally there is a direct correlation to the amount I structre in my contracts, if any, to the strength of the deal. Hey, if its a no-brainer deal at a great price then I don't put one stinking contingency except for clear title.
I hope that does answer some of your questions. Please let me know if you have any others.
Thanks,
Scott
bkopp66,
This is the link to Real Estate Statutes in your State. I would recommend you read this and determine if you are exempt with your method of investing.
http://www.ncga.state.nc.us/statutes/generalstatutes2001/html/bychapter/chapter%5F93a.html
John $Cash$ Locke
Thanks Scott and John for the responses. Hopefully I can clear up exactly what I am talking about doing and my concerns. I'm talking about tying a property up on a standard purchase and sale agreement where there is some monetary consideration paid to the seller(actually it will be held in escrow by my attorney until closing but nonetheless monetary consideration paid to the seller is part of the contract). The contract would have an addendum that states that the sale is contingent upon me or my company being able to locate and secure by contract someone to buy my interest in the subject property. It could also state that seller acknowledges that buyer is not acting as sellers agent in this transaction but rather intends to sell his interest as a principal in this transaction to someone else. The exact language of course would need to be crafted by an attorney familiar with how such a provision is interpreted in North Carolina. I've located a knowledgeable attorney but the last time I consulted with her for 45 minutes she sent me a bill for $140 so I'm first trying to get a general idea from those with more experience as investors whether they have ever used such a clause or whether it even has a chance of being OK with regard to not practicing real estate (brokering) without a real estate license. Yes, I would prefer to not have such a clause as I'm sure it might keep me from getting the deal, but if I am to be an ethical wholesaler then I need to be honest with the seller that if I cannot locate a buyer for my interest in the property then I will not be able to close on it myself. Once I have a couple deals under my belt then I could afford to close on a property if I could not locate a buyer before closing and would not even include such a clause in my contract. Scott, when you mention that you need to be honest with your seller that if you don't find a buyer before closing you are unable to close on the property yourself, did you mean that such a contingency should be built into your written contract or just that you should be straightforward with the seller and state that to them orally?
Brennan Kopp
In reading this topic, a question has popped into my mind with regard to the clause on securing a buyer before the contract is valid.
If this is merely stated to the seller verbally, rather than put into the paper contract, does that still hold up?
Here in california, verbal agreements are binding.
Also, by stating this, can you still be held up for not being a licensed broker?
Brennan & Beacon,
There are probably many stories floating around out there about Brokering Without A License. There is one story I am familiar with first hand.
I recieved a private e-mail from an individual in New Mexico that told me he had two counts against him for Brokering Without A License (BWAL) and was there anyway I could help him. I told him he really needed an Attorney to guide him.
Here is what happened, he bought a course from a well known Guru, this course said just tie up the property without getting the deed, which this person did. A Real Estate Broker brought charges against the investor for (BWAL) when he advertised the property for sale, without owning the property. He wound up paying the fines imposed by the Court, he got realitively easy since it was his first offense. I will tell you he is not going to use this method again.
It is easy to say consult an Attorney which is the smart thing to do for any new investor, but to make sure your paperwork is in order and complies with the laws in your State. There should not be a question of whether the method of investing is legal or not, this should have been covered in the course if there was a doubt about the legalities in selling a property without having the deed in your name to the property.
I know of others who have went through the (BWAL) but I am not familiar first hand, but I do know it envolved not having the deed in there name when trying to sell the property.
So the money spent with an Attorney to find out whether your method of investing is legal in your State is well worth it. Rather the money spent with an Attorney than a Judge.
Remember these are my views on this subject only, I take investing seriously and I have a committment to my students to guide them to the best of my knowledge.
John $Cash$ Locke
I hope I'm not oversimplifying this, but when can you ever tie up a property with any instrument with the intentions of reselling/flipping it without a) a license, or b) a deed? I'm a rookie at this stuff.
I own two properties the soft way (I bought and lease them for cash flow), but now I'm interested in flipping wholesale properties for quick cash. Don't you always have to get the property deeded to you if you plan to flip it in a double closing or assign to a retailer? Thanks, and sorry if I'm too basic here.
Eric,
Glad to meet you.
Bottom line, how do you sell something you do not own?
If anyone wants to become a real estate agent, then they can list the house and sell it by the State Statutes and be perfectly legal.
If the State Statutes say only the owner can sell a property without being a real estate agent then this is exactly what it means. If the Statutes define the owner as the person or persons on the Deed then it is cut and dried.
Welcome on board this board, we all learn from asking questions. In this industry there is nothing to basic or no such thing as a dumb question that should go unanswered.
John $Cash$ Locke
To the Contrary JohnLocke:
If the person whose name is on the Deed were to expire without Heirs then the State would appoint a Trustee as Executor to dispose of the ptroperty.
If a person who is still alive appoints a Trustee (say You) to place his home into a 'Inter Vivos' Title-Holding Land Trust...
or
If the Person on the Deed placed their Home into this type of Trust and Assigned Beneficial Interest in the Trust to YOU...
Then you WOULD NOT HAVE TO BE LICENSED to act in a Capacity of OWNER to dispose of and/or PROFIT (Sell, Lease, Divide Interest, etc.) on the PROPERTY as any person named on the Deed could.
No court in the US has challenged this and no dissenting locality, municipality or corporate interest(public/private) has PREVAILED (succeeded) in overturning of this US Constitutional Right of property owners with regards to Land Trust and Beneficial Interest therein!
However, this is not to say they COULD NOT EVER PREVAIL (Win)...
Just to say that LAND TRUST are a SAFE HARBOUR DETOUR from the zealous actions of threatened parties such as Attorneys, REALTORS, LENDERS, and Revenue Collectors (both State & Federal--cuz no Tax Liens can be filed against a property Titled within a Land Trust).
Hope this helps!
DERRICK ALI
[addsig]
Derrick,
This ole spider set the web up knowing he would catch the fly. Guess who the fly is Derrick.
You said the magic word if you put the 'Deed', the deed you get from the owner in a Trust, Corporate Entity, etc., then yes you are the owner. No argument from me.
What does this have to do with someone dying, we are talking about ownership of the property not probate situations. But it sounded good, kind of added to your post.
Anyway I always enjoy your 'intellectual being' giving advice in your posts. When challanged on your 'idea' you be the one to explain it to the Judge, I would rather just say here is the Recorded Deed your Honor with my name on it. Case Closed, no maybe's or if's.
Derrick, I do enjoy you being here, after all I do need someone to pick on now and then. Please do not call Mr. G. he's to tough for me.
John $Cash$ Locke
couldn't you just do a purchase agreement with "John Doe and or assigns" in the buers name to avoid the brokering without a license thing?
I am just starting out and was wondering if that would take care of that problem.
(i am in minnesota, If that matters.)
Thanks, csaxum
csaxum,
Glad to meet you.
The purchase agreement only states the terms of your agreement with the seller, there is no owership in an agreement to purchase on your part.
In your case you are wanting to assign it to someone else thus or/assigns, what are you assigning to someone else, the right to purchase the property or a 'listing' that they can purchase the property.
With just a Purchase Agreement alone and you try to sell the property you are Brokering Without A License.
Welcome on board this board, not trying to confuse you, but a rose by any other name is stil a rose.
John $Cash$ Locke
Hi csaxum:
I am no pro at this but I beg to differ with some of the responses to this question.
1. If you sell a purchase agreement on an assignment (granting that it is assignable with the property owners consent) you have not brokered a property. You have sold a piece of paper. You did not buy or sell the property.
2. Assigment of purchase and sales is recognized and common with every title company I have ever used or spoke with. They even have an assignment form you can use at closing in the event you do not have the sellers permission.
3. If you have made it perfectly clear to the seller verbally and in writing that you are either going to purchase or assign your purchase to a third party (a partner if you will), I see no pitfalls in doing so. In fact you may even be able to use the seller on your behalf if you ever end up in court. After all, he did agree to it in writing, which is to say that he was well aware and consenting to what you were trying to do.
4. The last point is that if you have money on the pruchase and sales then you have a binding agreement which gives you an equitable interest in the property. At least that is what everyone who's advice I have paid for has ever told me.
I would really like to know the details surrounding this person who was convicted of brokering without a license. I am willing to bet there was something out of whack with the deals he did. If you are doing things that will upset your neighbor or your mother you will make yourself a target of the local authorities. This will result in someone finding a way to get at you somehow.
Travisluedke,
1. If you sell a purchase agreement on an assignment (granting that it is assignable with the property owners consent) you have not brokered a property. You have sold a piece of paper. You did not buy or sell the property.
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You sold a piece of paper is not going to fly if the piece of paper is connected to the property. This is not going to convince anyone that what you are not doing is selling the property no matter what you wish to call the paper work.
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2. Assigment of purchase and sales is recognized and common with every title company I have ever used or spoke with. They even have an assignment form you can use at closing in the event you do not have the sellers permission.
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It is not the title company you will be dealing with, it is the State Statutes regarding what the law is concerning selling property in your State.
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3. If you have made it perfectly clear to the seller verbally and in writing that you are either going to purchase or assign your purchase to a third party (a partner if you will), I see no pitfalls in doing so. In fact you may even be able to use the seller on your behalf if you ever end up in court. After all, he did agree to it in writing, which is to say that he was well aware and consenting to what you were trying to do.
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Agreed the seller did agree, but I am sure if you tell him he may wind up in Court because you are Brokering Without A License, see how quickly he signs the paperwork.
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4. The last point is that if you have money on the pruchase and sales then you have a binding agreement which gives you an equitable interest in the property. At least that is what everyone who's advice I have paid for has ever told me.
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The State Statutes in your State define what ownership is in a property and also defines the difference between the owner and a real estate person selling the property with or without a license.
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I would really like to know the details surrounding this person who was convicted of brokering without a license. I am willing to bet there was something out of whack with the deals he did. If you are doing things that will upset your neighbor or your mother you will make yourself a target of the local authorities. This will result in someone finding a way to get at you somehow.
$$$$$$$$$$$$$$$$$$
The deal was this person took a Lease Option on a property. He advertised the property for sale. A Realtor turned him in for Brokering Without A License. He was convicted of this offense because he did not hold a deed to the property only a Lease Option on the property. He had all the things you say to have, a peice of paper, an equitable interest, etc. What he did not have was a Deed showing he was the owner of the property.
Even one of the Major Guru's who is well versed in law will tell you some States are tougher than others on this issue. It is not what I think or you think it is what the laws in any State say regarding this issue. If a course is being sold that says a person is not required to get the Deed and it is legal to sell the property then have them put it in writing, instead of saying see your Attorney to see if what you are doing is legal where you are. Of course you can ask the Real Estate Commission in your State, before they ask you.
John $Cash$ Locke
I cannot argue with your logic or your expertise. Sorry if I stepped on anyone's toes.
I hope the contracts I use in my L/O's will protect me from an upset broker's intentions. My contracts allow for assignment, sandwich sublet, and sale of the property (I have to buy it first).
It would be a major bummer to have these abilities stripped from me, as this is a significant portion of my business.
travisluedke
You may never run into this problem in your entire career, The person I referred to had just started out and got caught.
My main reason for bringing this to everyone's attention is, I do not want to see someone's career stop before it starts.
I feel sooner or later Realtors will start going after private investors because of the business they are losing to us. Thus far holding the deed says I am the owner and I will do what I may with my house.
Realtors are a very strong lobbying group both locally and nationally. If you get one of their deals from them, which is not uncommon in our industry then you may be on their hit list to turn into the Real Estate Commission.
John $Cash$ Locke
Hi,
I am in process of getting started with wholesaling as well. I am just not sure what to include in the purchase contract and what not.
I was wondering how much earnest money I should use when flipping and how long should I give myself before I get out of the contract (till I find a buyer to assign to?).... any advise?
thanks, Louis
Hello,
Now I am really confused. I thought that if I had a property under contraact I should be legally able to "look" for a buyer. Why would that be considered brokering BWAL if I don't actually sell the property until after the property was deeded to me at a double close?
I live in Florida if that matters.
Thanks.
[addsig]
I understand your confusion having read two vastly different opinions from 2 experienced investors on this site(Scott Rister, John Locke). I am not an attorney and you should seek legal advice from a Florida attorney. The confusion results from the fact that these two investors are approaching real estate investing in different ways. John Locke is looking primarily to get the deed and hold the property for a few years. His big payday is in a few years when his tenant buyer qualifies for financing and cashes him out. Scott Rister is more interested in getting paid today. He looks for properties that can be acquired for a substantial discount, puts them under contract with monetary consideration being paid, and passes the great deal on to another buyer by writing up another contract for his vested interest in the property. The profit amount per deal is smaller than on a subject to deal, but there are more wholesale deals to be made and you don't have to wait that long to get paid. Which of the two experienced investors mentioned above should you listen to? It all depends on what your approach to real estate investing is. If you want to buy a property and hold it for a while, taking your profit in a few years listen to John Locke. If, however, you are interested in making money today listen to Scott Rister. In my opinion, the topics of "subject to" and "wholesaling" should each have their own forum because they have little in common. "Subject to" is about buying and holding for awhile with most of your profit a couple years down the line. "Wholesaling" is about buying and selling, taking a smaller profit than you would get on a "subject to" but doing more deals and getting paid today. My personal opinion on which method is better for someone just starting out that doesn't have buckets of cash reserves? "Wholesaling" is the better initial approach. A quick nickel is better than a slow dime.
bkopp66,
I will agree that Wholesaling and Subject To investing have little in common with one another.
However I will disagree on the point that Subject To investing does not give you money today.
We just did a Subject To deal where we gave the seller $10.00 for his equity, sold the property in 10 days and got $6,000 down. Also, a nice passive income every month from the points added to the existing mortage payment. The back side is another $Jackpot$ when the seller re-finances.
I could go one with many deals similiar to this one or even talk about some real Home Runs, $1K sellers equity, $15K down from buyer.
This does not mean by any circumstances that Wholesaling is not the way for someone to pursue, I would rather have the upfront money, monthly passive income money and the backside money going for me.
John $Cash$ Locke
Try using something like this...
Contingent on Partners review. (or something to that effect)
This way if something else besides not finding a buyer for your lead or whatever you could back out free and clear.
What do the rest of you think?
Thanks guys, that really helped a lot. I think I am interested in both, just to keep myself diversified. Thanks for all the great info as always.
.
[addsig]
Quote:
On 2002-11-22 21:37, JohnLocke wrote:
Anyway I always enjoy your 'intellectual being' giving advice in your posts. When challanged on your 'idea' you be the one to explain it to the Judge, I would rather just say here is the Recorded Deed your Honor with my name on it. Case Closed, no maybe's or if's.
John $Cash$ Locke
JohnLocke,
I'm still trying to decide what leagal entity, if any I am going to create. This post implies that you don't use an LLC or Corp. Is that true?
Sorry, to change the subject, just trying to get started, and to figure out what I am going to do.
Jom
to John Locke...I hate to beat this to the ground but in the Brennen & Brennen case...the investor Locked the property up with a Purchase agreement,maybe even recorded it at the courthouse and then made the mistake of advertising the property...if he would of just contacted investors via I BUY HOUSES ads...he would of been able to "assign" his purchase agreement...do a double close and that would of been legal.
Sorry John, I didn't see the second page of postings. I guess it just boils down to what state one lives in and to check with a Real Estate attorney to see if Assigning Purchase agreements is legal in that state....but here's a hypothetical situation...If an investor has the "Intention" to buy a piece of property and then signs a purchase agreement with seller and has "assigns" next to his name on contract and can't get the financing he expected so rather than lose his earnest money he then locates another investor from his REI club and informs the seller of his situation and "assigns" his agreement to investor friend...doesn't he have the right to do so??? I wrote to William Bronchick who wrote a book "Flipping Properties" regarding a article John T.Reed wrote "Flipping as illegal Brokering without a License"...he said " Well, it comes down to this ... Me(W.Bronchick), Ron Legrand, Robert Sheman & Steve Cook have all done it successfully, legally, ethically and profitably. John T. Reed's never done it, so any comments he has are based purely on speculation.
How then can William Bronchick (an Attorney) write a book on Flipping and has done it countless times and be illegal???...how can Ron Legrand who's has done over 1200 transactions be illegal?...how Scott Rister who has written a Manual on wholesaling and actively doing deals be illegal and be allowed to do so?...the title company wouldn't even allow him to go into closing. Obviously there is two camps here. The Doers and the Speculators...However, It be wise to consult your Local Real Estate Attorney to be on the safe side.
The Real estate lobby in Washington is said to be the second most powerfull and they spend a lot of money keeping things exclusive. All well and Good. Nobody wants there ox gored so to speak. Agents and Brokers dont like investors 85% of agents no nothing about property investment. Why then they would do property investment and cease to be slaves of the system ie there broker. You shouldnt be suprised i guess.
Okay, I'm thinking that maybe it's all in the wording of things...that you're not really selling the property in this case (because you do not own it), but rather you're selling your contract to purchase the property. If that is clearly spelled out, does that not resolve the issue?
(Disclaimer: this type of investing really isn't my bag, just offering my 2 cents)
Kind regards,
Phil
I'm a little confused by this too. I was under the impression that if you had a signed contract to buy a property that gives you interest in the property. Therefore you can sell or assign the contract. Am I wrong in this? If I am then how do people that wholesale flip get away with this?