Wholesaling - Amount Owed Question
I am wondering about this deal that I was looking at...
I found a 3 family in a nice neighborhood and I talked with the seller about it - he is in preforeclosure and owed a few mothns mortgage payments...
As I was talking to him, he told me he owed $250,000 on the first mortgage, $50,000 on the second mortgage and $15,000 in back payments... He needed about $10,000 to get out... So I offered him $325,000 and comps in the area are about $350-$360K... I thought I had a good deal... Well, I pulled prelim title and there was an additional $20,000 lein on the property... What happens now? Am I held to this offer?
I already told him about this other lein on the property and we agreed to have the offer canceled... But could he have held me to this number and when I got into the property I would owe that additional $20,000??? How does something like this work?
I don't look at the title until I have it under contract - so this stuff might keep coming up... What do I do about this?
[addsig]
Matt:
Most Purchase & Sale agreements have a contingency clause about clear title: if a seller misrepresents liens on the property (either intentionally or not) and you discover them during due diligence, the clause usually spells out what your remedies are. Mine says I have 3 choices: I can reduce the purchase price to cover the liens, extend the contract term so the seller can pay the liens, or cancel the contract.
The contract also states that the seller is granting me clear title--if you are not sure he's doing so and don't trust your own title searching ability, you can purchase title insurance, whereby a title company will do the search and then issue insurance that the title is clear if they don't find anything. If something comes up later, the title company is on the hook to take care of it.
Andy
IMO, I'd just add a clause into your contracts stating that if during your due diligence, if you find something that killed the profit then the deposit is refundable and the deal is cancelled. After doing many deals, 10-30 you should have more than a few clauses to use on every contract.