Deal Falls Apart At Closing-Lost $7k!!!!

[Larmon Cummings Jr]

Hello BP Community. I wanted to share a recent experience I encountered in a wholesale transaction that fell apart on me in closing. I want to share this experience so that maybe from hearing this it can help to educate some, and maybe even provide me some feedback to help me do better next time. 

I received a call from a lady who received one of my yellow letters from a prior marketing campaign I did. She had a property she was trying to sell in a south suburb right outside the city of Chicago, and it was listed with a broker at the time. The listing agreement with the broker was set to expire in a few months, so I told her that I would keep in touch with her during that time to see if she got it sold or not. As a wholesaler, I could not interfere with the contractual agreement she had with the broker, and I knew in dealing with her directly I would get a better deal. Fast forward a few months and the listing agreement with the broker expired, and the lady had reached out to me informing me of this and letting me know that the property did not sell. In my opinion, for the condition of the property it was priced alright for the area, the thing that was preventing it from selling was the very high property taxes (much higher than similar properties in the area), and I don't think the broker really marketed the property very well. Anyhow, the lady called me and informed me that she would not be extending the listing agreement, and that she wanted to work with me. 

I explained to the lady that I would not be buying the property myself, but would market it to my network of buyers and see if I could get it sold for her. She said that would be fine with her, she just wanted to sell it. The property was occupied with a Sect. 8 tenant, but the rent she was receiving was way lower than market rents for the area, and she was coming out of her pocket each month just to maintain. I put the property under an Option Contract for $60k and started marketing it. I used a variety of marketing channels-CL, Postlets, BP Marketplace, among a few others. I was getting several calls, but nothing from anyone who was serious. I received a ton of calls from some very "BAD" wholesalers, who used some very unethical tactics (I really experienced firsthand why we as wholesalers get such a bad rep). As a wholesaler myself, I can honestly say there are some very shady characters out here that will waste "LOTS" of your time if you are not aware. Fake POF letters, misrepresentations of who they really are, among many other unscrupulous tactics. I am still new to this particular RE investing niche, so yes, I had lots of my time wasted by some of these individuals, but that is another reason I tell my story so people can be aware of these types of people and avoid them. I think it just comes with experience though, because its hard to identify these people if you never encounter them-just keep your eyes out for them, especially if you use CL. Back to my story though.

I worked on this deal for a couple of months, and didn't come up with any solid buyers. The property was priced good (at least I thought it was) at $65k, ARV was between $115-125k conservatively, and it only needed a light, cosmetic reno of about $10-15k at best. The thing that was killing the deal was the high property taxes at $5,600. I updated the seller with a weekly call of the good and bad, and I was very transparent on how things were going. She told me that she really liked that about me and that the other broker she had worked with didn't really communicate with her much. She said she still wanted to work with me, so when my contract expired she didn't have a problem with doing another for 45 more days.

I was determined to get this property sold, so I brought in a partner that I met via BP and told her that we could split the fee 50-50 if she brought me a buyer. In my experience dealing with so many bad wholesalers prior to this, I knew working with someone else would be beneficial to selling this property, but I just had to work with the right person(s) who I knew were professional, and did what I felt to be "GOOD" business. Its funny because I received so many calls and emails from so many wholesalers posing as cash buyers and I would ask them flat out if they were wholesalers only to get lies. The whole time I was willing to actually work with wholesalers to get this deal done and split it 50-50 with them if only they were honest and upfront with me. I just feel like if you would lie to me about something small like that, how could I possibly trust you enough to do business with you. This person that I did work with though in my opinion is a good person, and worked on the deal very diligently with me. We had met prior to this deal at a meet up, and from talking with her I determined that she would be someone that I would actually work with and I wanted us to get our first deal done together. 

My partner is the one who taught me some very valuable lessons as we worked together, such as getting a POF in the form of a bank statement from the last 30days from the buyer before scheduling any showings. She also taught me that before I sign any purchase contracts with the buyer to make sure I get $1-2k EM with the contract. As I mentioned before, I had a lot of my time wasted dealing with people posing as cash buyers who really had no intention of purchasing my properties.

My partner ended up finding a buyer, she verified POF, and we showed the property together. They buyer wanted it, and they gave her $2k EM deposit with their offer. By this time the both of us had invested a lot of time and resources into this deal doing things such as marketing, showings, back and forth with buyers, and we were happy that we were finally going to get this deal done. In the midst of this deal, I had another property that I had gotten under contract, and we were working that one together also. The last contract that I had with the seller had expired maybe a day after we showed the property, so I figured if the buyer did want to proceed I'd just sign a new contract with the seller for like 3 weeks, and during that time we should have the property closed. The seller was leaving town in the following week and a half, and she expressed that she wanted to get the deal done before she left. That left us with a little under one and a half weeks to get the deal closed.

My partner had an attorney she used before that was familiar with doing transactions such as these, so we were going to use him. He proved to be ineffective due to him not communicating back with us in a timely manner, so we went with someone else. The attorney we decided to go with said he could get the deal done, and to do so in that timeframe he wanted to order title immediately. The current contract that I had with the seller had expired, so I had to sign a new one with her anyway, so I could bring some of the other paperwork the attorney needed at the same time and get it all done at once. There was also the issue of the current tenant. She didn't like the fact that she had to move, I mean, she was getting a great deal with the rent she was paying so I don't blame her. She did understand the seller was selling the property before she moved in 3yrs prior, and she was on a mo-to-mo lease also. I informed her that I would help her find a new place for no charge-I just wanted to do whatever I needed to do to get this deal done smoothly and quickly. In my option contract that I used for this deal, it indicated that the buyer and seller would split closing costs, but the language that was used was very vague (one of my many mistakes). This issue wasn't evident to me until now because we were in the process of closing. I also reduced my purchase price to $58k (maybe another potential mistake) with the seller and informed her that I was working with a partner and this would help account for that. She was kind of hesitant at first, but she seen that I did have a serious buyer ready to purchase, one that my partner produced, so she agreed and signed the contract. 

As we were moving along, I was doing my best to keep everyone updated as to how we were progressing-the seller, the tenant, my partner, and the attorney. The attorney informed me that we were cutting it close trying to close so fast and with the seller leaving town, and just in case we didn't get everything done in time, he would have to use a POA with the seller on her behalf while she was gone. He did inform me that he was hesitant to do so due to the fact that he never met his client (the seller), and he didn't was to be liable for anything, which I totally understood. With me having such vague language in my contract about the closing costs and who was going to be paying for exactly what, we now started to encounter the issues. I told the seller that everything would be split 50-50, but there are some closing costs that are usually paid by the seller, and some that are usually paid by the buyer. To try and settle the confusion, I had the attorney put together an estimate of closing costs that each side would be paying so that they each could see what they would have to come up with. The seller during this whole ordeal was trying to really pay the least amount as possible, and I explained to her that she would have to pay some of these closing costs herself if she sold to house to someone else, but the buyer was willing to work with her on this, but he wasn't going to pay everything himself. During this time, she explained to me that she wanted to talk with the attorney so that he could better explain the closing statement he sent, but again, he was not easy to communicate with. He wasn't returning her calls or emails promptly at all, so this only added to the confusion.

It came time for the seller to leave town, and we were waiting for the attorney to send over the POA paperwork so the seller could review them and go over them with him before she left, which was going to be early the next morning. We didn't get the documents from the attorney until later that next day and by that time she gone. I had called the seller a couple of times to let her know when I got the documents, but I wasn't getting any response. Later on the next day the seller finally called me back. She informed me that she had changed her mind for "personal reasons" and that she no longer wanted to sell the property. I was determined to get this deal done though, so I was trying my best to talk with her to see what happened over the course of the last 24hrs that changed her mind. She really didn't want to talk about it much at all, and with her being out of town it was difficult to see what I needed to do to get this deal done. In our conversation though she did state that she didn't like that fact that she couldn't get a response from the attorney to explain the closing costs, and she also mentioned that she seen in the closing statement that the property had a purchase price of $65k and she was under the impression that it was selling for $58k. I realized then several of the mistakes that I made. I honestly think she felt there was something shady going on with the difference in purchase price numbers, even though I explained this is the fee we were getting paid for our services. Again, if I could've been able to talk face to face, this misunderstanding could have been cleared very easily. First, I shouldn't have went along with her trying to rush the closing date and trying to do the deal with her gone out of town and not being able to see exactly what was going on. The lady was older and she was "old fashioned" in the way she communicated, so emails, text messages, and other technological forms of communication weren't efficient in communicating with her. In knowing this, my second mistake was emailing her the closing statement. In doing this I left it up to her to "figure out" what was contained within it, and I wasn't able to explain line by line what was going on. It only made matters worse with her not being able to get in contact with the attorney. I did my best to try and talk with her by calling, and even sending another email, but this situation called for us to be able to sit down and get a complete understanding of what was going on, but unfortunately with her being out of town this was not possible.

To summarize, my partner and I lost $7k on this deal right at the finish line, and I tell this story because I don't want to see someone else make some of the same mistakes that I did. There were a lot of mistakes made on this deal, and I have learned so much from it. Hopefully this gets read and it can help prevent the same from happening to someone else. In this field, and in life in general, we are going to make mistakes. The good thing that I have learned about mistakes is that they aren't all bad, they teach you lessons, and from these lessons that you learn, you should "hopefully" be able to avoid making the same mistakes again. Im not gonna say losing the $7k didn't hurt, but I can honestly say I never want to feel this again, so I will do my best to do things differently going forward.