Seller is trying to back out of wholesale deal — What do?

Question

[State of PA]

I have a real estate wholesale deal under contract (fully executed purchase agreement), but the seller is now saying that they think they can get more money, so they’re not going to sell to me. Ideally, I’d like to cloud the title of the property to prevent a sale to someone else. Would a Notice of Interest/Memorandum of Contract do the trick? If so, is there a boilerplate form that I can simply fill out and file myself? Or, do I need to hire an attorney to file a lawsuit and then a lis pendens?

Tom Gimer · Answer

@Mark Beekman If it were me I would hire an attorney to review docs and send a demand letter. Once confronted with a buyer who intends to legally enforce a valid agreement, most smart sellers honor the terms they agreed to.

Like others have mentioned, clouding title creates potential liability. A demand letter is a good middle ground which can accomplish the same goal without liability.

If you actually have an END BUYER -- the big if -- I would ignore the "you're brokering so just walk away" crowd if the deal is worth it. If there is a question about assignability and you need to double close there is transactional funding for that.

Account Closed · Answer

Do you have the intention and ability to close, today? Or, is that something you still need to put together?

A lot of the questions in legal disputes like this are "intent" and "ability". If you can prove you have the ability to close without having a buyer or if you have a buyer who has committed to the assignment and can close, you might be okay.

However, If you only "think" you can find a buyer, it gets into the "do I really want to push it" area. Also, if the seller is in a protected class, (elderly, disabled and so on), the laws and the courts become very protective of the seller. I've fought several times and won to force contracts and I've walked away from a couple.

Here is the beginning of how to assess when to force it and when to walk:

1. Were your contracts drawn up by an attorney in the jurisdiction the property is in?

2. Did you execute the contracts as prescribed?

3. Did you have disclosures?

4. Will the attorney who drew up the contracts defend them in court? (If he won't who will?)

5. Does the other party have a minimum of $10,000 to pay their attorney. Or, are your assets hanging out there like peaches to be picked that an attorney would drool over? For some reason attorneys like to get paid, so there needs to be a way for the attorney to get paid or they won't take the case.

6. Will an attorney file a lis pendens? Well, if you start a lawsuit, yes. Do you have at least $10,000 retainer for an attorney?

7. If you cloud the title will the seller say "oh my bad, I'll sell to you"? That has not been my experience. They either simply sell to no one (they are too angry at you to sell to you) or when they try to sell and can't get clear title you will either hear from an attorney or Attorney General (if they are in the aforementioned protected group), take your pick.

Just being practical here.

Me? I'd fire off a certified letter to them, in a nice kind of way, and tell them that I fully intend to follow the contract  as written and he can see on line 18 that it says "blah, blah, blah" and I expect that he will do the same. In the event he doesn't close as agreed to, the damages will be his responsibility and I always collect damages. (Don't make threats, be nice but be direct.) You have to build a paper trail for any possible legal action in the future.

Granted, I don't sign contracts that I can't honor; so if you can't close, well . . .

Chris Seveney · Answer

@Mark Beekman

If they get an attorney then you open yourself up to a counter suit, for example how did you sell the property without being licensed. While you can say you “assigned” the contract; tell it to a judge in PA- and the further east in PA you go the more homeowner friendly they are.

I recommend moving on.

Jay Hinrichs · Answer

getting sued for slander of title is a very real risk and most attornies are not going to file a lis pendance unless they are very sure of your rights as they can get in trouble themesleve.

John Underwood · Answer

Most wholesalers don't pursue this and go onto the next opportunity. If you go to court the only person that wins is the attorneys.

Most places assignable contracts or selling a property you don't own is a grey area and will be likely frowned upon in court.

Jonathan R McLaughlin · Answer

when people hear "its a gray area" they often think "oh its legal in some way" when it usually means "its really not allowed but we haven't bothered to spend much time closing random loopholes...yet"

I wouldn't like to be in front of a judge trying to get this enforced, especially with the public threat of clouding a title. BTW what would you say if she asked "did you ever have the money to buy this if you couldn't find a buyer?"

Mark Beekman · Answer

Thanks for the replies, everyone. Lots to think about here.

In case it changes anyone’s opinion, here are two items from the wholesale contract:

*Edit: Sorry for the pics. Unable to pull text from the PDF.

Eliott Elias · Answer

I would try to get the seller motivated again to sell the property first and foremost. If not legal action is the only other way to go

Douglas Snook · Answer

Check with an attorney ASAP to see if it is even enforceable . If it is, all the things you mentioned - Notice of Interest etc are usually very technical if you want to "cloud the title" properly and not get bounce right out of court.

Seller is trying to back out of wholesale deal — What do?

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