Need advice on a wholesale deal gone bad.. Some say I am liable..

[Daniel Hart]

I was pressured to place an auction bid on behalf of an acquaintance of mine. I didn't want to do it because I wanted the house for myself, but he told me he would hire someone else (and outbid me) if I said no. So, rather than lose the house, I choose to accept his offer. He agreed to pay me a set price for the house, and that the spread of what I get the house for (less than his fixed price) would be my fee. I had already placed one bid on the house, but at this point we agreed that I would represent him for future bids.

Shortly after I had placed that first bid I met with the owner of the house because we were trying to buy it direct from him and avoid the auction competition. The owner (who was very hostile and delusional) told me that even after the auction he would retain a 25% interest in the property because the mortgage that was being foreclosed on was missing a signature (his fathers).

I called the closing attorney that we planned to use for the auction purchase, and he researched the claim but was unable to prove it true. The attorney representing the owner was also very hostile and wouldn't give our closing attorney the necessary details to substantiate the claim of ownership. Our closing attorney said that it was ok to move forward and advised us title would be clear, and that we could get title insurance. In the meantime we had been outbid, so with this advice on clear title I placed another bid. We setup closing and at closing I warned the buyer that there is a chance that the prior owner could still claim he has an interest, and that he might have to file a title claim should the prior owners story be true. The buyer understood and told me he still wanted to proceed. We won the auction and did a double closing to convey the property to the new buyer (my acquaintance).

After closing the buyer was denied an eviction of the owner due to the ownership claim by the former owner. The clerk of court felt that the owner truly did retain 25% ownership and that the new buyer only received 75% ownership. The new buyer filed a title claim with the help of the closing attorney but the title company DENIED the claim stating that the attorney was responsible for the error because he did not properly explain the situation to them. The buyer then filed a claim with the attorney's E&O insurance who came back and said that they aren't liable for anything. The E&O company states that because a bid was placed prior to the closing attorney's title opinion that they (closing attorney and E&O) aren't responsible for anything. The buyer walked into closing expecting to receive title to a home, and walked out with only 75%, so we're all confused as to how the E&O company can legitimately deny the claim.

So, what it boils down to is everyone is pointing fingers at everyone else. The closing attorney did a warranty deed from my company to the buyer, and I didn't realize this at closing (only saw signature page), and so the buyer states that I might be liable for not delivering clear title. I feel I was upfront with everyone, and did what I was asked, so I'm frustrated that anyone would suggest that I am somehow liable for the mistakes of others.

I'm posting all this because I'm trying to help the buyer get through this mess. He has a huge hard money payment on the house and it's hurting him financially, and I'm of course also trying to ensure that I am not liable for the attorney or title company's error.

I know that many responses will be to seek counsel, and I feel like if I have to hire an attorney I'm already in a losing (financially) position. So any opinions are appreciated!

[Wendell De Guzman]

Dan, I am not an attorney and I have not done a deal in NC..so consult an attorney. But here in IL, if the bank forecloses on the house and let's say there's an owner not on the loan, it does not matter. The bank gets the entire house. Why?

Well...the bank will have a first mortgage position (lien) on the property. Once that lien is satisfied in a foreclosure, if there's money left over, it will be given to the owners. Even to the owners not on the loan. In exchange, the bank gets 100% ownership of the house.

Now having said this, read the mortgage document that the previous owners signed on the house. Did the bank agree to loan the money on 75% ownership interest on the house? I highly doubt it but...you need to hire a good real estate attorney to read the legalese & protect you if this case goes into litigation.