should I get seller in foreclosure sign option purchase agreement to flip his house?

[Gamal Darwish]

Home owner facing foreclosure who did not make a mortgage payment for 39 months called me to buy his house CASH AND CLOSE FAST.

I got him interested in signing option purchase agreement which indicate that he can also find his own buyer while I am trying to find an end buyer.

I want to know if this type of agreement is better than just a standard contract detailing the below terms.

I talked to him to accept the following on the option agreement that was turn later to contract when I found end buyer.

full price 142,500

his walk away money : 22,500 @ closing

reinstating his loan : 70,500

I found cash partner to assign the contract to, for a fee payable @ closing .

is

[Bill Gulley]

@Mary B. LOL, Hope not.

I have sold, as the owner or as a lender tons of properties under the banner being waved by wholesalers as a strategy or business model.

Pretty simple, properties that are held that can't be retailed for one reason or another are sold at it's market value for what it is. These properties are sold to "dealers" landlords or rehabbers or to someone who can buy who generally has the intension of curing the issue that keeps the property from being retailed.

Damage Goods Sale, you go to the grocery store and there in the isle is a basket of a variety of foods with damaged packaging. The can of beans is dented, the pancake mix box is crushed on the top. These items can't be sold at full retail price because in their current condition they are not marketable at that retail price.

The same is true for anything we buy, no one pays full blue book retail price for a wrecked car!

Every time a property sells on the MLS, the seller receives less than the market value, not just from the soft costs of selling like title search and settlement fees, but the Realtor takes a cut who listed and sold the property. The seller sells at MV but always receives less. So, saying you buy under market is not really a true statement as the seller sells at a value netting them what is acceptable.

Wholesaling does not require a genius to figure out that a house that is damaged or has issues needs to be sold at a lower price to get rid of it. It's simply a point of negotiation to determine the price with an owner. If that buyer negotiates a good price they may be able to convince someone else to pay a bit more to make a profit. Middlemen or straw man deals were probably done when man began walking the earth, trading a spear for a rock tied on a stick or for something more valuable.

Gurus simply took a theory as old as trade itself, spun it, repackaged it and presented it as a simple strategy to make money in RE. Totally, soooo laughable.

There is nothing wrong with buying and selling or assigning a contract, so long as it is an acceptable practice and is done in a manner that does not violate law.

In the above case, the foreclosure sets a situation where being a straw man or middleman can put that operator in a position of violating federal law.

Another issue with being a straw man is the aspect of dealing in good faith. If you tell a seller/owner you're going to flip the contract to get the property sold, that is just fine. Problem is, gurus and the ignorant or scared middleman who can't explain what's going on has found a short cut, by deceiving the seller into thinking that the middleman is actually buying the property with some wild lie or story about "getting a partner" to approve the deal or some other story.

What that does is it places a property under contract under false pretense. Putting a property under contract puts an obligation on the seller to sell, they may not contract with others unless they give notice of the pending sale, few buyers bother with back up contracts.

So, the property is taken off the market and the seller waits for the buyer to perform.

What the seller is not informed of is that his whizbang wheeler dealer doesn't have two nickels to rub together, has no credit to obtain a loan and, doesn't even have that partner or alternative available to sell the property when the contract was made. This type of dealing is not dealing in good faith, it is not ethical and it is tortuous conduct, that means it is a legal basis to hold another liable for damages. And, sellers do hold such middlemen financially liable for losses arising from such conduct or dealing in bad faith. That means sellers sue these whizbangs.

What are the damages? For one, there will be the claim, which you can not defend against, that the seller may have had a lost sale opportunity, not at some deal price, but at full value. Loss of sale is almost a slam dunk claim, if it was on the market it probably would have sold as most all properties on the market sell, you certainly can't prove it wouldn't sell!

Consequences of other damages then arise from the loss of the sale.

In the above case, the owner loses the property in foreclosure, his credit is damaged, for years he will be paying more for credit, insurance and may lose a job or not be hired to a better job. These losses can go into the tens of thousands. The seller could have sold the property and avoided the loss had they not contracted with some whizbang dealer, you'll never be able to prove they could not have.

Not only does the owner miss out on a prime marketing window, the may hold it for a period of time where that market cycle is lost completely. That seller who had a contract at 100K with Mr. Whizbang who lied and failed to perform can sell that property for 60K and tag Mr. Whizbang for the 40K loss!

This doesn't even get into actual damages of paying mortgage payments, paying taxes, utility bills or other holding costs.

That's not near the end, what if a seller lost a purchase on a next home in another town where they were moving. They relied on your contract and moved their furniture into storage, loss of earnest money, deposits and inspections as well as loan costs, absolutely Mr. Whizbang will be paying for that just as others have, along with motel bills, eating out and every inconvenience they can think of.

All of this is from the civil side, you can be smashed like a bug in court easily if you lie, deceive and mislead a seller in a real estate contract, I have seen it happen, it does happen and it will happen again I'm sure.

Then, you have the criminal side getting involved in a foreclosure. If you lead someone to believe you are helping them avoid or manage anything in that process without the proper license or being an attorney, you can be in violation of law. If you cause the FC lender to delay any aspect you can be in violation. If anything is communicated by anyone to that lender and they spend time addressing that contract or potential sale and it turns out the contract was fraudulently made, you just caused that institution an expense and perhaps it could have led to a decision that could cause a loss to that lender, now you could be facing other charges interfering in the duties of a bank employee and banking operations, that to is a federal matter. You don't even have to cause an actual financial loss when you are dealing in matters of misrepresentation.

So, let's make it clear, I'm no friend of Mr. Whizbang........unless he deals in good faith, discloses what is actually going on, doesn't lie about have a cash buyer when there isn't one and can actually perform in his obligations as contracted, then we can be friends. :)