Can Assignment Clauses Bite You?

Question

Hey Everyone,

My understanding of the wholesaling game is you get the property under contract and then assign your rights to that contract to another buyer for a higher price, and the money is made off the spread.

My question is, what happens if you don't find that second buyer to assign the contract too? Have you now actually bought this house? Anyone been sued for specific performance under these assignment contracts?

Wholesaling sounds like a great deal to me, but I my knees knock nervously when I even consider I could be dragged into court to defend against a complaint for specific performance to buy the house, much less actually lose and have to buy the thing....

Anyone care to share experience? Am I missing something? How do you live with the exposed liability?

Bill Gulley · Answer

You'll avoid much of this if you know your buyers first then find what they want, use an option, assign the option for your fee and get out of the deal having the seller contract with the real buyer. Going the other way, you can be liable for various aspects, specific performance, taking a property off the market and or dealing fraudulently, misrepresentations that can take you into all kinds of losses suffered by a seller. This strategy is good to understand as you can facilitate a deal from time to time, but doing it as a business when that's all you do you can have issues with a real estate commission facilitating sales without a license. See your attorney. :)

Wayne Brooks · Answer

The purchase contract you will sign with the seller, will have forfeiture of your deposit as full satisfaction of your failure to perform, and won't have any specific performance language because you supplied the contract. This assuming you have passed your inspection (get out pf jail free card) period. Remember, assignment doesn't relieve you of Your contract obligations.

'Ty Taylor · Answer

'Ty Taylor · Answer

LOL, I guess that's me, my definition of doing it all meant, LEASE OPTIONS, SUB 2's, RENTALS, REHABS, obviously there's more but that's what most are aware of.... I just hate to see people over think the process and don't just consult an attorney but a real estate attorney that has actually closed deals with an assignment involved which may be difficult to find sometimes. I always recommend when starting out to piggy back off your buyers closing attorney or title company and it's easier to explain the process even if they've never done assignment before because they want to satisfy their client which is the buyer. Just My 2 Cents But There's More Than One Way To Skin A Cat

Bill Gulley · Answer

Thought so. :) Overthinking? I agree, which is why I posted above from experience, make it easy if you can. A good attorney is always an asset in RE. Good luck :)

Bill Gulley · Answer

You remind me of a guy from another site named Ty who was a wholesale coach/mentor type, just wonder if you're the same Ty, he wasn't clear on the basics and had issues so obviously we had a few misunderstandings, LOL. Reason I asked is that you have just a few posts here, still new and you started off with a rather aggressive tone with me, as if you're telling me something I'm unaware of, seems as if the tone carries some agenda. Not all newbies blast into a new forum on any subject addressing the old members on the site quite like that, so I just thought we might have a history. :) Now, any time someone says they've done it all, that's a clear indication of the lack of experience. I have not done everything in RE and no one on this site has done everything, perhaps they don't know what everything entails. That's a heck of a claim by anyone. BTW, if you have a vast experience in RE, need to complete your profile as to your experience, even if it is limited you showed introduce yourself in your profile. I totally agree with you, folks need to see their attorney, even if they are an attorney, sometimes especially because they are an attorney. :)

'Ty Taylor · Answer

I've done it all Bill but this is this a wholesale forum and I was giving my opinion worrying about nothing. These are the simply things that keep people from actually getting started and it's not brain surgery because you are not doing anything wrong or illegal. Anyone should simply consult an attorney that actually handled assignments in their state. Just My 2 Cents But There's More Than One Way To Skin A Cat

Bill Gulley · Answer

I don't agree that you're leaving money on the table, that boils down to your buyer's list, I didn't mean to limit yourself to 3 buyers. Depends on your market as well. Ty, I'd say you're missing legal aspects as to the risks in RE, just because someone would like to sue you doesn't mean they will or can have cause. Over 40 years I've seen the issues of specific performance, it is a real risk and people sue and win. I've pretty well seen it all. Those who have not been exposed to situations usually don't realize the problems, being lucky or not being around long enough. Misleading people is not the way to do business. Three areas of buyers for wholesale deals, buy and hold, contractors that fix and flip and general resellers. Otherwise you get into retail. If all you do is wholesale deals you're already passing by other deals and leaving more money on the table than you're making. If the WH types could learn more about RE they'd do much better. :)

Manny Cirino · Answer

@greg fries it is common practice for me to check the box to assign and not be liable. In case were I have to email them sellers my offers, my emails will clearly state to please read the agreement carefully, if you return this contract sign you will be acknowledging that you have fully read and agree to all of the terms listed. This is just to add a little more leverage to my arguement should ever have my day in court. But I say if you are that concerned, maybe you should look in to doing double closing(a-b,b-c) closing using a transactional lending, if you profit margains allow it.

J Scott · Answer

Unless you've seen the contract he's using/planning-to-use, you don't know that for certain. Many state contracts will provide for specific performance under some situations, and in those cases, forfeiture of the earnest money may not satisfy the contract. Always read your contract, and better yet, have an attorney do it as well.