Losing 10k on my first wholesale...

[Mike Webb]

Hi BP, looking for a little advice on my first wholesale deal. I have a 4/2.5 with an ARV of 125-130k under contract for about 65k; the home needs about 12-15k in cosmetic work. It is an absentee owner who has owned the house for 30+ years; they are facing some health issues and want it “out of their hair”. I am to close at the end of the month, I have a qualified buyer lined up and the deal would net me about 10k.

Sounds good, right? Now for the fun part…back in 2006 the owner bought another house for about 250k, the bank financed the owners primary property over 100% on a 5/1 ARM. While that is a whole other issue about the lending practices that can be attributed to the mess we are climbing out of, the bank buried some language and items in the loan the seller was not aware of (per them). They owned the property I have under contract free and clear. However, when I was searching through the paperwork, I found they tied this property to the owner's current mortgage. The bank won't release the property I have under contract unless they get X amount of money. So, the seller was still super motivated to move it, they were going to sell some stock to close the gap and make closing happen. They reiterated how they just wanted rid of it and to move on!

When they went to sell some of the stock, their adviser asked why they were doing so and then he went on a tangent about why this was a bad idea and they should not go through with the sale. Therefore, the seller contacted a Realtor and they took a look at it, promised the seller they could get X in their pocket for it and not have to bring a dime to the table. While I agree they could get more on the open market, the Realtor is basically promising the ARV without any of the repairs being done, not discussing the loss of rental income, the closing and transfer fees they will now have to pay (which I was covering 100% of), etc.

Now the seller wants to list the property and void our contract. I discussed with them what the cost to sell is and what they could reasonably expect to net from a MLS sale...still no go. My question is: should I charge a release fee? Besides the Realtor trying to circumvent me and list the property being unethical; does pursuing specific performance with the seller become my best route? Honestly, I don't know if I can even go that route because without clear and equitable title, the deal won't close anyways (if they don't sell the stock to bring the money to the table). I even tried to renegotiate my offer after speaking with my buyer and the seller still won't go for it because they have the number the Realtor put in their head now. Should I pursue this somehow or let it go and consider it a learning experience?

Looking for some guidance from you experienced folks as this is my first wholesale. Thanks in advance!