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Lawsuit Risks for Wholesalers
This question is based on the assumption that the great majority of real estate wholesalers (and other investors) are honest and well meaning, and therefore set up their deals to create win-win-win situations for sellers, end buyers and themselves. Even so, what are the top reasons wholesalers get sued by sellers, end buyers, or by lawyers representing sellers or end buyers? For example, can subtle technical errors in a contract, addendum, or assignment of contract result in a lawsuit against the wholesaler? If a wholesaler can not find a buyer, and thus opts out of a contract, will a liquidated damages clause truly protect the wholesaler from a seller? What steps should a wholesaler take to ensure a fair deal for all, and thus minimize lawsuits? Does BiggerPockets, or other general real estate sites, provide lists of expert real estate attorneys from across the country that one could arrange professional consultation with? Thanks, Dan.
People can and will sue for reasons that are not valid. You still need to respond to the suit. I remember one suit against a family member from a tenant. There was no ground for the suit but the insurance company was going to settle until a witness came forward. After a discussion with the insurance company (recorded) the info was presented to the other site. The suit was withdrawn.
Some of the time a law suit is a tool to beat you with just because the other side is unhappy that you made a profit.
John Corey
![Jim Gordon's profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/134/1621345375-avatar-ohio_realtor.jpg?twic=v1/output=image/cover=128x128&v=2)
You also have to worry about the state. Here is a link to where a couple was prosecuted for putting properties in land trusts and selling them without being licenced in the State of Ohio.
http://www.com.state.oh.us/real/documents/2007Summer.pdf
Jim,
Thanks for the link. I have a question.
I read the report twice. I am rather familiar with the PacTrust system. I have never directly used it but I have check the details a number of times.
The OH article implies there were 39 violations. Never once in the write up is there a specific reference to where the person stepped over the line. I am make a guess but I do not see anything specific.
It seems to be a violation of the license laws. Hence I expect we are talking about offering brokerage services without a license. Could it be that the issue was not a land trust and more along the lines of how the person represented themselves (offering a service to the seller for a fee contingent on the sale using a land trust)?
I was going to send an email to the OH regulator but they do not list an email address. I am not sure they will want to be explicit other than to cite the statute with the reader having to interpret.
As a licensed agent what is your take? What was the specific point at which the person crossed the line?
John Corey
![Jim Gordon's profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/134/1621345375-avatar-ohio_realtor.jpg?twic=v1/output=image/cover=128x128&v=2)
IN MY OPINION
The problem was that he was selling properties for other people after putting them in a trust for a fee. He was not assigning contracts. His stance was that a trust is not real property but private property so he could sell a trust. The State took the view that the trust was established for only the home for sale and for the purpose of making a sale where he charged a fee.
They could have given him some jail time but he liquided ALL his assets to make good to the people that lost money.
With the lending mess out there and what has happened in the near past they are looking at at things and I think that this was a warning shot.
Jim,
Thanks for offering your opinion.
Like you I do think the issue was the fact that effectively the person was brokering.
Tangent and my opinion on being a birddog.
The structure used is a lot more formal than what most birddogs work with. Birddogs are just as likely to get dinged as they are also breaking the law on RE brokerage.
John Corey
![Jim Gordon's profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/134/1621345375-avatar-ohio_realtor.jpg?twic=v1/output=image/cover=128x128&v=2)
John did you also see that they revoked on Broker and fined and suspended 4 more for propery management. One of the fines was for a late return on a check and another for not giving timely updates on the accounts.
I think this may be an alert because Ohio was running kind of loose.
I did not focus on anything other than the specific article. I will go back and check on the information.
I might have someone to turn in as they appear to no understand the rules and are clearly crossing the line. As this is causing some damage to investors I know there is incentive to get the person sorted.
Rogue operators are a problem.
John Corey