What happens if financing falls through on the buyers end?

Question

So, lets say I have a standard wholesale deal set up. I have a seller and an investor. I get the property under contract as per usual, with a financing clause that holds me (the "buyer") free of obligation if I don't find another buyer to assign it to. Lets say I do find an investor and we agree on an assignment fee of 10,000 dollars. I file the property agreement and the assignment of contract to the title company, therefore the investor takes on all responsibilities of the "buyer" in the property agreement (including the financing clause stated earlier). What happens after everything is filed, but the investor (for any reason) doesn't purchase the house? Does this essentially mean a month's work was all for nothing? I know this would seldom happen, but I couldn't help but wonder. I'm also going to make an educated guess that I wouldn't be getting that 10,000 dollars.

Roland Paicely · Answer

It's called the cost of doing business

John Thedford · Answer

https://www.biggerpockets.com/forums/93/topics/438..."buyer" is being sued for deceptive trade, fraud by inducement, brokering without a license, etc. "Buyer" has been in trouble with the State of FL before. It will be interesting to see how the civil case ends. The civil case has nothing to do with the state going after them for brokering without a license THE SECOND TIME. In FL, this is a 3rd degree felony to broker without a license. Usually the state issues a cease and desist the first time. After that, I believe it likely they will bring 3rd degree felony charges.

John Thedford · Answer

I have no idea. The bigger question is whether your actions are considered brokering. It doesn't matter what you put in a contract and what a seller agrees to. Contracts written contrary to law are still illegal. Fraud by inducement happens when a "buyer" signs a contract with no ability nor intention of closing. I write all my contracts to be assignable for a reason: I may want to put it into my S corp, LLC, personal name, or 401K. The assignment clause was never intended to allow people to play broker without a license and many states are addressing this issue.

Bryan Barry · Answer

What would happen if I bring it to the sellers attention (or this would be stated in the contract) that I may wholesale/assign the contract to someone else for a profit/fee? Would that help my case if I were to be sued for fraud by inducement?

John Thedford · Answer

Depends on your state laws. If you show the property, that is brokering under most states definition. FL, OR, CA and some other states have addressed this M/O. A seller cannot give anyone the right to violate laws by giving permission to market or sell in most instances. That is an agent's job. In FL, they have amended the laws to prevent people from using contracts to broker real estate and it expressly prohibits advertising properties they do not own. Check your state laws. Last but not least, using contracts to trick sellers with no intention of closing is called FRAUD BY INDUCEMENT. We have a local company that is being sued for that at this time in Collier County, FL.

Bryan Barry · Answer

How would this be unlicensed brokering? I am getting a property under contract, and then selling that contract for a fee. I am not receiving a commission.

John Thedford · Answer

This is unlicensed brokering and may not be legal in your state. Many states are addressing unlicensed brokers. This would not be legal in FL. Also Oregon and CA have put an end to these games.

Bryan Barry · Answer

The financing clauses (in my contract) state that it gives me, the "buyer" (and/or assigns) until the date of closing to find financing for the property (whether it be 15 days, 30 days, or however long from the time both parties have signed to the date of closing. I would adjust depending on how much the seller wants to sell their property, and if they want to sell quickly). It also states that if financing falls through, inspection of the house reveals structural damage, or for any reason that I the buyer would not want to buy the house in a specified time window (usually five days before closing, again this is adjustable) that I am free of any obligation and have the right not to purchase the house. This clause is in place in the event I can not find a buyer to assign the contract to. There is also a separate clause that states the seller is aware that I am trying to make a profit.

John Thedford · Answer

There are laws on the books. You MAY be liable for the purchase if the unlicensed broker deal falls through. What are your "weasel clauses"? Entering into contracts with no intention nor ability to close is called FRAUD BY INDUCEMENT. This can open the "buyer" to lawsuits.

Bryan Barry · Answer

Obviously I would still have to go to the title company to file the paperwork, but could the investor go down and file it himself if he wanted to? This is in the scenario where we both have our respective copies of the contract just in case.