Can I get my EMD back? Wholesale deal from hell!

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Can I get my EMD back? Wholesale deal from hell!

Mike Nelson
Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes

Listen I know I went about this the wrong way but this was a steal of a deal. With that being said heres the details. I sent 2k EMD to the seller of the property through paypal (dumb I know) the seller didn't want it to be through the title company.

I got the property under contract and had an end buyer ready. We had a closing date, two days later I get notice from the title company that they will not insure the title because the seller (who had power of attorney to sell for his mother) had drawn up a promisary note to be paid out to his roommate for 80% of the sale price and the other 20% going to him for his services. In other words the mother wouldn't be getting anything, the closing attorney said that the poa couldn't get paid because he was in the deal. Basically, the closing attorney gave the seller 3 options to make this deal work, the seller said that he wasn't going to do any of them and the contract expired.

My question is, did the seller deafault? and if he did shouldn't i be able to get my money back? The seller has been ignoring me and hasn't returned any of my txts or calls.

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y

Not a lawyer, and you probably want to spend some time and money with one. Sure looks like this is the seller's default to me. The seller couldn't deliver a good title. That's usually one of the terms in the contract. Did you use a standard contract? Does it cover this?

A better question is how do you actually get your money back. This guy certainly appears to be a slimeball. Selling his mom's house and pocketing the proceeds. Of course, perhaps that's exactly what she intended, but combined with having the money go to the roommate and it being a "steal of a deal" I wouldn't take that bet. Have you contacted paypal? Do you have any information about this guy? I see a lawsuit and an noncollectable judgment in your future.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y

    Assuming that's the full story, then yes, you are most likely entitled to your money back (though I obviously can't say for certain since I'm not an attorney and I haven't seen the contracts).

    A couple problems/questions though:

    1. Did the guy have the right to sign the contract on behalf of his mother (i.e., did he have POA to sign the contract)? If not, he may have committed fraud in addition to just running off with your money.

    2. Were there any attorneys involved at any point representing either you or the seller? If so, now's the time to contact them.

    3. Since you didn't put the EM into escrow, you may now have to sue the guy to get your money back. Depending on his situation, you may or may not actually be able to recover the money.

    4. If the guy really had a POA to sign the contract for his mother, you may have recourse against her as well (again, I'm not an attorney, so I don't know for certain). If so, you may be able to recover the EM from her.

    5. If you can't recover your money, there may be a way to cloud the title to ensure that you eventually get paid when they try to sell again.

    Obviously, the big lesson here is to NEVER hand money to a seller on the promise of a deal. That's what escrow companies are for, and the fact that the seller didn't want to use an escrow company should have been a big red flag to begin with.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    14y

    Not a lawyer, and you probably want to spend some time and money with one. Sure looks like this is the seller's default to me. The seller couldn't deliver a good title. That's usually one of the terms in the contract. Did you use a standard contract? Does it cover this?

    A better question is how do you actually get your money back. This guy certainly appears to be a slimeball. Selling his mom's house and pocketing the proceeds. Of course, perhaps that's exactly what she intended, but combined with having the money go to the roommate and it being a "steal of a deal" I wouldn't take that bet. Have you contacted paypal? Do you have any information about this guy? I see a lawsuit and an noncollectable judgment in your future.

    3Reply
  • Mike Nelson
    OP
    Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes
    14y

    This deal was a headaches from the start, I really wish that I didn't have anything to do with it.

    J - the POA that was used to sign the contract was not sufficient to sell the property. The closing attorney from the title company had him and his mother sign a new one (after this was done the POA told us that the contract was voided but the closing attorney told me otherwise). The seller then tried to back out of the contract and sent me and the closing attorney an e-mail telling us that he voided the contract (which he wasn't able to do without my permission).

    After talking to the seller we decided to try the deal one more time and I got him to keep the contract that we originally started with (which was never voided because I didn't give him permission). This is when the the seller decided that he did not want to work with the title companies requirements. The whole time the seller was shopping this to other wholesalers for 50% less that what we had it contracted for which made it harder for me to sell because my buyer backed out because he couldn't get title insurance on the property (I gave him permission to back out).

    Jon - It does look like I'm going to have to sue him in order to get my money back. I contacted paypal and they sent me to AMEX (this was the account attached to my paypal account). They are in the process of filing a dispute which I don't think will go through. My question is, what type of lawyer should I go to? and if you was in this situation would you sue for the EMD and the assignment fee that I could have possibly received?

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  • Mike Nelson
    OP
    Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes
    14y

    I used a simple two page contract which states "If buyer defaults under this contract, any and all seller shall retain monies deposited by buyer(s) as full liquidated damages. If seller defaults, buyer may pursue all remedies allowed by law and seller agrees to be responsible for all cost incurred by buyer as a result of sellers default."

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    14y

    So, now you know why real contracts are pages and pages long.

    Unlikely you can sue for the assignment fee.

    Does sound like you can sue for the legal costs associated with filing the suit.

    Sounds unlikely you'll collect anything. This will be a $2000 tuition payment to the school of hard knocks (giving EM directly to the buyer, using crummy contracts.) The seller demanding you send them earnest money directly should have made sirens and rockets start going off.

    Do you think this guy has any assets? Or, does it appear he's living hand-to-mouth and has already spent your EM?

    You want an attorney experienced in both RE law and contract law. Some will give you a brief interview and review of your situation for free.

    1Reply
  • Mike Nelson
    OP
    Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes
    14y

    Jon - he has assets he told me he was a lawyer and he audits big banks dealing with foreclosures. When I told the closing attorney this he caught him in a lie and this is where all the problems came up. So your saying that at the end of the day I won't get any money out of the deal?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    14y

    I don't know. From what you described, this sounds like a very bad deal. Looks to me like there have been red flags from the start - "deal from hell", closing attorney caught him in a lie, kept saying the deal was void. Yet you continued to pursue it. Sometimes you have to listen to your gut and back off when there are red flags waving.

    I think you have a good claim to get your EM back. But the fact the seller demanded you give it directly to him, and you did, puts you in a very weak position. Even if you sue him and win, you still have to collect. Its not like you go to court, win, and walk out with a check. You walk out with a judgment and then you have to collect. If you speak with a lawyer or three and all say you don't have a case, just walk away. If they say you do have a case, try to determine if you can collect if you do win. You don't want to add $2000 of legal fees on top of our $2000 loss and just be out $4000.

    You know the guy. You know or can investigate his situation.

    0Reply
  • Rob Gillespie
    Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
    14y

    Mike,
    I hate to say it, but if the seller was gonna stick it to his own mother, you don't stand a chance! You can try to do a refund on pay pal, they may send your coin back. Good luck!!! :mrgreen:

    1Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y

    A couple thoughts:

    1. If the guy truly is a lawyer, that's your best shot at recouping your funds. Most state BAR associations take even the perception of impropriety very seriously (lawyers are held to a higher standard as far as the BAR is concerned), and just the threat of going to the BAR will generally get an attorney to change his tune very quickly. So, if the guy is truly an attorney, threaten to go to the BAR; if that doesn't work, do it.

    2. Your contract says nothing about you getting your EM back if the seller defaults, and more importantly, it doesn't define what default means. According to your contract, the seller may not have even defaulted!

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    1Reply
  • Mike Nelson
    OP
    Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes
    14y

    This is definitely a learning lesson, I will take away a lot from this transaction.

    0Reply
  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y

    Not legal advice - but I would file a lawsuit (complaint) and then file a Lis Pendens (LP) against the property based on my complaint. The LP may not have teeth but it will stop a title co from issuing a policy until this mess is straightened out. Again, consult an attorney.

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  • Account Closed
    Residential Real Estate Agent · Ocala, FL · Member since 2009 · 255 posts · 65 votes
    14y

    Why not just buy the property direct from the mother and use a mobile notary to close it. If she signed a new POA she is obviously somewhat on board with the situation. She can pay the son and whoever else on the hud and net zero if she wants.

    In regards to paypal, file a dispute within the paypal system and also with your credit card company. I use to be part of power seller elite (3 million+ in gross sales a year) The paypal system favors the buyer and will lock up the funds quickly.

    BTW if he isn't a lawyer or realtor taking 20% of the deal i'm pretty sure is a third degree felony (practicing real estate without a license) Least in florida it would be. If he has a bar license there should be a hotline to call to file a complaint and a fund to handle any judgements against him.

    I'm missing something, why did this become so difficult though. Seems seller didn't want to sell, just wanted your 2k.

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    14y

    I would never give an EMD of that much to anyone except a bank.

    0Reply
  • Brian K.
    Rental Property Investor · Buffalo, MN · Member since 2010 · 511 posts · 92 votes
    14y

    Never had money to the seller, which I'm sure you have learned now. Don't give up on the other hand you don't want to run up a huge bill going after him. Good luck and keep us posted.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    14y
    Originally posted by James Hiddle:
    I would never give an EMD of that much to anyone except a bank.

    So you don't use an attorney or even a realtor who would deposit the EMD in a third party trust account?

    I provide a photocopy of the check to the seller... with the check made out to attorney or a realtor/broker, destined for a trust account. Never to a bank.

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  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    14y
    Originally posted by Chris Martin:
    Originally posted by James Hiddle:
    I would never give an EMD of that much to anyone except a bank.

    So you don't use an attorney or even a realtor who would deposit the EMD in a third party trust account?

    I provide a photocopy of the check to the seller... with the check made out to attorney or a realtor/broker, destined for a trust account. Never to a bank.

    Yes I would use either a lawyer or a realtor I didn't mean I would give the money directly to the bank.

    0Reply
  • Mike Nelson
    OP
    Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes
    14y

    UPDATE: Now the seller is filing a lawsuit against me for a breech of contract after I went to paypal to get my money back. I have a feeling that this is going to be a big headache.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y
    Originally posted by Mike Nelson:
    UPDATE: Now the seller is filing a lawsuit against me for a breech of contract after I went to paypal to get my money back. I have a feeling that this is going to be a big headache.

    You still haven't told us if the guy is a real attorney or not. If so, again, going to the state BAR (or even the threat to go to the state BAR) will resolve this issue very, very quickly.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
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  • Bill Walston
    Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
    14y
    Originally posted by Mike Nelson:
    UPDATE: Now the seller is filing a lawsuit against me for a breech of contract after I went to paypal to get my money back. I have a feeling that this is going to be a big headache.

    oh please! After he refused to sell to you he's filing a lawsuit for breach of contract?? By jove, he must be a lawyer ;) As long as you can document where he refused to sell then it is he that is in breach....

    This should be interesting! Keep us posted!!

    0Reply
  • Mike Nelson
    OP
    Wholesaler · Washington, D.C · Member since 2011 · 449 posts · 94 votes
    14y

    J - I haven't been able to contact the bar yet, I will definitely do that tomorrow.

    Bill - I have proof showing that he tried to void the contract on several occasions. His argument is that the title company that we was dealing with didn't have the right to revoke his power of attorney. Even though the title company choose to do the deal if his mother signed all of the paperwork. He refused to do that so he defaulted on the contract in my opinion. The seller then tried to say that the EMD was a good faith deposit but he signed the contract and accepted the payment from paypal as an EMD.

    I recently printed out 36 pages of text messages between me and this guy and I will contact an attorney tomorrow.

    0Reply
  • Jeremy M.
    MO · Member since 2012 · 73 posts · 8 votes
    14y

    Dont mean to bring back an old topic, but what ever happened this this? And are you still wholesaling houses?

    0Reply
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