Is this transaction illegal??

Question

I had a guy i was working with who was finding me some deals as a wholesaler and was telling me he was making around $2,000 a deal. I found out later after i saw the sales transaction recorded that the LLC that i closed with, once i looked it up on the Secretary of States website was managed by his wife? He ended up doing a double closing when i thought i was buying directly from a regular seller. Is there a law against disclosure of who the seller of the property truly is in a transaction?? He actually made on average of $7,000 on each transaction.Thanks

Ann Bellamy · Answer

It doesn't sound "illegal" but this whole thing with a "mentor" taking a $2000 fee and then his wife also being the seller making a profit without disclosure leaves a little bit of a bad taste in my mouth.

There are probably many who would argue that by being in the hard money business, I'm the pot calling the kettle black.  I have nothing against profit, obviously.  I'm all about capitalism and not big on regulation, as I believe in taking responsibility for your deals, as Karen M. said.  However we are also all about disclosure and don't have any hidden fees , upfront fees, or back end charges.

There was a local mentorship program in our area, where experienced investors worked with students.  The mentors were paid by taking a percentage of profit in the student's deals, so that the interests of the student and mentor were aligned in the same direction.  One of the mentors had a hidden arrangement with a wholesaler where the mentor brought a deal from the wholesaler to the student, the student bought the deal from the wholesaler, and the mentor took a kickback from the wholesaler.  That obviously changes the motivation of the mentor without disclosure to the student.  And is sleasy.  Probably not illegal though.

I think I'd focus on moving forward and count this as a lesson learned.  It does matter what the previous chain of title shows, as J  Scott said, so I'd focus on the deal at hand, and not buy from the guy again.  It might not hurt for you to make your investing buddies aware of the mentor's techniques.

Will Barnard · Answer

Bill, I think you have missed Jason's point. As buyer C, and expecting to purchase from seller A, all u need to do is check current title which would have reviled that another party (seller A) was the one on title. At that point, I, as the rehab buyer (party C) could then ask my seller, party B, why he is not current title holder. The info would have been easy to find out.

Now all this has nothing to do with party B's profit amount, but only the concerns Jason raised as the rehab flipper/buyer C

Jon Holdman · Answer

Do you have clear title?  Are you satisfied with the price, but just unhappy about how much money the wholesaler was making?

Account Closed · Answer

Well said Ann.

J Scott · Answer

Just to present a different take on the situation...

As a rehabber, it's very important to me what the title trail looks like when I purchase a house.  If there are too many title transfers (often more than even a single transfer) in the past 12 months, it may be very difficult for me to resell to an FHA buyer, as the property would be "red flagged" by FHA due to "excessive flipping."

So, knowing whether I was buying from the original owner of the property or whether there was a quick title change to a wholesaler during a double close would be very important to me, regardless of whether I was happy with the property and price.

Just another take on the situation from a rehabber's perspective...now, all that said, I'd be surprised if you couldn't have determined this information based on the title search, the contract and the closing documents...

Karen Margrave · Answer

Kevin Barker Is the seller a licensed real estate broker/agent? Is his wife? If so, then yes, they would be required to disclose everything to you.

Rather than blaming them for you getting into a deal you're not happy with (though I'm not sure why), you should realize that YOU should have looked at all the paperwork and known exactly what was going on in the deal. If you're not well enough versed in the business to do that, you should hire someone that is, or stop doing deals. It's about taking responsibility for yourself and deals. Sorry.

Jerry Puckett · Answer

I still don't get it....
If you were happy with the deal you made at the time of closing, what difference does the rest of it make?

Vikki Waln · Answer

I'm still not clear why you think he was not an employee of the company on the transaction. He doesn't have to be a founding member of the LLC to act as an employee of the business if his wife hired him.
Regardless, if you think he did something illegal, then you should be consulting an attorney.

Bill Gulley · Answer

No, the seller was the principal and he could pass it back and forth to himself and his company a dozen times if he wanted to and then sell it. And as Jon asked, are you otherwise statisfied? Seems you agreed to a price more than agreed to what the seller could make....right?

Bill Gulley · Answer

I'm not disagreeing with Jason here, as that may be in GA (it's a strange state, lol) but....

Here, when a double closing was done, they are two closings, the first a-b and the second b-c, if they are scheduled 30 minutes apart, c is in the waiting room reading a magazine while a and b and already in the closing room, they close and the closing docs are placed in a folder and a leaves with their copies. I never had a meet c out there. Then c is asked into the closing room and the docs for that seperate transaction are executed and closed. The title insurance on the dec page shows the seller as being b to c. The deed is from b to c, the HUD-1 is b to c,there is nothing in the docs that has a's finger prints on it.

The only way for c to find out how long b was in title is to go to the courthouse and look at the filing times of the recorded deeds, after the fact.

One way and the best way to find out is to ask the closing agent before or during the document signing, how long has the seller been in title? They should know, and if they hem-haw around you can stop and investigate any issue. While a closing agent is not required to tell you everything they know, they do need to answer questions that concern you, so just ask...

In this case however, the seller was your mentor, so you had knowledge of how the guy operated, at least the types of transactions he used and seems to me that in itself should have been fair warning in dealing with him in the first place. Did he owe you money before you bought this hosue? Why didn't you work out a better price for the funds owed if that was the case?

It's all a learning process....

Is this transaction illegal??

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