A Word of Warning Wholesalers: If your Buyer backs out, YOU are in DEFAULT

[Samantha M.]

I was talking with a friend of mine who is a real estate attorney today and we had a discussion that I think many current wholesalers(and noobies) are not aware of.

Typically when you wholesale you schedule the closing date with the end investor at least 5-7 days prior to the closing date with the seller. The assignment of contract does not fully protect you in the event your end buyer backs out of the deal past the option period.

In your assignment of contract even if there is verbiage that states something to the effect Assignee will be in default if they back out. Your name is still on the original purchase and sales contract, either through your personal name or a legal entity.

If the seller files for specific performance they can drag you into it as well. And thats a whole mess you would rather avoid. Even though that verbiage will likely protect you, but no guarantee.

[Andy B.]

Something I would advise as well is to remove the specific performance remedy from contract -- the Seller should be agreeable to only receiving the earnest money as a default remedy and still retain the property to sell to someone else.