Wholesaling with Back Taxes & Disclosing Intentions to Wholesale

I received the question below from a subscriber on our YouTube Channel: 

"I follow you on YouTube and was wondering if you are able to help me with a question I have regarding the contract agreement when selling a house that has back taxes for five years or more? How can I sell the house wholesale if it has back taxes that are owed?"

"Will I state on the contract that the taxes will be paid by the buyer deducting the final amount that the seller will receive? In this case, will I have to inform the seller that I'm going to sell their house wholesale? Thank you for your time and help in advance. I look forward to hearing from you."

I'll answer those questions below (as a Texas investor)!

Note: I'm not an attorney, don't play one on the internet, never have and never will.

Question #1: "how do you sell a property with back taxes?"

We use the TREC (Texas Real Estate Commission) contract (Here's a short video where I walk you through the TREC form and how we've used it to buy properties). It is a myth that you need to be a real estate agent to use the TREC form. It is intended for real estate professionals but anybody can use it, which is stated pretty clearly on the TREC website.

Anyways, we use the TREC contract to purchase the property (to wholesale or keep as a rental) and in that contract, it states that the seller must pay all back taxes and any other liens, encumbrances, etc. 

• For example, if you have a contract with the sellers for $100,000.
• The sellers owe $50,000 to the bank as a mortgage.
• And they owe 5 years of back taxes in the amount of $10,000. 
• The title company will give the seller $40,000, ignoring all closing costs. 

Great news too! The title company will handle all this! They're not going to just give the seller all the money without first going through a title search, and trust me, you ALWAYS want to do a title search, especially if you're going to wholesale a property. 

It will create a lot of headaches if during or after closing someone says they have a right to the property. The only way to prevent that is to do a title search and get title insurance.  

That answers question number one: "Can you wholesale with back taxes?" Yes, the back taxes will just be taken out of the sellers proceeds and it's already stated in the TREC contract the seller pays for that.

Question #2: "In this case will I have to inform the seller if I'm going to wholesale the house?"

It's actually now illegal in Texas to not tell the seller that you're going to wholesale the property or to not be forthcoming of your intentions to wholesale. In other words, if you have no intentions of buying the property and keeping it for yourself/company, and your only intentions are to wholesale, you need to let the seller know that. See TRELA Sec. 1101.0045. This is also generally good business practice to be honest with the seller of what you're going to do. 

What gives real investors a bad name is when "investors" say, "I'm going to buy the house. I have the cash." And they're just acting like a big shot and can't close.

I know it's hard to say you're going to wholesale the property (especially when starting out) but you and your business will benefit in the long run as a real investor/wholesaler.

You can say to the seller something like, "I'm not going to buy the property, but I work with a handful of people who are looking for a property just like yours. I'm going to make a little bit of money for connecting you and the buyer and maintaining this database of qualified investors. I'll handle everything throughout the process and we do it all legally through a title company." 

If you don't feel comfortable doing that, you need to come up with a better sales pitch, or you need to find a private or hard money lender so you can buy the property because (as mentioned earlier) it's now illegal in Texas to not disclose your intentions to wholesale. 

Hope that answers your questions! If you have other questions or if it wasn't clear, let me know.