Hi Bigger Pockets Members,
I wanted to take a minute to recount an experience I had with a recent wholesale property. I hope that this can help someone who may be struggling with the same type of situation.
I'm aware that wholesalers are not celebrated here on BP, but hopefully this post will show how hard we work and give us a couple of brownie points!
My partner @Akeen Felder and I located the homeowner of a property that was abandoned, fire damaged, and had a lot of code violations. Locating the owner and keeping in contact with him was quite the task because his primary phone was not in service; so, we would basically have to call 10+ numbers of family and friends every time we needed to contact him, hoping he was with one of them at the time.
This house was in horrible condition, basically a tear down. It attracted squatters and vagrants. We even spoke to the family in the renovated home next door, and they were relieved that we were interested in doing something about the property because it was such an eye sore and caused a lot of trouble.
It was relatively easy negotiating with the seller, and the first counter offer we threw out, he accepted without thinking twice. We got the house under contract, opened escrow, and immediately started letting our cash buyers know about it.
At the price, we had a lot of cash buyers interested and was very close to signing a contract with one. Literally that same day, the title company found a discrepancy with the title. There was an Affidavit of Forgery filed stating that the current owner forged documents to gain ownership.
With that discovery, we thought the deal was dead, so we never contracted with a cash buyer.
Here's the Situation:
The tax records show that party A (the guy we are in contract with) is the sole owner of the property. We then find out that party B recorded an Affidavit of Forgery in 2017 stating that party A forged the Quit Claim deed filed in 2014. To make it interesting, party A undoubtedly owns an interest through a Tax Deed from 2011. Apparently party B let the property go into tax foreclosure, and party A won the property at the tax sale in 2011.
Obviously, Party A knew about this and FAILED to mention it to us. Once we asked Party A about the situation, he did admit that he was aware of it, and when he tried to sell in the past, this situation prevented it. Buyers would find out and walk away. He also disclosed that he and Party B have really bad blood and that he does not care to communicate or work anything out with Party B. Party A felt like he was the rightful owner of the property.
My partner and I were lost. We never experienced anything remotely close to this, so we just decided to sit down and think it through to figure out the best path we could take to at least get to a next step. The deal was too good to just let crumble.
We concluded that the best plan of action was to try to get in contact with Party B, which we did. Of course Party B felt like he was the rightful owner of the property, and he was not open to communicating with Party A to come up with a solution.
With both parties not willing to budge or communicate with each other, my partner and I basically had to broker a deal between them. First thing we did was make each of them very aware that they could potentially lose the property entirely due to code violations and walk away with nothing. We also let them know that the property was not doing anyone any good just sitting there rotting away. It's not fair for the neighbors or the neighborhood.
Once we got those points across, we asked each party what's the least they would take for the property considering that no deal will probably end up with them losing it to code violations. The numbers that they each came up with worked for us, which was a small win - we got them each to commit to sell.
We then figured that the next step would be to ask our title company what can be REASONABLY be done to sort out the title mess without racking up attorney fees and time. It took some time, but we finally concluded that what we will do is have Party A draft up a Tax Lien Payoff Letter, which would basically be the amount that Party A wants for the property. We will then cancel the contract with Party A and create a new contract with Party B as the seller. The sales price would be the "tax lien" plus the amount Party B wants for the house; so at closing, Party B will technically sell to us, and Party A's portion will be the tax lien payoff.
Now that this was settled, we had to reach out to both parties and get them to sign their respective documents. I cannot even come close to illustrating the task it was to track these guys down over the phone, in person, etc. ONE BIG HEADACHE!
So everything is signed, and we are good to go, so we reach out to the cash buyer that we had lined up. All of a sudden, they wanted to change their terms and asked for a 5 day DD period, which we never do DD, so it was odd. With all the time that passed figuring out the title issue and going back and forth with the sellers, we were coming up on the closing date, and if we granted this buyer 5 days DD and they ended up backing out, we would not be able to get a new buyer and close on time.
We definitely did not want to run pass the closing date or try and get an extension because the deal was already very delicate, plus it just took way too much trying to get in touch with the sellers and have them sign documents.
Because of this, we had to accept a way lesser offer from another cash buyer just to get the deal closed on time.
But then...... title comes back saying that there was a 10k tax bill on the property.
10k was way too much for us to absorb, so we then had to AGAIN try to work something out with Party A and Party B. It's funny how they both were confident in saying that they each were the rightful owner of the property, BUT neither one of them wanted to take ownership of the tax bill.
After a lot of grit, we finally got them to agree to split it three ways.
With that last hurdle out of the way, WE CLOSED!!!!!
As I reflect, I can think of some things my partner and I did great as well as some mistakes that we made.
The Good:
1. Although we were presented with an unfamiliar situation, we didn't take it as a defeat right away. Although we had no idea what the outcome could be, we decided to just focus on getting to the next step. If we continue to get to the next steps without waging too much time or money, it was worth it. Eventually, we got to the FINAL step, which was a CLOSING!
2. We did what no other buyers were willing to do, which was take the time to figure out the issue. As a result, both parties got paid to sell the property instead of losing it. Also, the family next door can now look forward to a New Construction with new neighbors who will value the neighborhood like they do.
The Bad:
1. We cost ourselves money in this deal by not putting a buyer under contract from the beginning. Although the property had the title issues, we could've just added special stipulations to protect the buyer in the event that the title issues weren't resolved in a certain frame of time.
I know that was a lot, but if you made it this far, I hope that you found something inspirational to take away from this. Keep taking the next step until you run out of steps. Only way to eat an elephant is one bite at a time!
Regards,
Akeem Ogle
