All Forum Posts by: Jeff Cichocki

Hey @Hussain Harun, do you have an email list that you maintain for your group? Unfortunately, I can't make next weeks meeting, but I'd be interested in attending more in the future. Send me a DM with info and I'll jump on your list.

Thanks

Unfortunately, the answer can vary by state. In Wisconsin, the best thing that the 2nd can do is file foreclosure prior to the first filing. While it's an unwritten rule, the first will rarely file if another lender behind them files. It's basically done as a lender courtesy. @Scott Schultz answer above does a good job of explaining what happens and what most of the variables in Wisconsin are. There's a lot of meat in his answer. if you didn't catch everything, you may want to reread it a couple of times.

Excess funds in Wisconsin, typically end up in the county's hands because the homeowner has no idea that they can file for the excess prior to foreclosure. Once foreclosure happens, their proceeds are forfeit. Wisconsin is one of the worst states for homeowners regarding excess funds. Most other states reserve the funds for a period of time (some states hold indefinitely) and allow all lien holders to claim against the excess up to the amount they are owed. In those states, the homeowner also has a right to claim, but only after the lien holders have been paid first. If a homeowner attempts to claim those funds and the lien holders haven't claimed yet, most counties will reach out to lien holders to ask if they would like their portion prior to sending the funds back to the homeowner. Lien holders almost always make claims at that point.

@Devin Bobulski, the foreclosure should wipe out the second. Excess funds typically go to the county/state unless the homeowner files for the surplus prior to the sherif sale.

@Gerardo A Colmenares I would highly recommend it. If anything goes wrong, it's very difficult to sue or file an eviction if you're not a valid entity in the state the property is in. Most courts will throw your case out if you're not registered.

@Bryan Edward's Btw... I attend both the WiscoREIA and the Appleton reia. If you want to meet before one of those meetings, just let me know.

@Bryan Edward's welcome. I'm up in in Green Bay. If your up in the area, let me know. Always up for a good chat about real estate.

@Kevin Ravenell Jr. you still need to get the property under contract to do a double close. In order to do a double close, you need to buy the house (not assign the contract). Then after you own the house, you need to sell the house for a profit. This is the pure definition of wholesaling. It works the same here as it does in retail type stores. Generally speaking, this is the most legal, moral and ethical way to do this business. It raises the least amount of concern from regulators.

What's getting the regulators all wound up is the assigning of contracts. Most investors are taught to get it under contract, market the property and if you can't find a buyer, bail out of the deal. This is the exact behavior that @John Thedford is referring too. It is often done without the best interest of the seller and also without fully disclosing your intentions. While there are some who do do full disclosure, they are the minority. The guru's out there are teaching people to assign contracts and not wholesaling. Unfortunately, they call it wholesaling. They are wrong. An assignment of contract is an assignment of contract.

While I agree with John for the most part, I have a slightly different opinion of the people who wholesale/assign contracts. I don't think that most people do it to be intentionally malicious. I think the effect is the same, but I think it's done out of greed. I think that once the greed button is pushed and you make the deal 100% about you making a buck, you are completely doing the seller an injustice. You might as well be a scammer or a fraud because the end result is the same. The seller got taken advantage of.

Don't get me wrong. I think that wholesaling and assignments can be done properly. I just think that way too many people have been taught wrong and that because they believe they are right, they are going to stick with it. It's very difficult to change someone else's beliefs; even when they are completely and blatantly wrong. My point of all my responses is to hopefully raise some awareness the issue and get people to learn the truth and stop believing what a guru said. This is why the people like John and the state legislators are cracking down on this practice. It's not going to be too much longer and some very large and prominent guru's are going to get crushed and made an example of. The legislators are taking this very seriously right now. usually, the few wreck it for the many. In this case, the many are wrecking it for the few. Unfortunately, those of us that run good honest legitimate business are going to get hurt.

I hope that my answers are truly helping people to see the truth of what's going on. I hope that my answers are shedding some light as to where the industry is headed. It's not difficult to make the change. However, it will be hard to compete against the charlatans. But, if you run a good business, you can overcome it. Let your reputation precede you. It works.

@nicholas hooyman, I understand what your saying and why you'd prefer to it this way, but be very careful with what you are suggesting. Your scenario is most certainly going to be construed as brokering without a license. You cannot be compensated for matching a buyer and seller without a license (yes, I know people do this all the time - think bird-dog or referral fee).  If you don't have a license, and you get paid, it's an automatic fail on the test.

Brokering without a license is the issue at heart here. This is what makes wholesaling the way most do it illegal. Intent and capacity are the two biggest factors that come into play. If you fail one, the other or both, you can get tagged. 

From a practical sense, virtually no one has been busted for doing it wrong yet. It doesn't make it ok though. The reality is that we as wholesalers need to learn to do it the right way. 

Whike I realize that this will cause you to lose out on some of your profits, the right way to wholesale is to get it under contract and close it. Then put the property up for sale on the MLS and to your buyers list. When you put it on the MLS, use a flat fee broker so you don't get tagged for extra commissions. If you do it this way, it will be hard to say you didn't do it right in any state.

I think that there are two possible law changes that could throw a wrench into wholesaling... 1. they will invest a minimum hold time before you can resell for a profit or 2. They will set a maximum profit without repairs (and even then I think someone will come up with a pro rating formula). 

The point of everything I've said in my couple posts is that we need to change before the laws do. If we wait, we'll get shut down. Or worse, we'll get in trouble and made an example of. 

Be safe. 

Be ethical. 

Have a better plan. 

This is what will get us all through the changes. 

Hi, 

There seems to be a lot of back and forth over the whole scammer thing. I understand what @john thedford is saying, but he's not elaborating on why he's on a mission to call out the scammers. Let me try to shed some light on the subject of wholesaling...

1. Wholesaling is a term that is unfortunately tossed around like a bad habit. It's frequently misused and misunderstood. True wholesaling is the act of purchasing a property and reselling it at a higher price for a profit. Assigning a contract is NOT wholesaling. 99% of all guru's and YouTube videos teach it wrong. This means that almost every single wholesaler out there has it wrong as well. Please understand that when you wholesale a house, you are BUYING AND THEN RESELLING the house. Keep this note in mind. 

2. Assigning/selling your contract is NOT wholesaling. You are selling your contract. That's it. Nothing else. Nothing more. Assigning a contract is assigning the contract (not wholesaling). When you put a contract up for sale, you CANNOT give out the address or any pictures. As soon as you do that, you are brokering without a license. All 50 states require you to have a license to sell someone else's house. You are NOT selling a house. You are selling your CONTRACT. This is where almost everyone gets it wrong. It is the responsibility of the person who wants to buy the contract to read the contract to find the address and find their own pictures and details about the underlying property. If someone buys the contract, they are NOT buying the house. They are buying the contract. That contract gives them the right to buy the house. This is a huge difference between wholesaling and flipping contracts.

3. The states are cracking down on this issue big time (just check out the new legislation in Ohio and Illinois - Illinois being the most aggressive new legislation to stop wholesaling the way it is currently being taught and done - there are more states working on similar legislation). When you put a house under contract, you MUST have the ability (capacity) to close AND the full intention of closing. If you are soling putting the house under contract for the sake of flipping the contract, it's only a matter of time before you find yourself in a big pile of legal trouble. If you are advertising the address, pictures and other details about the house that you are selling a contract on, you will also soon find yourself in some hot water for this as well. Most "wholesalers" have neither the capacity nor the intent to actually close. If they can't find someone to buy the contract, they intend to walk away. This is a huge problem with how wholesaling is taught and most often done.

4. I can't see through anyone's computer screen and see what their doing, but when a question is asked about the best contract so that you can get out of the deal, a huge red flag is raised regarding your intent. When the state comes knocking on your door, believe me when I say that they will have looked you up online and read all of your posts before they get there. They will be able to prove your intent in court based on your questions in the forums. When they look at the county courthouse and see that you've never closed a deal, they will have further proof as to your intent. As for proving your ability/capacity to close, that's easy to prove too. All they have to do is look at your bank account. I know that you can always argue that you have access to hard money or a private lender. But you need to have it documented that you had those funds lined up for every single deal. If you don't, you lose on the capacity issue too.

5. When a "Wholesaler" isn't performing in the best interest of the seller and is only acting their own best interest, the word scammer and the phrase "anything for a buck" get tossed in. The reason that states require licenses is because of the fact that they feel that wholesalers and rehabber's take advantage of uneducated and unsuspecting sellers. Hence the reason that we can all expect more legislation to be passed in more states to limit & prevent this type of behavior. Unfortunately, the guru's have created a legal nightmare for the rest of us.

6. Lets talk a little bit about what's going on in Illinois for second... The new legislation in Illinois essentially makes it illegal to double close or assign a contract unless you are a licensed broker in their state. This move literally just shut down wholesaling as we know it. Now, I'm not an attorney, but I have no doubt that they are going to be making some examples of a few big wholesalers in the very near future to make sure that no one else wholesales any more. But, here's what's disturbing... I keep hearing two common things in other forums about the issue... 1. "I'll just double close." If I'm not mistaken, the law allow 1 transaction per year where you could get away with this. 2. "I'll just get my license." This one is going to get them in trouble as well. Why you ask? because the real estate license comes with a code of ethics that states the agent must put the best interest of the client first. If you get the house under contract at one price and can resell it at a higher price, you did not put their interests in front of your own. You knowingly put a house under contract for a price that you knew was not the best price that the seller could have gotten. It doesn't matter whether or not you disclose your intentions. You violated your licensing ethics. A violation of your ethics terminates your license. It's a circle jerk I know, but this is a real issue to overcome. Way to many investors are not educated enough to know the consequences of their actions. They just think that everything is OK as long as they get paid. The states strongly disagree with you. It is this attitude and lack of education that has them on the rampage. 

7. If you want to see what is coming down the road in all 50 states, my friend Jeff Watson (he is the attorney for the National REIA) has some videos that he did with the State of Ohio on the topic. They are posted on his site. You can find them by going to https://www.WatsonInvested.com. The videos can be found under the Wholesaling tab. If you catch what they are saying, you should be changing your business practices to follow the laws better. If not, there will be consequences for you.

Hopefully this helps someone in the group to be better and stay out of trouble...

@Gene Baldwin you can split the bill based on the percentage of the rentals. What you can't do is profit from the utilities directly. If the annual bill is $2,000, you can't collect $2,500 for utilities (direct profit on utilities is not permitted). However, if you raise the rent enough to cover the $2,500 (i.e. It's now included in the rent) it costs, that's allowed.