Here We Go Again!

Dear Anna,

The content in this email is a reprint of an article I wrote a couple of years ago in response to a Facebook post containing misinformation from a so-called wholesaling “guru”. I want to get this information out there again because I recently had the opportunity to share my response with the authors of the ProPublica story about HomeVesters and the unethical tactics used by wholesalers. You can CLICK HERE to read the ProPublica article.

Wholesaling is a valid business practice, but as with any other business, it can be conducted in an unethical and immoral manner. The things that need to be avoided are the inappropriate clouding of the title on a property when you do not have the ability to close, and ignoring any mental issues that a potential seller has.

Here is my previously-published response regarding this issue:

Let’s talk about a couple of fundamental terms. “Clouding the title” occurs when an individual files on public record, typically with the county recorder’s office, a legal document acceptable for recording that indicates they have some sort of contractual or equitable interest in a property. There is clearly a legitimate time and place for doing this.

“Slander of title” is a particular cause of action that can be filed by the owner of property against someone who has improperly, illegally, or fraudulently filed something on public record clouding the title to the property. An egregious example would be if someone tried to use identity theft and steal someone’s property via filing a false deed. In addition to filing a claim of fraud, you would also file a claim regarding slander of title.

This is where you wholesalers need to pay attention. Just because you have a “contract” to buy a house DOES NOT mean you have the right to cloud title. Let’s break this down further.

Do you even really have a contract? A necessary element of a contract is that both parties have entered into an agreement with the express intent, ability, and capacity to perform the terms set forth in the contract. I know most wholesalers do not have the express intent, ability, and capacity to actually perform on the contracts which they are signing. Instead, many wholesalers are running around trying to “tie up” multiple properties while marketing, hoping and praying that they can find someone who is willing to pay more for those properties. The only way they will ever do anything with those contracts is if they find people who want to buy the contracts from them.

If that is what you are doing, you DO NOT even have valid contracts! If you try to cloud title in that situation, you are subjecting yourself to the potential of being sued for slandering someone’s title. You are also acting like a broker, so go get licensed! Do it legally!

If you try to cloud someone’s title, you had better be prepared to show that 1) all contingencies in the contract have been satisfied or removed, meaning all those wholesaler “weasel” clauses are gone, and 2) that you have communicated in writing with the seller repeatedly that you are ready, willing, and able to perform the closing. That means buy the house! That means fund the deal! That means close on the contract! It’s put up or shut up time!

I can already hear it – “But, Jeff…!” No buts. If you are going to cloud someone’s title, you need to be in a position to legally document and establish that you are ready, willing, and able to perform. That is the only way you are going to be able to cloud title and ultimately make a claim for specific performance, which is the underlying goal of clouding title. You ultimately want to buy that property. The only reason you should ever cloud title is because you are ready, willing, and able to perform, and you remain – repeat, REMAIN – ready, willing, and able to do so! That means you can prove that you have had and continue to have the funding available to close and fully perform on that contract. This means if your wholesaling business is mostly all assignments, you should NOT be clouding title. It also means that your business is NOT legal!

I’m calling every wholesaler, particularly those who think they are teaching wholesaling, to a higher standard of character, conduct and practice. It’s time to teach the truth and be honest! It’s time to be clear and communicate the FACTS! No, you cannot flip houses with just the spare change you find between your couch cushions! You have to have resources to be able to wholesale. You have to pay to market, you need funding, and you must have relationships with good, quality individuals. Most importantly, you must have a knowledge of your state’s real estate license laws!

If you are wholesaling, or especially if you are teaching others to wholesale, share this article and remind everyone that you are not to market for or “put another property under contract” until you have done three things:

1. You have reviewed your state’s real estate license laws, particularly the definition of a real estate broker. This should take about 45 seconds on a Google search to find that site and 5-10 minutes to read the definition and hopefully understand it.
2. Don’t market for or put another property under contract until you have established that you actually have multiple funding sources to be able to close all the deals you are putting under contract.
3. Make sure you are using a valid, legitimate contract, and that you are entering into it with the intent, ability, and capacity to be able to perform. That means if you put a property under contract and cannot find someone who will take that contract from you on assignment, you actually go ahead and buy the house, fix it up, and sell it.

Since your marketing says, “I buy houses and pay cash”, then that is what you need to do. Otherwise, quit lying, stop cheating, and find something else to do!

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive their own emails.

Until next time,

Jeffery S. Watson