02 Jul INVESTORS’ CORNER: In contract or not?
As the real estate market continues to heat up and more people are jumping into the investing business, I am starting to see some interesting and disturbing trends, such as multiple wholesalers contracting to buy the same house from the same seller. Yes, the seller is either unknowingly or duplicitously engaging in multiple contracts to sell the same house to two different buyers.
One such case came across my desk last week. My client, who was the second person to contract to buy the property, wasn’t told about the existence of the first contract until the day after he had sent the fully-executed contract to his title company to open escrow. After contacting me, he immediately put the brakes on the entire escrow process and notified the seller in writing that the seller did not have the capacity to enter into the contract, making that contract void. By taking that position, he was being kind to that seller rather than accusing them of any sort of nefarious activity.
From there, the plot thickened. Over the next few days, the seller contacted my client again saying he had received a written cancellation of the first contract, and he now wanted to go forward with my client. My client contacted the title company and reopened escrow. Regrettably, my client did not get a new contract dated after the date of the written cancellation of the first contract with the other buyer. Had he done so, he could have saved himself a great deal of difficulty.
Here are some tips to help you when it comes to contracts.
Make sure you really understand the important elements of contract law in your jurisdiction.
Slow down! Be clear in your communication and make sure you adequately document what is going on in your purchase and sales agreements, possibly including a section or phrase in the agreement whereby the seller is acknowledging that no other party has a contractual interest in the property via a contract, option or lease.
Should you find yourself in one of these multi-party, twisted deals, make sure you have a good real estate attorney helping you answer questions about what you should do when you discover there are other contracts to buy the property that either precede or post-date yours, or what you should do when these other contracts are canceled, and what you need to do if the seller starts acting squirrelly and tries to get out of their deal with you.
Hopefully some of these tips will benefit you and save you from spending time chasing deals that really don’t exist.
Attorney Jeffrey S. Watson, Esquire is council to the National Association of Real Estate Investors and an advisor to the Metrolina Real Estate Investors Association, www.metrolinareia.org, which provides education, networking, and mentoring to investors in the greater Charlotte area. You may contact Jeff at email@example.com