Wholesale Exit strategy clearification... clause/contingency info [ IEE and some assignment contracts ]

I want to start ahead of time I am not allowed to give legal advice. I'm just sharing some common clause/contingency understanding after viewing both the TREC One to four family residential contract (resale)-this is a purchase agreement form for anyone new- and the investor disclosure statement and seller's acknowledgement form (this is a binding agreement if signed by both parties). At least in Texas as our laws allow even verbal contracts, I am unsure of other states.

I've been going over IEE and assignment methods for wholesaling for a while. I will be talking mostly about the IEE method as I think that one hasn't gained a lot of insight though there are only a few small differences with assignment as they are investors/cash buyers. I felt pretty scared about earnest money clause as well as the default clause in a purchase agreement with the seller. I wanted some solid exit strategies if things didn't go as planned.

**I felt it would be good if I shared some of my findings with my DG family to put things maybe a little bit clearer and if I am mistaken please correct me as I believe this to be one of the more difficult topics for most people.**

FYI I found most of this information explained in the "Profit from Real Estate RIGHT NOW!" If you don't have the book go buy it! It is worth every penny I put into it and this just scratches some of the information Dean shares. So yea as I was saying I just needed to dig around a bit more for my own clarification to make myself feel warm and fuzzy about doing IEE's and assignment contracts here is what I found...

The Texas real estate commission or (TREC) has forms like the "One to four family residential contract (resale)" (I would suggest finding a current one from the REA or Realtor Dean suggests you find for your area) and the Investor Disclosure statement and Seller's Acknowledgement that can be found in Deans book. The Investor Disclosure statement and Seller's Acknowledgement form has a contingency in it stating one of the two exit strategies.

"This sale shall be contingent upon the investor finding a buyer that shall qualify for financing according to accepted criteria of __(mortgage broker's name goes here)__ and its funding sources."

Now this is a two part contingency this is the first in the Investor Disclosure statement and Seller's Acknowledgement the second contingency is wrapped into the Earnest money clause stated by Dean in his book "Profit from Real Estate Right Now!" It is in my TREC purchase agreement and pretty sure it is in all general and state-approved purchase agreements. On the purchase agreement you will see the clause it says something like (might be different in your state)

" 5. EARNEST MONEY: Upon execution of this contract by all parties, Buyer shall deposit
$__(here you put 0)____ as earnest money with ___Agent's name___ as escrow agent,
at ________(sure you can figure this part out ^^)___________________ (address).
Buyer shall deposit additional earnest money of $ ___(Here is where you put the earnest money amount normally percent of sales price not exceeding $1,500)___ with escrow agent within
___(This is the line that is your best friend 14-30 days goes here)____days after the effective date of this contract. If Buyer fails to deposit the earnest money as required by this contract, Buyer will be in default."

This is how you are safe. You pay no earnest money up front if you were transparent with the seller and had them sign the Investor Disclosure statement and Seller's Acknowledgement (this is also considered a Letter of Intent or LOI). They know from the start you want however many days agreed upon to find a buyer you put there in the purchase agreement to have it in writing and have the new buyer pay the earnest money amount to satisfy the clause either through assignment or in the new purchase agreement drawn up between the new buyer and seller. Either way no out-of-pocket cash from you. Then you have the seller who is all super happy to have a buyer now sign a Discharge of Agreement to Purchase (This form acts as a back up invoice to be paid at closing along with your Investor Disclosure statement and Seller's Acknowledgement). At this point you rip up the original purchase agreement (One to four family residential contract (resale)) and you get paid at closing with not a worry in the world. Happy days!

...Okay lets say you couldn't find a buyer? Well 14-30 days pass you are now in default and law states the following:

(Note. sorry for the wall of legal text in the (One to four family residential contract (resale)). The point is at the bottom if you wish to not read the following again this is a Texas legal clause yours might be different just read it to cover yourself...I know its hard and boring...but worth it.
________________________________________________________________
DEFAULT:
A. If Buyer fails to comply with this contract, Buyer will be in default, and Seller may
(a) enforce
specific performance, seek such other relief as may be provided by law, or both, or (b)terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If, due to factors beyond Seller's control, Seller fails within the time allowed to make any non-casualty repairs or deliver the Commitment, or survey, if required of Seller, Buyer may (a) extend the time for performance up to 15 days and the Closing Date will be extended as necessary or (b) terminate this contract as the sole remedy and receive the earnest money. If Seller fails to comply with this contract for any other reason, Seller will be in default and Buyer may (a) enforce specific performance, seek
such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract.
B. Seller automatically waives Seller's right to enforce specific performance if Seller fails to file a petition for specific performance within 45 days after the Closing Date as specified in Paragraph 9 or as extended in a written amendment in escrow agent's possession. Buyer automatically waives Buyer's right to enforce specific performance if Buyer fails to file a petition for specific performance within 45 days after the Closing Date as specified in Paragraph 9 or as extended in a written amendment in escrow agent's possession. The party
filing the petition for specific performance must send a copy of the petition to escrow agent at the time the petition is filed.

__________________________________________________________

WOW right??? This means in non-legal text if you go into default they can sue you to purchase the property or keep the earnest money. Though if did as you where told here and in "Profit from Real Estate RIGHT NOW!" book that Dean was so amazing and looked out for us by explaining all this. You didn't put any upfront and the part that states "additional earnest money due in 14-30days" is the reason your in default so...meh didn't lose any money here there then ^^ only part to worry about is the being sued part... AH! Wait you got that first paper (Investor disclosure statement and seller's acknowledgement form) signed the one stating your "contingency" I'll re-post the contingency down here for clarification:

"This sale shall be contingent upon the investor finding a buyer that shall qualify for financing according to accepted criteria of __(mortgage broker's name goes here)__ and its funding sources."

They signed it and so did you, this was your LOI with the contingency and therefore you are exempt from the penalties of this Default clause that would allow them to sue you to buy the property as the contingency was not met. You and the seller then can both walk away with no out-of-pocket costs or concerns and you can move to your next property! YAY still Happy days!

BONUS info-

For those that don't know it is the assigned escrow agent who pays you at closing in IEE from the equity you created and sold to the buyer (fee given to you buy the seller just with no-out-of-pocket money you get it from the sale, but you can't if the seller has the capitol to do so get paid before closing). Unlike in assignment where the buyer and you have a contract where you get paid a fee to give up your rights to buy that property both more or less have the same end result just AoC is for investors or buyers with cash.

The following is from Carol Stinson's wholesale Q&A to explain some fine details of assignment for those also wondering about that angle, btw read her thread I posted at the bottom. Her thread is very helpful. Carol Stinson is one of the best at wholesaling on this website. I know many, myself included look up to her as a REI mentor and for advice well beyond what I could offer at this time.

Assignment deals:

"Purchase agreement between you and seller
Assignment contract between you and buyer

You get paid at closing through your assignment contract.

Ex. Purchase agreement with seller for $100,000
Assignment contract with buyer for $110,000

Both contracts go to Title Co. or Attorney if it is an Attorney state and Title Company or Attorney will issue you a check for the $10,000 over purchase price at closing. You can have it directly wired to your bank account if you give the Title Co. wiring instructions before closing."

Here is the link to her Q&A on wholesaling.
http://www.deangraziosi.com/real-estate-forums/everything-else/54110/car...