How to handle a seller that tries to screw you (and not in a good way)
Like any business, real estate has the good, the bad, and the ugly. There are certain instances where you might have a lease option with a seller, or a sub-2 agreement or a wholesale agreement and the seller will try and back out of the contract. When this happens, what should you do?
Well, it all depends on the situation and the type of deal. If I was doing a wholesale deal and was going to make a small fee of $2,000 and a little old lady decided she wanted to keep the house and was begging me to let her out of the wholesale agreement I would probably do it. However, I would definitely make her write me a testimonial about the situation stating what a great guy I am and that I let her out of the contract. I would then show this later to sellers I was working with who were nervous, because I know it would help me close more deals, because they’d feel more comfortable with me. On the other hand, if I had a monster $50,000 wholesale deal then I probably wouldn’t let the person off the hook and take legal action if necessary. I have rock-solid paperwork so I’m not worried about my contract holding up in court. Let’s say you’re doing a lease option deal and the seller decides they want the house back. If tenants are in the house, there is not much they can do because they have to honor the current lease with the tenants. But if you wanted, you could say something like, “Mr. Seller, if the tenants don’t exercise their option then I’ll move them out and you can get the house back if you pay me $5,000. Otherwise, I’m exercising my option to buy the house from you.†Also, one of the most important things you do in a lease option deal is record the option agreement at the local courthouse that way it “clouds†the title and the sellers can’t sell the house behind your back. So, in a worst-case scenario if the sellers won’t work with you, at least you know you’re getting paid because of the option you recorded at the courthouse.
Subject-to’s are probably the easiest to handle because when you buy a house sub-2 you own the house and are on the deed. It’s not like the seller still owns the house as in a wholesale and lease option deal. If the seller changes their mind you could always offer to sell the home back and have them pay all closing costs and $5,000 (or whatever amount you choose.) Or you could tell them tough, and if they take legal action then you should have nothing to worry about as long as you’re using solid contracts prepared by a lawyer.
In all my years as a real estate investor I can think of only two times when I’ve had problems with sellers and both of them were pretty minor. One time it involved a wholesale deal and the woman changed her mind and wanted out of the contract. She was going through tough family circumstances in life and it wasn’t that much money, so I let her out of the contract and she did write me a testimonial. The other time involved a sub-2 deal where after the home inspection a ton of problems were found in the house. I told the seller he needed to correct the problems or I couldn’t buy the house. He refused to fix anything and was not happy about this and threatened to sue. I didn’t end up buying the house and of course he didn’t do a thing because my contract clearly states that closing is contingent on the home inspection.
The bottom line is, every real estate deal you do is unique and any problems that arise will have to be dealt with on a case-by-case basis. As long as you’re always honest, use rock-solid paperwork and use good judgment you shouldn’t worry much about sellers being dishonest or taking advantage of you.
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