A Wolf in Buyer's Clothing

Real Estate Broker/Owner with Providence Group Realty TREC# 0608931

In December of 2013, we shared a sample solicitation letter from a Rockwall investor, "offering to buy" one of our seller's homes. 

This 'offer' was for the sellers to move out of their home while keeping  their existing mortgage in place. This is called a 'wrap' -- where the 'sale' is subject to' the existing financing. Investors who are either unable or don't care to qualify for traditional financing -- or who lack ample cash funds to purchase a home outright -- find this method attractive. It allows them to purchase with little to no money down (as seen on TV). 

Wholesalers will also use this technique to legally bind a seller into a sales contract while they try to flip the paper to an assignee (assigned buyer; successor buyer; and/or assigns). Since most wholesale investors are neither attorneys nor licensed real estate brokers, the only way they can receive money (commission / fees) in a Texas real estate transaction is to be a party to the transaction (contract) as a principal.  

Recent news has highlighted a similar story currently undergoing investigation in El Paso, TX, where a know real estate investor is being investigated for deceptive trade practices involving similar contracts. El Paso's KFOX14 and Bill Melugin report:



Other lawsuits KFOX14 obtained allege more of the same. They say the investor "purchases" the plaintiff's home, allegedly promises to resell it and take over payments, the payments were late or never made, and the plaintiff's credit is damaged. 

The Rub 

When asked, plaintiffs share their remorse for signing these types of agreements, and lament about their own lack of education and due diligence in the process. 

Local Brokers and Attorneys who review the contracts cite deviations from standard real estate contracts and loopholes that favor the investor. Magda Soto, an attorney with Robert Warach & Associates, states, "They usually unfortunately prey on individuals who are looking at foreclosure or are desperate and need to sell their homes, so that's how they make their money. They come in, they get the property, they rent the property, of course they're getting money.” Soto said victims usually won’t even notice anything is wrong until they check their credit years down the road, and when they go to law enforcement, they don’t get very far. 

While these types of contracts raise ethical concerns, depending on how they are written, they may not necessarily violate any laws.  The losers are usually the seller, and then subsequently the investor's buyer or tenant -- in that order -- while the investor typically walks away unscathed and a dollar wealthier for every day the property has been in play.  

Consumers can protect themselves by hiring a licensed real estate broker to represent their interests, and/or by retaining an attorney to review contracts prior to signing.  Conventional practices also include the services of a title company to ensure the payoff of existing liens and clear title conveyance.

Before considering a 'quick fix' to your real estate woes through an investor solution, make sure no one is pulling the wool over your eyes. An ounce of prevention is worth a pound of cure. 

Comments (4)

Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Amanda, okay, there are investors who play this game - wondering what makes sellers sign these documents!

May 26, 2014 01:48 PM
Amanda Thomas
Providence Group Realty - Plano, TX
​Broker, SRES®, BPOR, MCNE, ​Certified DRS Agent™

@Praful -- Consumers who are too trusting -- or too willing -- to believe in something that really is too good to be true, find themselves in the claws of predators. They have neither the power of discernment nor the advisory resources to alert them to the risks they are assuming by agreeing to predatory contracts. It happens more commonly than is publicized.

May 26, 2014 01:54 PM
Alan Kirkpatrick
Austin Texas Homes - Round Rock, TX
Alan in Austin

Amanda: Excellent post and you do a great job of explaining this. A wrap can work in the right circumstances but the buyer needs be in with a big down payment. I am suggesting your post. Great work. 

May 28, 2014 12:06 AM
Amanda Thomas
Providence Group Realty - Plano, TX
​Broker, SRES®, BPOR, MCNE, ​Certified DRS Agent™

@Alan, high praise, considering you are quite the skilled wordsmith yourself! Thank you for your feedback, and for your awesome contributions on AR!

May 28, 2014 12:16 AM

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