Wholesaling in Texas Real Estate

Introduction

Wholesaling is the term for getting a property under contract and then selling that contract to a real estate investor who typically does fix-up work before re-selling the property at a profit—all within a reasonably brief timeframe. There are, of course, other wholesaling scenarios and contracts may be assigned more than once.

The practice of assigning earnests money contracts— including means, methods, and best practices—is discussed in Part One of this article. It should be noted that contract assignment documentation varies significantly depending on whether one is the assignor-seller or the assignee-buyer. In fact, except for the usual transfer clause (sell, assign, and convey) the documents can look very different.

Lawyers working in this area are often asked by a prospective contract buyer to “review” assignment documentation prepared by the contract seller. This is usually impossible. Such documents must be replaced, not merely reviewed, at least if there is going to be a reasonable balance between the interests of contract seller and contract buyer.

Assignment of contracts is definitely an area where participants are best served if each has his own counsel. The parties, typically everyday real estate investors, are ill-equipped to (for instance) negotiate how long a seller’s representation and warranty as to contract validity will survive closing.

Applicable law is discussed in Part Two. Both the Texas legislature and TREC have moved in recent years toward more expansive law and regulation.

Assignability of a Contract

A residential earnest money contract that is destined to be assigned should expressly state that it is assignable. Omitting this step—and assuming that the property seller will simply go along with an assignment—is hazardous.

A common remedy is to list the buyer in the TREC contract as (for example) “ABC LLC and/or its assigns.” This is helpful but not really sufficient for wholesaling. A careful lawyer would prefer a more comprehensive provision:

This contract may be unilaterally assigned by Buyer at any time before closing without prior notice to or consent by Seller. Seller unconditionally agrees: (1) that the effect of any such assignment will be to immediately relieve the person presently named as Buyer from any further obligations under the contract; (2) to accept the assignee of the Contract as Buyer; (3) to execute a written consent to said assignment upon request; and (4) to timely and without objection cooperate in the closing process, including prompt execution and delivery of all closing documents (including but not limited to a warranty deed) that are reasonable and necessary to effect the purposes of this contract.

Since the available space on the TREC 1-4 form is just too short for this longer and more thorough clause, an investor involved in the business of wholesaling should consider adding a custom attorney-drafted wholesaling addendum.

There is no substitute for a clear and unequivocal assignability provision if there is to be a smooth and successful assignment of the contract. Failure by the contract seller to obtain an express assignability provision is an error and a flaw in the contract assignment process. A rational purchaser of an earnest money contract should not proceed unless this flaw is expressly overcome in a writing signed by the property seller.

Even if the contract is expressly stated to be assignable, it is a good idea to obtain a signed “Consent to Assignment of Contract” from the property seller and attach it to the agreement to assign the contract. More on this below.

PART ONE

THE PRACTICE OF ASSIGNING EARNEST MONEY CONTRACTS

There are two main approaches to the business of selling and assigning earnest money contracts. Actually, these two methods apply to the purchase of any real-estate-related instrument including contracts, notes, liens, options, etc.

The First Method: One Step

In the first method, the instrument is sold as a one-time, one-payment, one-document event that is entirely independent from subsequent closing of the sale of the property. There is no executory due-diligence phase—no gap in time—in anticipation of a later finalization of the assignment at a future closing. The full consideration is paid contemporaneously with execution of the instrument, and the assignor (the original buyer under the contract) leaves the picture permanently.

Consideration consists of an assignment fee plus reimbursement for the down payment previously posted by the contract assignor. The assignee of the contract then assumes the role of buyer of the realty and goes forward to closing. No additional involvement by the contract assignor (now gone) is required.

The one-step method is viable only when the features of the instrument to be assigned are self-evident and transparent. The idea of using a due-diligence period to take a closer look is therefore considered unnecessary by the parties. A quick up-front examination of the document and its circumstances is considered sufficient to proceed with a full and final assignment. The assignment itself is often one or two pages. This approach is usually viewed as slapdash and less than professional by lawyers who work in this area.

Note that parties who agree on simplified one-step documentation have not eliminated the contractual and transactional risks that inevitably accompany the purchase and sale of every real estate instrument. The parties have simply chosen to accept or ignore those factors because they perceive the transaction as simple and low risk.

The Second Method: Step-by-Step

What do the following have in common?

a yacht
a commercial land parcel
a masterpiece painting
a nuclear reactor
real estate notes, liens, options, and contracts

The answer is that they are all sold and transferred in a similar way (at least when the transfer is handled by professionals) using a three-step process that involves: (1) a letter of intent; (2) an agreement to assign, followed by a due diligence/inspection period/termination option (purchased with a modest option fee) followed by tendering a more substantial deposit when the inspection period ends; and (3) a final assignment instrument that is executed at a closing.

It is logical that:

the intention to do something;
the agreement to do something; and
the actual doing of a thing

are conceptually, functionally, and legally separate. In legal terms, the first two actions are executory and the last action is executed. Good legal draftsmanship requires that these steps be clearly delineated.

Commencing the process with a non-binding letter of intent is a no-brainer. It is a painless and easy way to determine whether or not the parties have an agreement on major deal points. Bypassing the LOI is almost always a mistake.

The step-by-step approach has significant benefits for an investor seeking to buy a real estate contract: (1) the investor-buyer has a specified time window to conduct due diligence along with an unrestricted right to terminate; and (2) the sales price is conveniently divided into three parts—a non-refundable option fee (say $250), a deposit payable at the end of a due-diligence period (say $5,000), and then payment of the balance of the assignment fee at closing (say $20,000).

Before buying a real estate instrument of any kind (contract, note, lien, option, etc.) prudence suggests that a due-diligence period coupled with a right to terminate is nearly always the best approach.

Collapsing the Steps: an Error

Lawyers often see attempts to collapse the contract acquisition process by using an abbreviated and combined document that awkwardly bundles interim/executory terms with the language of a final assignment. Even though the process logically involves different steps, collapsed documentation attempts to cram executory and executed terms into one document—allegedly for the purpose of keeping things simple. The result is an unsatisfactory legal muddle, akin to combining an earnest money contract for the sale of realty with a deed transferring title, all without an option period. Ordinarily, no sensible buyer of real estate would do that. Neither should an investor-buyer of an earnest money contract.

Collapsed documentation does divide the assignee’s payment into a deposit followed by a balance due at closing. However, a due-diligence/inspection period coupled with a right to terminate is usually missing. The collapsed approach is best viewed as a kind of hustle put over on newbie contract buyers by professional contract flippers.

Valid Questions

A prospective assignee-buyer of an earnest money contract should have questions. Is the contract duly executed and otherwise valid and assignable? Does the realty exist and is it actually for sale? Does the seller have title? Is the seller alive? Will the seller cooperate in signing a deed at closing?

The response from the flipper is often: “We need your signature by noon tomorrow! Other investors are waiting in line to buy this contract! This is a simple deal! Let’s keep it that way! Nothing to see here! No need to involve a lawyer! Lawyers cost money and kill deals!” This urgent sales pitch is encountered throughout the secondary market for real estate instruments of all kinds, not just earnest money contracts. Newbie investors are usually the target.

Hustler World

Given the hype from seminar gurus on flipping contracts, real estate lawyers often hear from investor-buyers who want a quick “review” of an “assignment” which most often falls into the category of the collapsed/no due-diligence documentation discussed above—often DIY junk adapted from the Internet. Everyone is in a rush, often driven by a sense of urgency manufactured by the contract seller.

This situation should be viewed for what it is: an over-simplification being pushed forward in the interests of speed and expediency. These deals are often done without lawyer involvement (indeed, avoiding attorney’s fees is a prime motivator). If they eventually close with a successful title transfer into the assignee-buyer, it is due to luck as much as anything else.

A good real estate attorney will advise his client to slow down and create step-by-step documentation that includes the opportunity for due diligence on both the contract and the underlying property. The lawyer will explain that certain inescapable legal issues arise every time a real estate instrument of any kind is assigned. These should not be glossed over, ignored, or assumed.

A client in the grip of FOMO may resist. YouTube videos may have convinced him that his financial future as real estate investor hangs in the balance. For professional liability reasons the lawyer should let such a client go. Some people are psychologically wired for imprudent behavior, even self-destruction, and the lawyer may want to avoid being around when the implosion occurs.

THE AGREEMENT TO ASSIGN

Interim Agreement

The agreement to assign is an interim agreement that contemplates a future closing when a final assignment instrument will be executed by the parties. This is followed by execution and delivery of a deed to the assignee-buyer. The time between execution of the interim agreement and the date of closing should be used by the assignee-buyer to conduct due diligence (based on payment of a small option fee) on both the contract and the property. Payment of a larger deposit should occur only if the unrestricted right to terminate is not exercised within the due diligence period.

There are obvious advantages to the foregoing approach for the prospective buyer of an earnest money contract. One begins the assignment process with only a small option fee—not full payment of the deposit or assignment fee. Full payment is not due until after a satisfactory due-diligence review and when it is clear that the property seller is ready and willing to execute a warranty deed.

The foregoing is what it takes to the job correctly. If a prospective contract buyer allows any of the steps to be shortened or eliminated (in order to meet a rushed deadline or to “keep things simple”) then he does so at his peril.

It is worth observing that institutions that buy and sell real estate instruments in bulk (the professionals in this field) always do so with an adequate due diligence/inspection period.

Key Agreement Terms

An interim agreement to assign should adequately: (1) describe the contract, the parties, and relevant dates; (2) describe the underlying real property; (3) include mention of all major deal points.
The best practice is to attach copies of the executed final contract and the seller’s disclosure as exhibits. If a recent title commitment is available then that should be attached as well.

Representations and Warranties

The agreement to assign should make it clear whether or not the final assignment will be made: (1) “as is,” in the contract’s present condition and without representation, warranty, or recourse (the approach preferred by assignor-sellers); or (2) with representations and warranties (full or limited) from the assignor-seller. Survival of representations and warranties should also be addressed.

Covenants and Agreements

The assignor-contract seller should be obligated to deliver the original contract and any related documentation to the assignee-buyer at closing. The assignee-buyer should agree to be bound by the earnest money contract and perform accordingly (i.e., by tendering the purchase price as the new buyer). Both parties should agree to take such other and further action, including execution and delivery of additional documents, as may be reasonable or necessary to effectuate the assignment.

Express Consent from the Property Seller

It is important (vital, in fact) for the assignee-buyer of an earnest money contract to insure that the property seller (1) consents to the assignment and (2) will honor the assignee’s status as the new buyer and execute a deed accordingly. Otherwise, one may face a hostile property seller at closing—if the seller shows up at all.

Cooperation from the property seller should never be assumed. The assignee-buyer of the contract does not want to be in the position of suing a property seller for specific performance—an expensive event that would destroy the profitability of the transaction. Accordingly, the agreement to assign should include seller consent along the following lines:

I/We, the undersigned, am/are listed as Seller in the Contract which is the subject of this Sale and Assignment. I/We give my/our unconditional consent to the sale and assignment of the Contract and all rights therein to the above-named Assignee, and I/we agree to in all respects recognize and cooperate with Assignee as the rightful Buyer under the Contract to purchase the Property.

Recording the Agreement to Assign

There is no requirement that an agreement to assign an earnest money contract be recorded in the real property records. However, the contract buyer may prefer that recordation occurs in order to insure that the contract is not later sold to another investor. This approach requires that the agreement to assign be drafted in recordable form (including notarization).

DUE DILIGENCE

Due Diligence as to the Contract

The assignee-buyer should insist on a due-diligence/inspection period coupled with an unrestricted right to terminate. This is similar to a buyer’s right to terminate before expiration of the option period under a TREC residential contract. It is an opportunity to take a hard look at the contract in order to assess its legal validity and financial soundness. So long as the assignee-buyer does not terminate before the end of the due-diligence period, the assignee-buyer should be required to post a reasonable deposit that will be credited toward the total assignment fee at closing.

The prospective buyer of an earnest money contract should acquire all important and relevant information and documents as early in the process as possible. Any reluctance on the part of the assignor-seller to cooperate should be a red flag.

Due Diligence as to the Real Property

Purchasing an earnest money contract is inextricably linked to the real property. There is no way around this. The value of the contract derives directly from the condition, value, and title status of the underlying property. Accordingly, a prudent buyer will not only perform due diligence on the contract but on the real property as well.

Disclosure by the Contract Seller

From the perspective of an assignee-buyer, a favorable agreement to assign will require full disclosure of material facts from the assignor-seller, including any known defect, circumstance, or condition relating to the contract or real property that could reasonably affect the decision to buy or not buy the contract. At the very least, the assignor-seller should be required to disclose:

(1) known material facts, defects, or adverse circumstances affecting the contract, including its validity, legal effect, enforceability;
(2) known material facts, defects, or adverse circumstances relating to the property, including defects, needed repairs, and remediation;
(3) the presence on the property of hazardous materials, flood damage, or mold; and
(4) any known defects or issues relating to title, including threatened or pending litigation.

Caution to prospective contract sellers: even without an express disclosure requirement, failure by an assignor-seller to disclose known material facts affecting either the contract or the underlying realty may constitute fraud.

DUE-DILIGENCE CHECKLIST
FOR CONTRACT BUYERS

The Property Seller

Is the property seller alive?
Is the property seller legally competent?
Has the property seller’s spouse signed off on everything?
Has the property seller given consent in writing to a contract assignment?
If not, is the property seller willing to do so before the end of the inspection period?

The Contract

Is the contract seller in possession of an original contract?
Is the contract fully completed (no blanks) and duly signed by all parties including spouses?
Is the contract a legitimate TREC or TXR contract (with addenda) or is it junk from a seminar or the Internet?
Is a copy of the contract and seller’s disclosure available to be attached as exhibits to the interim agreement?
Was the contract prepared by a professional?
Does the contract appear to be legally valid in all respects?

If an LLC is Involved

Is the LLC’s manager identified in the contract and named as authorized signatory?
Is the LLC in good standing with the state in which it is registered?
Has good standing been confirmed with the secretary of state?

The Property

Does the property exist?
Is the property actually for sale?
What is the present use of the property?
What is the condition of the property?
Have the contract buyer actually laid eyes on the property?
Is a recent inspection report available?
Is a recent seller’s disclosure of property condition available?
Are documents or information available as to any recent repairs or rehab work?
Are there any other documents you should obtain in order to gain information on the property?
If you were investing directly in the property, would you buy it for the price stated?

Property Sales Price

Does the property sales price make sense? In other words, is the underlying transaction sound?
Is a recent appraisal available?
What are comparable properties on the same street selling for?
Is a substantial profit margin realistically available if the contract closes?

Title to the Property

Is a recent title commitment available?
Is the property seller in the contract named in the title commitment as current owner?
Have spousal signatures been obtained in order to wrap up any community property interest?
Do any third parties have an interest in or claim to the property?
If this is an estate, have all possible heirs signed off?

Existing Loans and Liens

Will the contract assignment be done “subject to” existing loans or liens that will not be fully paid off at closing?
If so, have copies of the existing note, deed of trust, and recent loan statement been obtained?
Does the existing deed of trust have a due-on-sale clause?
Are existing loans or liens in arrears? By how much?
Are property taxes current?
Are HOA dues current?

The Contract Seller

Has the contract seller committed in writing to make full disclosure as to any material fact, defect, or adverse condition that affects either the contract or the property?
Is the contract seller cooperative? Do they appear honest and forthcoming or do they seem to be hiding the ball when it comes to requests for information?
What is the reputation and track record of the contract seller?
Is the contract seller willing to stand behind the contract by making representations and warranties in the final agreement?
Or is assignment of the contract supposed to be “as is” without representation or warranty?
If there will be reps and warranties by the contract seller, will they survive closing? If so, for how long?

Closing and Closing Documents

Will an escrow agent (title company) be used for the final closing?
Will the escrow agent be holding the contract buyer’s deposit?
As to closing documents (particularly the final assignment instrument), who will prepare them?
Will the non-drafting party have input in document preparation?
Will the deed be a general warranty deed or a special warranty deed?
Will there be an opportunity to review and approve closing documents before closing? Even better, before the end if the inspection period?
Does the contract buyer have an “out” if the legal documents presented at closing do not accurately reflect the deal?
If the property is leased to a tenant, will there be an assignment of lease, rents, and security deposit at closing?

Recourse against Contract Seller

Will the contract buyer have recourse against the contract seller if the deal fails to close?
Will there be full recourse, limited recourse, or no recourse?
What are the precise terms of any recourse, refund, or buyback mechanism?
How long does recourse last?
Is recourse available if the property seller fails to appear at closing or refuses to sign a deed?
If that occurs, will the contract buyer get the full deposit back?

Overview

Has all relevant information and documentation been obtained and examined?
Has the contract buyer fully evaluated and assessed the legality, feasibility, suitability, and financial merits of the proposed assignment?
Does the deal make common sense?
Is there enough prospective profit margin plus a decent buffer for unforeseeable events?
What does your attorney think of the deal?

RECOURSE AGAINST THE CONTRACT SELLER

Recourse if the Contract or Closing Fails

Will there be a means of recourse against the seller of the contract? What if the property owner fails to appear at closing or declines to sign a deed? Or a spouse has a change of heart and refuses to sign? Sellers of real estate breach contracts all the time, which is why the courthouse is busy with such cases. If default occurs, will the deposit and assignment fee be refunded?

Assignments may be written with recourse or without recourse by the assignee-buyer against the assignor-seller. Recourse comes in three varieties: none, full, or limited.

In the case of contract assignments, no recourse means what it says—if the contract is deficient or does not close, then the assignee-buyer is stuck with a failed contract and is solely responsible for pursuing remedies against the property seller (This is the “as is” with all faults scenario). Full recourse means that the buyer-assignee gets to give the contract back to the assignor-seller and obtain a refund if the transaction fails to close through no fault of the assignee-buyer. Limited recourse is a flexible and highly variable category falling somewhere between no recourse and full recourse.

In all of these cases, the assignment documentation should expressly address the availability of recourse—whether none, full, or limited—and specify the time period during which recourse will be available. Recourse is always time-limited.

Sale of a Contract “As-Is”

Earnest money contracts may be assigned “as is,” with all faults and without recourse. Assignor-contract sellers clearly prefer this. If sale of a contract is to be entirely “as is,” an effective clause for this purpose should be included to protect the assignor-seller.

Drafting an “as is” clause should be done carefully since the seller-contract assignor will want not only to disclaim assurances regarding the contract but also any representations or warranties concerning the condition and value of the underlying real property.

Oral statements should of course be disclaimed.

FINAL ASSIGNMENT AT CLOSING

To conclude the assignment process, a final assignment instrument (typically entitled “Sale and Assignment of Earnest Money Contract”) should be executed at closing. The assignee pays the balance of the assignment fee with credit for the deposit paid at the interim stage. The assignor-seller usually receives a credit for the earnest money previously paid to the property seller.

Similarity to Sale of a Note

Assignment of a contract is comparable to assigning a promissory note since many of the same principles apply. The main difference is that earnest money contracts, unlike notes, are not negotiable instruments subject to the Uniform Commercial Code. Even so, these two types of assignments share a number of characteristics:

(1) the advisability of thorough due diligence by the prospective assignee, which requires not only an examination of the terms of the contract itself but also the underlying realty;
(2) the preference on the part of the assignor to make the transfer “as is” and without recourse;
(3) the inclusion of a method of recourse if closing fails; and
(4) the survival period of any representations and warranties.

PART TWO

LAW APPLICABLE TO WHOLESALING

Occupations Code Licensing Requirement

Is a real estate broker’s license required in order to engage in wholesaling? Section 1101.002.A of the Occupations Code answers this question with a definite maybe depending on how one defines the brokerage of real estate. Chapter 1101 states that a real estate broker “means a person who, in exchange for a commission or other valuable consideration or with the expectation of receiving a commission or other valuable consideration, performs for another person one of the following acts . . . deals in options on real estate, including buying, selling, or offering to buy or sell options on real estate. . . .” An executed earnest money contract can be considered a kind of option to buy real estate. It definitely represents an interest in real estate. So if one is buying or selling such contracts (engaging in wholesaling) then a broker’s license may be required. More on this below.

Occupations Code Disclosure Requirement

Section 1101.0045 of the Occupations Code offers a loophole for wholesalers who are working without a broker’s license, but only so long as they make express disclosure that what they are selling is merely an equitable interest—as opposed to a legal interest. The difference can be challenging for non-lawyers to understand; however, an equitable interest means an interest that is less tangible, less certain, and more contingent than a solid and present legal interest. The statute reads:

OCC Sec. 1101.0045. Equitable Interests in Real Property

(a) A person may acquire an option or an interest in a contract to purchase real property and then sell or offer to sell the option or assign or offer to assign the contract without holding a license issued under this chapter if the person: (1) does not use the option or contract to purchase to engage in real estate brokerage; and (2) discloses in writing the nature of the equitable interest to any seller or potential buyer.

(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest as provided by Subsection (a)(2) is engaging in real estate brokerage.

OCC Section 1101.0045 wants wholesalers to make full disclosure, which means making it clear that what is being transferred is not the property itself but only an equitable right to acquire the property subject to the terms and conditions of the contract being assigned. Accordingly, wholesalers who assign contracts are not illegally acting as real estate brokers if they fully disclose the nature of the interest they are selling. The difference between a broker’s license being required or not required comes down to disclosure.

Texas Administrative Code Disclosure Requirement

TAC contains TREC rules applicable to real estate license holders. Rule 535.6 states:

22 TAC Sec. [TREC Rule] 535.6. Equitable Interests in Real Property

(a) A person may acquire an option or enter into a contract to purchase real property and then sell or offer to sell the option or assign or offer to assign the interest in the contract without having a real estate license if the person: (1) does not use the option or contract to purchase to engage in real estate brokerage; and (2) discloses the nature of their equitable interest to any potential buyer.

(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest to a potential buyer is engaging in real estate brokerage.

(c) A license holder who is engaging in real estate brokerage by selling or buying or offering to sell or buy an option or assigning or offering to assign an interest in a contract to purchase real property must disclose to any potential seller or buyer that the principal is selling or buying an option or assigning an interest in a contract and does not have legal title to the real property.

(d) A license holder acting on his or her own behalf or in a capacity described by §535.144(a) who is selling an option or assigning an interest in a contract to purchase real property must disclose to any potential buyer that the license holder is selling an option or assigning an interest in a contract and that the license holder does not have legal title to the real property.

This TREC rule echoes a theme found in the Real Estate License Act, the Property Code, and case law: full disclosure is always the safer route whether one is a license holder or not.

Property Code Disclosure Requirements

The Property Code sets out two disclosure requirements (in Sections 5.0205 and 5.086) that apply in the context of the sale and assignment of earnest money contracts:

Prop. Code Sec. 5.0205. Equitable Interest Disclosure

Before entering into a contract to sell an option or assign an interest in a contract to purchase real property, a person must disclose in writing to (1) any potential buyer that the person is selling only an option or assigning an interest in a contract and the person does not have legal title to the real property; and (2) [to] the owner of the real property that the person intends to sell an option or assign an interest in a contract.

This is the second disclosure requirement:

Prop. Code Sec. 5.086. Equitable Interest Disclosure

Before entering into a contract, a person selling an option or assigning an interest in a contract to purchase real property must disclose to any potential buyer that the person is selling only an option or assigning an interest in a contract and that the person does not have legal title to the real property.

These sections of the Property Code apply to everyone whether licensed or not. Every seller-assignor (wholesaler) must comply.

Reading the above statutes together, it should be clear that wholesaling without providing the required equitable interest disclosure (to the property owner and the buyer-assignee of the contract) can get an investor in double trouble, both for violating the Property Code and potentially for brokering real estate without a license.

Equitable Interest Disclosure

The following proposed wording at or near the top of the contract assignment would likely satisfy equitable interest disclosure requirements:

EQUITABLE INTEREST DISCLOSURE PURSUANT TO TEXAS PROPERTY CODE SECTIONS 5.0205 AND 5.086: THIS INSTRUMENT REPRESENTS ONLY AN OPTION TO PURCHASE REAL PROPERTY OR AN ASSIGNMENT OF AN INTEREST IN REAL PROPERTY. IT IS NOT A SALE OF THE PROPERTY OR A TRANSFER OF TITLE TO THE PROPERTY. ASSIGNOR DOES NOT HAVE LEGAL TITLE TO THE PROPERTY. ASSIGNOR IS NOT A REAL ESTATE BROKER AND HAS NOT GIVEN ASSIGNEE REAL ESTATE ADVICE. CONSULT AN ATTORNEY PRIOR TO EXECUTING THIS DOCUMENT IF YOU DO NOT UNDERSTAND IT.

The disclosure is probably best inserted beneath the customary notice of confidentiality rights that is required by Texas county clerks for recordable instruments.

The equitable interest disclosure requirement of the Property Code could be the beginning of a future regulatory scheme for the wholesaling of earnest money contracts. Abuses and mishaps in this area make news from time to time, so Texas legislatures may decide to build on existing disclosure requirements and expand beyond them, just as occurred in the case of executory contracts in 2005. The pressure for regulation may also increase as cases appear that seek to bring wholesaling within the reach of the Deceptive Trade Practices Act.

CONCLUSION

The details of wholesaling transactions vary widely. This is an investment arena full of determined DIYers who often use junk forms from the Internet that are non-specific to Texas. Many wholesale assignment transactions fail as a result.

Ignoring key document terms in the interest of brevity is unwise. Unstated assumptions inevitably proliferate around “simple” contracts. An overly-brief brief assignment that does not address the full range of possible provisions is an invitation to a lawsuit. Critical legal issues do not go away merely because they are ignored. Ignoring them now means they may return with a vengeance in future litigation. Accordingly, all key terms and conditions involved in the assignment of an earnest money contract should be expressly stated and never implied. Make no assumptions and spell it all out are excellent rules for everyone in this area.