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Investing Strategies

How Do I Avoid Getting My Deal Stolen?

messsageHey Moguls – it’s Jason Lucchesi back with you again. I have a question for you…

Have you ever been concerned that once you’ve hooked a deal, it might get snatched right out from under you? I seem to get asked that a lot – my students want to know: How can I protect the deal that I have under contract?

Here’s an example of the ‘theft’ might happen…

Let’s say you want your buyer to go take a look at the property. While they’re scoping out the property, they talk to the seller – and at that point they try to circumvent the deal and take it away from you.

Obviously, there’s an integrity issue with the buyer and the seller. And also, it’s something you never see coming. You’re blindsided. There are people out there who do shady things. They’re looking for a quick buck and are not concerned about the relationship they just destroyed or the fallout.

Those types of people are unaware of how small and how close-knit the real estate investing community actually is. Word travels fast… one bad move like this and no one will want to work with the person who pulls such a trick.

Here’s what it comes down to…

We need to talk about the importance of paperwork in this lesson, because having the right contracts and documents will offer you some protection.

Don’t Discount the Documents

Personally, I seldom, if ever, use assignment contracts. I use purchase agreements and I do a lot of virtual wholesaling. I have a separate purchase and sales agreement with my seller, and for the second transaction, I have a separate purchase and sales agreement with the buyer.

I don’t use fancy forms. I use my state-approved purchase and sales agreement. It keeps the transparency wide open. The documents have already been approved by state attorneys. (BTW - recently in another lesson, I talked about state-approved documents in more detail. Go check that out here.)

I strongly encourage you to have an attorney look over all documents you use including addendums.  

What Had Happened Was…

Okay, let’s say I have a fully executed contract with my buyer, and I also have a fully executed contract with my seller. I am out of state, and I am set to make $10k net profit on this deal.

stoleThe buyer wants to do an inspection or just a walk-through, and that has to be arranged through the seller. If you’ve never done business with this buyer, that person could say something to the seller and begin to undermine your deal.

Before you allow the buyer to go to the property, it would be wise to have them sign a non-circumvent, non-disclosure agreement.

However, from what I’ve been told by my attorney, these agreements won’t really hold up in court. Sad but true. It is a document signed by you and the buyer and seems to me that it should hold up in court, but it’s just your word against theirs.

The Option Contract

If you have a really strong deal, and if you’re going to make several thousand on that deal, it would be best to protect yourself. This is what I do in cases where I’m working with a buyer who is new to me – we have no history of working together.

When I’m with the seller, and we’re signing our agreements, in the option contract it states that I have the capabilities of marketing the property for sale, or for rent, or lease or whatever...

This is what I want when I’m doing an A-B and a B-C transaction.

The option contract places a lien on the property, which means there will now be an attachment on the deed. (The title is now clouded.) If the buyer does try to circumvent the deal, and the seller and buyer try to close, they will be unable to do so unless they pay me off.

This is where the option comes into play. That option was signed by me and the seller, and the contract is recorded. This means I have the first option to purchase that property. If they want my option taken off the title, they’ll have to pay my option.

They send over their offer and whether or not you accept depends on how much you’re looking to make. If in your original agreement you were going to make $10k, then make them pay $10k.

The option contract is a great strategy because it does cloud the title. You can stipulate a length of time on the contract – I’ve had them good for up to a year. It all depends on how you word the contract.

Get the Right Contracts

When I first got started in investing, I didn’t have this information. And I had deals stolen from me a couple of times. Until I learned how to protect myself – with the right paperwork.

Check out the state-approved options contract in your state. And always make sure you have your own legal counsel to review it and advise you.

Your Turn

If you’ve had your own experiences with a less-than-honest buyer in your business, leave your comments below. How did you handle it? And did this lesson help?


Do It To It! Immediate Action Steps

Take action to protect your deals

Be aware when working with a new buyer with whom you do not yet have a trust level

Check out the state-approved contracts in your own state

Always use your own legal counsel for the final say on all your legal documents

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