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Wholesalers Who Cloud Title - Part 1

This will be the first of two articles sharing a lengthy post (actually, a rant) I put up on Facebook in response to a nationally known guru who sells wholesaling information tagging me and another well-respected attorney in a post on May 21, 2021 (search my profile to read it).  The person who tagged me was telling about a seller ghosting him and the fact that he filed documents to cloud the title so the seller would have to deal with him if the seller ever reappeared and tried to sell the property.  Here is Part 1 of my response:

I’m not writing this to take issue with what that “guru” said in his post, but to educate and inform.  Some of the comments that were made on that post astonished me.

I am a real estate attorney practicing in Ohio, but I have influenced wholesaling on a national basis (https://www.watsoninvested.com/wholesaling/). The video in the foregoing link has been used to educate and train investigators and regulators in multiple states on the topic of wholesaling.

Secondly, I represent several established, well-run, legitimate wholesaling businesses in multiple states. On an aggregate basis, my clients probably flip 2-3 houses a day, 7 days a week, 365 days a year in multiple markets. If they have a crazy deal, they call me. I have been interviewed on multiple podcasts and forums on wholesaling.

Let’s talk about a couple of fundamental terms. “Clouding the title” occurs when an individual files on public record, typically with the county recorder’s office, a legal document acceptable for recording that indicates they have some sort of contractual or equitable interest in a property. There is clearly a legitimate time and place for doing this.

“Slander of title” is a particular cause of action that can be filed by the owner of property against someone who has improperly, illegally, or fraudulently filed something on public record clouding the title to the property. An egregious example would be if someone tried to use identity theft and steal someone’s property via filing a false deed. In addition to filing a claim of fraud, you would also file a claim regarding slander of title.

This is where you wholesalers need to pay attention. Just because you have a “contract” to buy a house DOES NOT mean you have the right to cloud title. Let’s break this down further.

Do you even really have a contract? A necessary element of a contract is that both parties have entered into an agreement with the express intent, ability, and capacity to perform the terms set forth in the contract. I know most wholesalers do not have the express intent, ability, and capacity to actually perform on the contracts which they are signing. Instead, many wholesalers are running around trying to “tie up” multiple properties while marketing, hoping and praying that they can find someone who is willing to pay more for those properties. The only way they will ever do anything with those contracts is if they find people who want to buy the contracts from them.

If that is what you are doing, you DO NOT even have valid contracts! If you try to cloud title in that situation, you are subjecting yourself to the potential of being sued for slandering someone’s title. You are also acting like a broker, so go get licensed! Do it legally!

Let’s continue to break this down. Here is one topic that, unfortunately, I didn’t get to address in the excellent forum recently hosted by MAREI on the topic of wholesaling. The link to that event is here: http://www.marei.org/maymtg/. I encourage you to check it out.            

If you try to cloud someone’s title, you had better be prepared to show that… (to be continued in my next article).

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