Why Real Estate Wholesale Deals Fall Apart at Closing | Joette Trinh on Disclosure and Creative Finance

Joette Trinh (00:00)
The number one way that I see deals fall apart in wholesaling is when the wholesalers are not upfront and honest about what they’re doing. If they’re not disclosing to their seller that, hey, I’m offering you one price, my intent is to find you another buyer at a higher price and make the difference. That’s where the deal falls apart when they maybe disingenuously

represent to the seller that the wholesaler is the one that’s purchasing the property and that there’s no other third party involved.

Dylan Silver (02:02)
Hey folks, welcome back to the show. Today’s guest, Joette Trinh, is a real estate attorney admitted to both the Connecticut and Massachusetts bars. She focuses on real estate law, estate planning, and small business law, working closely with investors to structure deals and execute closings using both traditional and creative finance strategies. Prior to becoming an attorney, she spent five years working with a private real estate investment firm, traveling nationwide and helping clients learn how to invest across multiple asset classes.

She’s also an active real estate investor herself, combining legal expertise with practical deal experience to help investors grow and protect their portfolios. Joette, thanks for taking the time today.

Joette Trinh (02:42)
Thank you so much for having me. I really appreciate it. I’m excited to be here.

Dylan Silver (02:45)
Now you sit at the intersection of legal and investing. How does that affect how you evaluate deals?

Joette Trinh (02:54)
It’s a really great way to actually keep an ear to the ground in my market of what’s going on and even nationwide listening to different podcasts like yours and attending different conferences. So I get to get a firsthand look of what my legal clients are doing with their investment deals and then take that knowledge and apply it to my own.

Dylan Silver (03:17)
Now, when folks are using creative financing and it seems like there’s more folks that are interested in this now than ever, what are some of the most common mistakes that you see people making?

Joette Trinh (03:24)
Mm-hmm.

Well, there’s so many different creative financing strategies. So it kind of comes down to which strategy is the investor trying to execute. If we’re talking something as simple as wholesaling, the two biggest mistakes I see that a wholesaler make is they’re signing two purchase and sale contracts, one with the seller and one with their end buyer instead of an assignment contract. And if they are doing two purchases and sale contracts, they are making the mistake.

of not putting the language in the second contract that says that they don’t have to sell until they buy on the front end. So that’s mistake number one is not having their contracts executed correctly. And then the second mistake is wholesalers who think that the end buyer’s deposit on the second contract binds the contract on the first with the seller, which is not the case. Every contract needs a deposit. So those are the two biggest mistakes I see. When it comes to

other creative structuring deals like seller financing, I see a lot of investors who leave meat on the bone. And what I mean by that is something as simple as not having a right of first refusal in their documents, which would allow the investor to purchase the mortgage back at a discount in the event that the seller has to sell before the term is up.

So a right or first refusal that would allow them to buy that note back from the lender at a discount leaves a lot of opportunity on the table.

And then the third most, the third strategy that I see where there’s a mistake is in what I call novations or where it might be called something different across the country, but it’s what I call it in my office, basically where you’re flipping a home without purchasing it.

And that is not having a power of attorney in place that allows you to act as a seller, to renovate, pay the mortgage, list it, those types of things.

Dylan Silver (06:19)
Let’s talk about novations, Joett, because I’ve noticed this. I’m a realtor in Texas. I feel like everyone is using this novation term almost as a way to sound like they’re more, I hate to say it, educated than their opposition is like, we’re novating this. And I’m like, do you know what that word means? Like you’re replacing one contract with another, but they’re they’re meaning like, ⁓ I’m taking this off-market deal and I’m doing some type of like flat fee listing on the MLA. It’s so many different.

Joette Trinh (06:37)
Ha ha ha.

Dylan Silver (06:48)
definitions, right? And so you’re an attorney, what is innovation?

Joette Trinh (06:53)
It’s innovation is exactly what you just said. It’s where you replace one contract with another. And that’s the simplest way to put it. But how you execute it can be different, just like you’ve said. I’ve seen ⁓ investors who will go under contract and then not do any work to the property and they just relist it and sell it for a higher price and make the difference. So essentially an on-market assignment through a realtor.

And that takes a lot of disclosure, especially if you’re in the Northeast where I am, there should be a lot of disclosure around that. I’ve also seen people who get a property under contract with a novation contract, and then they rehab the property without actually purchasing it. And then they’re entitled to all of the equity that the renovation produces without actually purchasing the property. So that’s also a novation, but it’s a simplest term. It’s exactly what you’ve just said. You replace one contract with another one party with another.

Dylan Silver (07:49)
That’s one of those things that I’ve been thinking a lot lately. Like these people really, and I shouldn’t say everybody, but there’s a lot of wholesalers who firmly believe a novation is just like basically a flappy listing or like a whole tale of some kind and they’re interchangeable words, but it could mean so many different things. I would like to pivot here, Joette, and ask you specifically about the wholesale space and acquisition strategies because…

Now more than ever, folks are getting into real estate using some creative strategies, wholesale included, with relatively little experience and legal training, if any at all, right? And so they’ve not familiar with the contracts. Like you mentioned, you know, they’re not exactly sure how to do the assignment. But of course, that’s so important when you are doing any type of real estate transaction. For newer wholesalers, what do you think is like the

Joette Trinh (08:25)
Mm-hmm.

Mm-hmm.

Dylan Silver (08:41)
the essential knowledge that they need in order to do business.

Joette Trinh (08:47)
I think that they should know the basic elements of a contract, right? Who are the parties? Sometimes I see contracts come through with the wrong parties listed as a seller and the buyer. They should know that every contract needs consideration, which in the US, the most common form of consideration is monetary. So you can’t just say,

Hey, Mr. Seller, I’m gonna go under contract with you and I’m gonna sign the contract and now it’s binding. There actually has to be consideration. There has to be some type of monetary exchange that binds the contract. Here in Connecticut, there has been just an influx of wholesalers even from outside of our state. the Connecticut legislature has kind of caught on to that. And so come the summer, there’s some legislation that’s going into effect that will require wholesalers to have license.

licenses or at least register and pay a fee. And so I think that any wholesaler who, whether you’re working in Connecticut or anywhere else in the U S you really need to know what the nuances of your state are. What are the requirements? You should know how to fill out a contract. You should know who the parties are. You should know how to bind it. You should know what a due diligence clauses and inspection clauses and appraisal clause. So you should really familiarize yourself with the elements of a contract before you just willy nilly sign something that you’re not totally sure.

about and whether or not it’s binding.

Dylan Silver (10:44)
You know, one of the things that’s interesting about wholesale versus traditional real estate and being a realtor, because I started out, I cut my teeth as a wholesaler before becoming a realtor, is you have to become educated in the sales contract in whichever state that you’re in. So in Texas, it’s a Trek, Texas Real Estate Commission, one to four residential, right? And so you’re looking at this as a wholesaler and especially as someone who didn’t go to real estate school, you’re like, I have to become knowledgeable in this.

and you learn to use the contract to effectively have an advantage in deals. Now then you take that knowledge to a real estate agent and you’ve already got a leg up because most agents, I hate to say this, but again, most agents are coming into this with really a very surface level knowledge of how to effectively represent their clients and how to have skills that can enable better negotiation with specific.

you know, the sales contract itself. So that transition could actually benefit wholesalers and realtors as well because people would be more knowledgeable as a whole.

Joette Trinh (11:53)
I completely agree. There have been many instances where a wholesaler calls me and says, can you review my contract? And they send me the contract and it’s not a board, state board contract here. And I’m like, where’d you get this? And well, I found it online. I found it from some guru online for free. Can I use this? And like, just as you’ve said, if you present that to another realtor or another attorney, Connecticut is an attorney state as is Massachusetts. So attorneys are involved in the closing rather than

You know, just title companies like in Texas, if you bring some online contract you found for free to me, and it doesn’t have the standard language, the standard provisions, it’s going to get flagged. So same thing with the realtor.

Dylan Silver (12:35)
And to follow up on that, one of the things that I noticed, again, in Texas, is there’s this almost animosity, maybe this is everywhere, between realtors and wholesalers. And so I remember being in real estate school. I loved the real estate school that I went to in Fort Worth. And they were saying, hey, if anyone comes to you with a cash offer or says, like, creative, you know, run. And I was thinking, like, wait a minute, that’s been me this whole time. Should I raise my hand right now? Like, what’s going on here?

And I began to see kind of peeling back the layers of the onion more and more of this, that there is this kind of conflict because maybe an agent had an offer come to them from a wholesaler who didn’t have an end buyer lined up and couldn’t transact. And now the agent looks ⁓ silly because they have this contract that they got tied up and it’s not moving. What happens now? And so I think it does benefit everybody to at least understand the vernacular of the other one.

So, I mean, from my perspective, being educated makes sense on all sides, right? But when people are going from wholesale to brokerage, this presents another challenge, because now they’ve got to find a broker that’s gonna work with them. They’ve got to find a broker who’s going to allow them to do wholesale. Do you think that there’s going to be more movement in that arena where you’re gonna see more kind of investor savvy agents and brokers, or you think?

brokers are gonna push back and say, well, no, we gotta keep this wholesale thing over here.

Joette Trinh (14:09)
You know, I think the answer to that question is really about the temperament of the market that you’re in. So as I’ve stated in Connecticut, there is some licensing legislation that’s coming into play because there has been so much pushback from the realtor community and even other attorneys who are not familiar with the creative space that they don’t want these wholesalers coming in and locking up these deals and acting like a broker and receiving.

honestly, larger payouts than a realtor typically gets on a deal. And so I think that here where I am, there is animosity because realtors who do go to school and who do pay to get licensed feel like they’re kind of being pushed out. And I think that that’s where the licensing is coming into play in the registration. I know that in other states, maybe in Texas,

Obviously, it’s a much bigger state. There’s much more opportunity. So maybe you’re not seeing that as much as I am in Connecticut, which I think there’s probably, know, 10 Connecticut’s could probably fit inside of Texas, right? So there’s more opportunity there than there is here.

I just think that it really depends on the market and the opportunities that that exists there.

Dylan Silver (16:01)
You mentioned the market specifically when is a good time for someone to be a wholesaler versus a traditional agent is you mentioned market dependency. What would make a good market for wholesale.

Joette Trinh (16:15)
Well, right now, especially where the interest rates are higher and I’m seeing more and more off market deals happen because the, especially where I am Connecticut is one of the hotter markets right now and where there is low inventory, high interest rates. I think that that’s a really good place for investors to be using more creative financing strategies like wholesaling because

Unfortunately, know, sellers don’t always want to use a realtor. They don’t want to pay that commission. And if also that means in a wholesale deal, it’s typically as is you as a seller and not having to make repairs, you’re selling your home in an as is condition. And I think in the type of market that’s going on right now in the Northeast, that’s very attractive to sellers.

Dylan Silver (17:04)
I’ve seen more wholesale deals break down at the closing table than I have seen traditional deals break down. And I think it’s because of a lot of these reasons. There may be a double closing, there may be additional paperwork that the wholesaler puts in at the closing, just kind of ways that you could be a little bit more crafty that probably wouldn’t fly in the traditional space. How you see deals breaking down.

Joette Trinh (17:11)
Mm-hmm.

Mm-hmm.

Dylan Silver (17:29)
as someone who’s worked with investors and wholesalers at the closing table.

Joette Trinh (17:35)
The number one way that I see deals fall apart in wholesaling is when the wholesalers are not upfront and honest about what they’re doing. If they’re not disclosing to their seller that, hey, I’m offering you one price, my intent is to find you another buyer at a higher price and make the difference. That’s where the deal falls apart when they maybe disingenuously

represent to the seller that the wholesaler is the one that’s purchasing the property and that there’s no other third party involved.

And when that happens, obviously the seller feels slighted when the deed gets slid across the table and it’s a higher price than what they were told they were gonna make, or maybe they’re paying taxes on a different price. Or even if they see a ⁓ line item on the HUD or the settlement statement that says ABC wholesalers making 10, 15, 100 grand more than the sales price.

then the seller kind of feels like, wait a second, what’s going on? How come I didn’t know about this? And so with the investors that I work with, I always say, be honest upfront because you don’t want your attorney or other parties investing time and money into the deal only to have it fall apart at the end. Now everyone’s time is wasted and there’s hard feelings all around.

Dylan Silver (18:47)
Are Connecticut and Massachusetts states where people get the HUD in advance or are they getting it the day of closing?

Joette Trinh (18:55)
Typically, it’s before. The attorney typically provides a settlement statement in advance so that the seller can approve the numbers. And if the end buyer is using cash, then they get their settlement statement from the attorney. But if they’re closing with a traditional loan or some other hard money loan on the end, then their lender is providing them the closing disclosure.

Dylan Silver (19:15)
It’s really interesting how I’ve seen these things play out just like you mentioned. Someone can see something right at closing and then even if they were promised one amount and they’re getting that amount, simply to spite the other person saying, hey, this wasn’t disclosed to me. I’m not agreeing to this. It’s a matter of fairness is what it comes down to. And so that’s how these deals do fall apart. One of the…

ways that I’ve seen this be tricky for some people is they’re not exactly sure how to navigate those conversations. As a realtor, we’re just taught disclose, disclose, disclose. So that’s what’s on the forefront when I’m talking to sellers. What feedback would you have for wholesalers when they are having these initial conversations with sellers?

Joette Trinh (20:02)
I think that the wholesaler needs to disclose to the seller that they’re in a business. This is a business. I’m not bringing a buyer to the table for free for you. And just like a realtor would charge a commission, I’m charging a fee, not a commission, because you can’t call it that, but I’m charging a fee. This is a business for me. And there’s other advantages of working with me. And those are, and you could list those out, you know, as is sale, quick close.

no inspections or if that’s the case and list out all the advantages of working with a wholesaler. But I think it’s that honesty piece is very important to go back to what you were saying earlier. I’ve seen deals come to the closing table and when the seller, the wholesaler wasn’t honest with the seller and the seller saw the higher price, they held their, the wholesalers feet to the fire and they said, I’m not selling this house unless you give me X percentage more.

or 10,000 more or 20,000 more because I see you’re making this much money and you didn’t tell me about it it’s not fair. So unless you give me X dollars more, I’m not closing. And I’ve seen that happen. And you never want as an investor, obviously that cuts into your profit. So it just makes more sense to be honest from the get.

Dylan Silver (21:17)
Bonus question here for you. Do you have a deal that sticks out where you said, you know, this is really something memorable, whether it was working with an investor or a wholesaler, something that really was either a bottleneck or just changed your perspective on the space entirely.

Joette Trinh (21:35)
It was the one that I just talked about where the seller held the wholesaler’s feet to the fire. So in that particular transaction, did, my investor did a novation. So he got the property under contract for a certain price. He renovated the property and then he sold, he put the house back on the market, on the MLS and got a much higher sales price. And the agreement between the seller

and him was that he she would get this price and he would make everything in between. Well, that seller refused to sign a power of attorney in favor of the investor. So when it came time to sign the deed and all the sale docs, the seller saw the higher price that the investor was getting. And she did exactly what I just said. She said, I’m not selling you this house unless you pay me an additional twenty thousand dollars above and beyond the contract.

that we’ve already agreed upon. And he had to do it because he would have lost all the profit. And so one of the mistakes, going back to the very first question that you asked me, one of the mistakes I see is not having a power of attorney that would allow the investor to sign the deed and all other documents on behalf of the seller at closing. Now you’re still legally required as the investor to fulfill your requirements on the first contract and pay the seller everything you said they would.

But then the second contract, which I do in my office, I do two separate contracts when it comes to innovation, is that the investor can make everything beyond and above the initial purchase price. And in this deal, that wasn’t the case. There was no POA. The seller saw the higher price and said, I’m not closing unless you give me 20 grand more. And that’s what the investor did.

Dylan Silver (23:18)
Wow, that’ll definitely change things for sure. You’re either gonna put them into the deal or you’re not gonna be able to sell the property. mean, that’s gonna put the investor’s feet to the fire for sure. We are coming up on time here, Joann. Any new projects that you’re working on and then what’s the best way for folks to reach out to you?

Joette Trinh (23:38)
Well, we’re always, my husband and I are always working on new projects. As you stated before, I am an investor, so we’re always flipping and buying rentals. And we just, that’s kind of an ongoing process along with running the firm. The best way to get ahold of me is through email. If anyone wants to go to my website, which is www.trinh.law. I’m also on Facebook, Instagram, TikTok, LinkedIn. Find me and shoot me an email. I’d be happy to help.