What if You Don’t Check an Assignability Option?
I guess I have explained for 15 years to anyone who would listen about the assignability of a contract. My statement has been very simple, “If a contract does not specify it is not assignable, it is assignable.” I have claimed that this applies to any legal and binding contract – not just real estate contracts.
This concept was further supported by a Youtube video I saw where the AG of Ohio was interviewed about the legality of investors selling properties without being licensed. When she was asked about assignability she said almost the identical words I used. But let’s get to the real everyday world of dealing with this issue.
Let’s first talk about why it even matters. There are three types of real estate contract assignment. In this case the investor “B” would be the Assignor and the “C” buyer would be the Assignee.
1. Buyer may assign the contract but not be held liable for what the Assignee does or doesn’t do with regard to the terms of the contract.
2. Buyer may assign the contract but he will be held liable for what the Assignee does or doesn’t do with regard to the terms of the contract.
3. Contract may not be assigned…
When an investor deals with a seller directly, the issue of assignability seldom, if ever, comes up. However, when dealing with listing agents, it comes up the vast majority of the time. It is my belief that listing agents believe that if a contract is assignable the chances of closing are greatly diminished so they immediately check the “may not assign” option on the contract.
In reality, if the buyer was allowed to assign the contract it is far more likely that the property would be resold to another investor or rehabber and everyone would be paid. More often than not, the fact is the buyer can’t resell the property in time with any profit so he defaults on the contract which results in everyone losing.
We have had feedback from agents, brokers and attorneys who say this thesis of assignability that I set forth is hog wash, it invalidates the contract if no option is checked and various dastardly things will happen to the investor buyer if the contract doesn’t stipulate whether the contract is assignable.
I was with my attorney yesterday and he very excitedly brought up this exact subject because he went to the extent to search the Florida Statutes to determine if in fact this statement was urban legion, hearsay or simply a fabricated statement.
He found that in an appeal to the Florida State Supreme Court, the Court’s opinion was “In general, contracts are assignable unless forbidden by the terms of the contract, or unless the assignment would violate some rule of public policy or statute, or unless the terms of the contract are such as to show reliance on the personal credit of the purchaser.”
What was even more interesting with this case was the result of an investor trying to add and use the term “and, or assigns” into the purchase contract and the Court went on to invalidate the contract for this reason. Remember this when Guru’s are telling you just to use these words to make your contract assignable. When this doesn’t work is when you need it the most and most of the time it may not matter but what if it happens and you lose the deal and attorney’s fees besides?
What is much more powerful and legal is to use language in the Addenda Section of your contract that stipulates your ability to use the end-buyers funds to fund your deal at closing. This statement will likely create a firestorm of comments but just remember whatever your feeling is about this; it is being done nationwide legally thousands of times a month.
Remember, the above information is for educational purposes only and not intended as legal advice, always consult the advice of an attorney when doing contracts in real estate. When someone tells you it can’t be done ask them how they know that and if you could see the Statute that says that. Then have your attorney check what the Supreme Court in your State ruled rather than assuming an archaic Statute is still legal and binding and that people run around quoting. As to why closing agents won’t cooperate on complicated closings it is more often the title insurer or the closing agent’s comfort level rather than a specific law or regulation.
Just be careful out there….
I wish you limitless success,