Title Tip: Do Your Homework on Assigning Contracts

Assignment of a real estate contract is looked upon with suspicion by lots of folks. While it is not legal in all states, under Texas law, contracts are assignable unless there is a specific clause in the contract that prohibits it.

There are some sellers who become upset when they discover that the person buying their property is not really the person buying their property. That their buyer has sold the right to purchase the home to someone else at a higher price.

Assignment of a contract is when someone enters into a written agreement to purchase a property from a seller and then that person assigns their interest to someone else. Typically, this is done when the original purchaser is a wholesaler. We will call them the Assignor. They find a property, put the property under contract and then find someone else (an Assignee) to whom they sell the contract for a fee.

The Assignor hands off the contract’s benefits to the Assignee while the property is still under contract. They may do this without the consent of the seller. But … there’s always a but.

While the Assignor may sell his or her rights in the contract to an Assignee, it does not relieve the Assignor of his or her duties and obligations. The Assignor still has responsibilities to the seller under the terms of the contract. If the Assignee doesn’t perform under the contract, then the Assignor is in default. The Assignor usually maintains obligations under the contract. This is where you contact a real estate attorney if you have an issue.

Some people view the business of a real estate wholesaler as shady. They don’t like the idea of someone ‘flipping’ the contract for a higher price. However, wholesalers earn their living by legitimately finding bargains and reselling them at a profit. They usually target rundown or distressed properties. Then they find buyers who may be looking to remodel or flip the property. Like anyone, they do it to earn a profit.

Maybe the disdain is because the wholesaler doesn’t actually purchase the home. They’re a middleman. Folks who oppose the idea of assigning a contract feel that the purchaser should only enter into a contract to purchase a property if they honestly intent to purchase the property.

Since anyone being paid in the transaction must be disclosed on the closing statement, the seller can see that there is another buyer paying more for the property. That doesn’t usually happen until closing time. Then money and the property changes hands. The buyer is the Assignee. The Assignor never takes title or possession of the property.

The Buyer/Assignee may then rehab the property and resell it. Like a board game, the property then passes to someone else.

The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.

Lydia Blair (formerly Lydia Player) was a successful Realtor for 10 years before jumping to the title side of the business in 2015. Prior to selling real estate, she bought, remodeled and sold homes (before house flipping was an expression). She’s been through the real estate closing process countless times as either a buyer, a seller, a Realtor, and an Escrow Officer. As an Escrow Officer for Allegiance Title at Preston Center, she likes solving problems and cutting through red tape. The most fun part of her job is handing people keys or a check.