The fee assignment clause in this dispo JV agreement bothers me

Someone sent me their standard JV agreement for a dispo split and asked what I thought. I don't do these deals, I just read paperwork, and one clause is doing something odd.

The setup: wholesaler contracts the property, dispo partner brings the buyer, fee split 60/40 to the wholesaler. Fine so far.

The clause says the assignment fee is paid at closing to the wholesaler, who then remits the dispo partner's share within 10 business days. So the dispo partner does the work, the money lands entirely in the other party's account, and then they wait.

There is no provision for what happens if the wholesaler doesn't remit. No interest, no escrow, no right to be named on the settlement statement. The dispo partner is an unsecured creditor of a person they met at a meetup.

Alternative I've seen described is both parties named on the closing statement so title disburses to each directly. That seems obviously better for the dispo side, but I don't know why the version I'm holding is apparently common.

Specific question: is direct disbursement to two parties something title companies routinely do, or is the 10 day remit clause common because the clean version isn't actually available?

6 replies

5nicole_adeyemiPassivePRO5

On the land side I've had title disburse to multiple payees plenty of times, so it's not exotic in principle. What it needs is instruction from the party entitled to the funds and paperwork the closer will accept. Some closers want the assignment itself to name the split, some want a separate direction to disburse. Whether they'll do it at all varies by company and by state practice.

My guess on why the 10 day version exists is that it's easier to sign than to arrange. Nobody wants to explain a split to a closer at 4pm the day before closing.

1sonia_alvarez Get yoursPRO6

The 10 day window is doing more work than it looks like. It's not just credit risk, it also means the wholesaler controls the accounting. If the fee comes in at 9k instead of the 12k everyone expected because the buyer negotiated, the dispo partner finds out on day 10 with no way to verify. I'd want a copy of the settlement statement as a delivery condition, not a courtesy.

1marcus_hale41CG4A

@tender that's the part I'd fix first. Verification beats remedy. A right to sue for 4k is worth almost nothing in practice, the filing and the time eat it. Seeing the number at closing costs nothing.

@fathom I'd also ask what the agreement says about who the buyer belongs to afterward. In a dispo split the buyer relationship is the whole asset on your side. If the wholesaler now has that name and the agreement is silent, you've handed over your inventory of buyers one deal at a time. Some of these JVs have a clause on that, most of the ones I've seen don't.

-1jordan_ellis2ActivePRO6

The buyer name is the thing being given away, and that hadn't occurred to me. That reframes the whole split for me. The fee is a one time payment and the buyer list is recurring.

3devon_pierce Get yoursPRO5

@canton the buyer poaching thing comes up constantly in the groups I lurk in. The practical protection people describe is not contractual, it's that you keep the buyer's contact and run communication through yourself rather than introducing them directly. Which is awkward and slows the deal down, and speed is supposedly the whole point of this model.

@fathom for what it's worth I'd sign the 10 day version with someone I'd done four deals with and not with someone I met once. The clause isn't the protection, the track record is. Getting a lawyer in your state to look at the disbursement language before the first one is still cheaper than the deal you lose.

The fee assignment clause in this dispo JV agreement bothers me

6 replies