Assignment of contract
An assignment of contract transfers a buyer's rights under a purchase agreement to another party, who then closes in their place.
It is the mechanism wholesaling depends on, and it is an ordinary contractual device used well beyond wholesaling.
What it requires#
The contract must permit it.
Many standard purchase agreements restrict assignment or require the seller's consent. The usual approach is naming the buyer as "Buyer and/or assigns", which signals the intention at the outset.
A seller may decline that language, and frequently should ask why it is there.
Assignment is not novation#
The distinction that decides who is on the hook.
An assignment transfers the assignor's rights. Depending on the terms and the governing law, it may leave the assignor with obligations under the original contract unless the seller releases them.
A novation replaces the original party entirely, extinguishing their obligations. It requires the seller's agreement, because the seller is accepting a different counterparty.
An assignor who assumed they had walked away, and who is later pursued when the assignee fails to close, has learned this distinction expensively.
Documenting it#
The assignment should be in writing and should state the fee, when it is payable, and what happens if the assignee fails to close.
That last term matters most and is most often omitted. If the assignee defaults, who bears the consequence with the seller — and does the earnest money follow the contract?
The fee at closing#
Usually paid by the end buyer at closing and shown on the settlement statement.
Transparency here is worth more than it costs. An assignment fee visible on the closing documents is an ordinary transaction cost. The same money moved separately, around a closing nobody was told about, invites exactly the scrutiny the parties were trying to avoid.
Where sellers should pay attention#
A contract with an assignment clause and a long inspection period is, in substance, an option. The buyer can walk, and in the meantime the property is off the market.
That may be perfectly acceptable — it is what the seller agreed to. It should be an informed choice rather than a discovery.
Reasonable protections: a meaningful earnest money deposit, a short inspection period, and a direct question about whether the buyer intends to close or assign.
In Minnesota distressed property#
Where the seller is a homeowner in foreclosure, an arrangement structured as a contract and assignment may fall within Minn. Stat. ch. 325N, which regulates foreclosure consultants and equity purchasers and imposes cancellation rights that cannot be waived.
Anyone operating in that space should be getting advice on where the boundary sits, and any homeowner approached should speak to a HUD-approved housing counsellor before signing anything.