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Selling homes without a license is a 3rd degree felony

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Dennis Marshall

Real Estate Investor from Lutz, Florida

Jul 18 '11, 07:44 AM


I recently got a letter in the mail from the Florida Department of Business & Professional Regulation.

It stated that I has committed a 3rd degree felony because properties i had listed on sites like Hotpads & zillow were never in my name.

What happened was I was marketing the home for another investor and like most investors, only bring out option contracts once a buyer is found..

Well apparently an agent saw one of his properties and reported.

Now I was not worried about it at first after getting some not so good advise but then I talked to some people that went through this same ordeal and they were like you need to call this guy asap..

This was after I got an email saying my case was going to the state attorney... Turned out that they just wanted to warn me about what I was doing but I got off lucky...

This crime is punishable up to 5 years and a fine of 5000.

I'm doing this to get some feedback from other investors that went through the same thing and also let the newbies know that they cant just go listing other investors properties like crazy on public websites.

What are your thoughts? EVer got one of those letters in the mail?



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Jul 18 '11, 11:12 AM
2 votes


In my opinion, "wholesaling" and "bird-dogging" are unlicensed brokering. You're putting a buyer and a seller together and collecting some cash. That sure sounds like brokering to me. Most states require a real estate license to do that activity.

Wholesalers perform various actions, such as putting a property under contract and then assigning the contract, that are specifically intended to get around the legal requirement for a license. By becoming a principle in the transaction (i.e., you have a contract to purchase), its now, in some sense, your property to sell.

However, you say "was marketing the home for another investor and like most investors, only bring out option contracts once a buyer is found." Uh, no, that's not like "most investors". You personally have zero claim on this property because you aren't party to any contract. Frankly, it sounds like this other investor didn't have anything, either. Perhaps I misunderstand, and the other investor did in fact have a contract. But if that's the case, the agent shouldn't have been surprised to see his listing being marketed.



Jon Holdman, Flying Phoenix LLC


J Scott Verified Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Jul 18 '11, 11:13 AM
7 votes


A good rule of thumb is that unless you own or control a property with marketable title (i.e., have a contract on it), you shouldn't be trying to sell it without a license... :D



Medium_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Corry Taie

Real Estate Investor from Menifee, California

Jul 18 '11, 02:24 PM


Business & Professions code 10131. Not a good idea to market without control or right to sell if you dont have a license.



Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Jul 18 '11, 02:38 PM


Originally posted by Jon Holdman:

Wholesalers perform various actions, such as putting a property under contract and then assigning the contract, that are specifically intended to get around the legal requirement for a license. By becoming a principle in the transaction (i.e., you have a contract to purchase), its now, in some sense, your property to sell.

In Tennessee, assigning contracts has been made illegal and I would imagine that may be the case coming soon for other states. It was pushed hard by the Realtor lobby.

Both you and J. Scott referenced that having an interest in the property, such as under contract, may make it ok to market and try to sell the property. Is that the case? Do they ever look at intent, such as intent to re-sell as a factor in if it is legal or not? I know many wholesalers have no intent to ever close properties themselves and instead are looking to sell or cancel.



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Jul 18 '11, 02:57 PM


Chris, I honestly don't know how this would go down should the state choose to actively pursue a case against a wholesaler. I know "intent" does matter in a lot of legal and accounting situations. I think we will see more and more of a push to close the loopholes wholesalers use to do deals. We already see this with banks imposing seasoning requirements and deed restrictions limiting the ability to resell quickly. And with laws like the one you mention.

I think its tough to make an argument that the intention of wholesaling is anything different than brokering. You're trying to find a seller and a buyer, put them together, and collect a fee. If that's what you want to do, I really don't get why you wouldn't just get a license and start working within the system instead of finding ways to get around the rules.



Jon Holdman, Flying Phoenix LLC


Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Jul 18 '11, 03:26 PM
1 vote


I think that is really good advice for Dennis and probably most beginning investors who want to start wholesaling. Not to mention, in most states getting your RE license is a lot less expensive and much more intensive to the details of your area than spending money on DIY home study courses and you come out he back side with a license to practice.



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Joel Owens Verified Moderator

Commercial Real Estate Broker from Canton, Georgia

Jul 18 '11, 03:35 PM
1 vote


Do you have the Tennessee statutes stating this??

I guess it depends on the contexts of "assigning".Here the same buyer might just be assigning from personal into their corporate name.

Assignments in a contract are legal here.We even have a box where a seller can give the buyer the right to assign or not and under what circumstances.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


J Scott Verified Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Jul 18 '11, 05:04 PM
4 votes


I'm also confused about what it means to be illegal to assign a contract? Is this just real estate contracts? Or all contracts?

To make it illegal for someone to assign their interest in a contract seems to overstep reasonable bounds of government...I can see a lot of situations where I couldn't imagine it not being legal to assign a contract...



Medium_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Will Barnard Verified Moderator Donor

Real Estate Investor from Santa Clarita, California

Jul 18 '11, 05:11 PM
1 vote


In Tennessee, assigning contracts has been made illegal and I would imagine that may be the case coming soon for other states. It was pushed hard by the Realtor lobby.
Please post the new statute. I am not an attorney, however, I believe all states have implied rules that any contract is assignable unless noted otherwise and if it is, it is not illegal, just not allowed per the contract by the seller.

If you are mixing up wholesaling with "assigning" than that is one thing, but "assigning" a contract can not be made to be illegal as far as I know.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com - For all Southern California House Flippers, Agents, and Wholesalers


Manny Cirino

Rehabber from Lakeland, Florida

Jul 18 '11, 06:52 PM


Hi to all,
I am a wholesaler in Florida and our purchase and sale agreements have a box the seller can check with the option to assign or not as well. Are laws state that the contract can only be assigned if the seller signs off on the assignment of contact. In other words all intentions to assign your contract must be made know to the seller. If the property sells great if not than the wholesaler just lost their deposit. And sellers are not dumb by the way, I rarely get away with $100 earnest deposit it's typically $1,000 minimum.



James Hamling

Rehabber from Twin City metro area& Central MN markets, Minnesota

Jul 18 '11, 08:35 PM


I kind of boil all this back to wallstreet, land-o-contract swaps.

To have a contract, not exercise on it, but sell that contract, is options trading. To make one illegal encroaches on the other. I see now way possible to make it illegal because a contract to own something is of value in itself.

And assigning is just a different means of conveying a valuable interest in something from one person to another, GIVEN it does not violate anything in that which is being assigned.

AND before anyone says "due on sale clause", the due on sale clause clearly states "MAY", may people may, that means it can be done BUT the bank could XYZ, IF they choose too.

Wholesaling with no equitable interest in anything is clear cut brokering.



Kevin Priester

Rehabber from Lake Mary, Florida

Jul 19 '11, 03:24 AM
1 vote


We as unlicensed investors(wholesalers) walk and operate in the gray area everyday. From Bandit signs to wholesaling contracts...is all bending the law..and could be interpreted as illegal.

If we want to use a property that we don't own, or don't have under contract. It will save us all a lot of hassle from upset realtors and property owners if you just ask permission to market the property before you just go and start marketing...

I too would be upset if Joe just was marketing my property without my permission....These are tactics that give the business a black eye. (IMO)



Manny Cirino

Rehabber from Lakeland, Florida

Jul 19 '11, 02:19 PM
3 votes


I think new wholesalers miss the real concept of the business. We like to call are selves real estate investors but in all actuality we are really bird dogs inspiring to be actual investors(in most cases not all). When it comes to marketing your deals we should not be marketing on websites without full ownership of the property.

This is the reason why the gurus preach so much about building a buyer list, so we could avoid public marketing. Although it is not in anyway unethical to sell any interest you have we still must operate carefully because there are many people, real estate agent especially. That do not understand or even want to try and understand the legal creativity of the business.



Robert Dobbs

Real Estate Investor from State of Florida, Florida

Jul 19 '11, 04:24 PM
4 votes


Hello Dennis!

You are very lucky you only received a warning from the State of Florida, phew!!!!

Not only could you have been accused of practicing real estate without a license, you could have also been charged with practicing law without a license.

Why?

Well, if you gave a homeowner advise as to how to sell their home via a proposed option to purchase agreement, vehicle, contract, etc. that, as you stated, "you would create the option after you found a buyer".

You cannot offer your services to create an option agreement, or for that matter any other form of contract, or even giving someone advise as what real estate contracts to consider, even if you were licensed as a Florida real estate agent.

That's practicing law!

A licensed Florida real estate agent must use only Florida approved Leases and Sales Contracts.

Being a so called "principle of the deal", via an assignment, option agreement and also being a licensed real estate agent that may, in addition to a "flip fee", a wholesale amount, an option release fee, some assignment fee, etc.;

if you intend to make a real estate commission too, just be careful.

My advise? Have an attorney, "review" all the contracts, agreements, assignment forms, options, etc. And if your attorney agrees that those forms, contracts, etc. are OK to use, have the lawyer write them for you. A good tip! Find a title agency in your area that is owned by an attorney, or has an "in-house attorney" working there. Or just find a real estate attorney that does closings. Agree to give him your title work for "the deal" and most will only charge you a nominal fee to "oversee" (re-write your paperwork).

So, take the advise that was given earlier.

Have "equitable interest" in a said property.

Wait a minute, have "marketable equitable interest" in a said property.

Well, you say "what's the difference"?

Not much, but an option, agreement, contract, etc. that states in writing, that you (the buyer, optionee, etc.) has the right to transfer, sell, assign his rights. And the seller will allow the buyer to show the said property to the buyer's (or optionee's) interested parties. (I would add that the seller understand that the buyer (or optionee), will have the right to hire a real estate agent and list the property on the MLS, etc.).

In addition to all of the above, I would have the seller sign a "Memorandum of Understanding" (which is a simple agreement that displays that equitable interest has been established between the seller and buyer (seller & optionee).

Good examples of various "memorandums" can be found on the Internet.

As a buyer (or optionee), I would then record the "memorandum", with the correct county or city.

That simple document will go a long way, combined with your other docs (contract, option, assignment agreements, etc.) to demonstrate to the State of Florida, that you indeed have a "right of marketability" (long with your "equitable interest").

Dennis, I would think very long and hard to what I (and others) have posted here.

And if these things are not quite clear to you, then you will need to learn them.

Know what "a principle" of a deal is plus having "equitable interest" means in your State, and what rights you have (or don't have).

Again I cannot stress this enough, if you are unclear about what to do, get professional help.

Just "some added steps" to what you have done, can protect your interest in a deal, and should protect you (with the State of Florida).

Please note I'm just a fellow investor giving you "my 2 cents" on this thread, and suggest that you obtain legal advise from a Florida Real Estate Attorney, Title companies and professional marketing opinions from licensed agents...

Good luck with your deals Dennis!

rd


Edited Jul 19 2011, 16:33 by Robert Dobbs


Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Jul 19 '11, 09:01 PM


Originally posted by Will Barnard:
In Tennessee, assigning contracts has been made illegal and I would imagine that may be the case coming soon for other states. It was pushed hard by the Realtor lobby.
Please post the new statute. I am not an attorney, however, I believe all states have implied rules that any contract is assignable unless noted otherwise and if it is, it is not illegal, just not allowed per the contract by the seller.

If you are mixing up wholesaling with "assigning" than that is one thing, but "assigning" a contract can not be made to be illegal as far as I know.

Hey Will and J Scott -

I had to go back and dig this up because it had been a while and I will have the actual code from the Tennessee Real Estate Commission tomorrow. Their take on this was, that if you enter into a contract and then remove yourself from the contract by assigning your interest in the property, you are in essence acting as a broker. IF there is a complaint, at best they would find you operating in a grey area and give you a warning and if a case were brought against you by the TRC and you were found to be operating without a license you would face treble damages. The crazy thing is that if you stay in the contract and do a double close, they have no problem.

To use the word illegal was a little strong on my part. It falls under the rules of the TRC which consists of 6 people (?) 3 RE attorneys and several other appointed members from the RE business community so they have the authority to make the rules of conduct in Tennessee.

It all boils down to the points made earlier, that unless you are closing the contracts yourself and then selling them, you COULD be acting as a broker and face some scrutiny.



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Joel Owens Verified Moderator

Commercial Real Estate Broker from Canton, Georgia

Jul 19 '11, 10:57 PM
1 vote


Chris generally there are times when the real estate commission will say NO to many things.

Does not mean they know the answer they just always say NO when they are not sure to CYA.

If something did go to court the judge will look at the law.Just like a contract if something is found not to be clear or defined further it would be difficult to say a law was broken.

There are many laws or statutes that constantly need revisions for new situations that arise that are not addressed clearly by how the law is written.

There might be times that you USE an assignment in a certain way that me be illegal but the act of assigning itself isn't illegal.

That would be my take on it but I am not an attorney.The problem is even if you had 2 to 3 attorneys read the same law they might not all come to the same conclusion.

While we must follow the law people also can't walk on eggshells there whole life or nothing would ever get done.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Bill Walston

Real Estate Investor from Northeast TN, Tennessee

Jul 20 '11, 07:26 AM
2 votes


Originally posted by Chris Clothier:
. . I will have the actual code from the Tennessee Real Estate Commission tomorrow. Their take on this was, that if you enter into a contract and then remove yourself from the contract by assigning your interest in the property, you are in essence acting as a broker.

Hey Chris - How recent is this law or statute (or interpretation) by the TRC? I find this opinion quite interesting, especially in light of this quote from the TAR (TN Association of Realtors) Digest website:

"In Tennessee, real estate contracts are generally assignable unless the contract specifically states that it is not. Therefore, your buyer may be able to assign the purchase and sale agreement . . ."

[SOURCE: TAR's Legal & Ethics Hot Line Attorneys]



Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Jul 20 '11, 08:11 AM


Hey Bill -

It was 2008 and I found the information in talking to JP Moses of REITips.com. Here is the link he posted on the topic.

* Remember, you and I (JP as well) are talking about the same thing. What you found is located on the Hot Line for licensed realtors. The assumption made in the quote you posted is that the person is an agent and that "your buyer" may be able to assign the contract. You are acting as an agent with a license. The TN Commission - and this is the same problem that Dennis Marshall is running up against - says that assigning a contract when you are not a licensed agent is practicing real estate (brokering the deal) without a license.

As I said, the world illegal was too strong. It is against the Real Estate code to practice real estate without a license and they believe that assigning a contract or connecting a seller and a buyer is the same as practicing real estate so you need to have a license to do it.

http://www.youtube.com/watch?v=ZMdEoRVAA5U

This is JP's video post on the topic.



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Bill Walston

Real Estate Investor from Northeast TN, Tennessee

Jul 20 '11, 11:17 PM
3 votes


Originally posted by Chris Clothier:
Hey Bill -

It was 2008 and I found the information in talking to JP Moses of REITips.com. Here is the link he posted on the topic.

* Remember, you and I (JP as well) are talking about the same thing. What you found is located on the Hot Line for licensed realtors. The assumption made in the quote you posted is that the person is an agent and that "your buyer" may be able to assign the contract. You are acting as an agent with a license. The TN Commission - and this is the same problem that Dennis Marshall is running up against - says that assigning a contract when you are not a licensed agent is practicing real estate (brokering the deal) without a license.

As I said, the world illegal was too strong. It is against the Real Estate code to practice real estate without a license and they believe that assigning a contract or connecting a seller and a buyer is the same as practicing real estate so you need to have a license to do it.

http://www.youtube.com/watch?v=ZMdEoRVAA5U

This is JP's video post on the topic.


Hey Chris-

You're right, what I found is located on the Hot Line for licensed realtors. I think the confusion comes when we start playing "who's on first." You are assuming that I am acting as an agent without a license. However in this scenario I am not the agent - I am the buyer who has "the right to assign." I have a signed contract (Purchase and Sales Agreement). Accordingly, as "the buyer," I am well within my rights to assign that contract.

Thanks too, for the link to jp's video. I recall seeing that back when jp put it up on YouTube. I also recall disagreeing with his premise as strongly then as I do now. Notice that he says that the commission considers this a gray area. Notice too, that he says if a complaint was filed the commission would probably find that the assignor acted as a licensed agent. This is the kind of "coulda, shoulda, woulda" that I find too vague to be a definitive ruling. I have extensively read TN Code 65-13 and cannot find where the assignment of a contract constitutes the unlicensed practice of real estate.

Further, not being a licensed agent means that I do not fall under the authority of the Tennessee Real Estate Commission. They may or may not determine that I am practicing real estate without a license. That would be only their interpretation. A definitive ruling would have to come from a court of law - at least that is the opinion of my real estate attorney.

Anyway, that is my story and I'm sticking to it - at least until someone shows me a statute, rule, regulation or court case that proves otherwise. :-)



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