New Texas Senate Rulings: Wholesaling, Assignments, Double Closes

Ryan Detig

Nederland, TX · Member since 2016 · 109 posts · 92 votes

9y

@Aaron Rowzee @James Gallen @Alex Saleeby Something to look into

Thanks for the post @Gaylene Rogers lonergan

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

9y

Many states are cracking down on unlicensed brokering, it has gotten out of hand in a lot of areas.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

this should be enacted in all states to level the playing field and protect the sellers who get duped into thinking they have a cash buyer when they dont really have one..

I have no personal bias with full disclosure of course.. and of course wholesalers probably need to figure out how to buy and hold their inventory ... then they can make what ever they want without these disclosures..

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Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

9y

If I am reading this correctly, Despite all the naysayers that say "wholesaling is illegal" this seems to codify that wholesaling is definitely legal as long as one discloses to the buyer that they are buying a contract. Again if I am understanding the law, this is a very positive thing for both buyers, wholesaler and sellers. It also support hundreds of years of contract law that some bureaucrats and realtor lobbying groups are trying to overturn.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Ned Carey agreed.. however it runs straight into the face of how guru's teach wholesaling.

what I see this doing is causing blow back in profitability to the wholesaler if full disclosure has to be made.

And I wonder what it does to the direct marketing pieces folks send out IE the one's that claim they are cash buyers when in fact they are not they are just assignors..

will be interesting to follow it.. and of course will be interesting to see if the state actually enforce's it.

the definition of real estate brokerage as described above is virtually verbatim in every state no different its why there is a real estate industry to begin with.

Maybe this will really open up the modified transactional funding business.. IE if your want to operate this way.

you close with short term transactional funding IE 30 to 45 day funding not same day. Once you close and actually own it then you send it out to your list or put it on your website since you are not vested owner..

this way you don't have to disclose mark up ...

I think for sure for if there is going to be full disclosure there will be blow back from buyers and sellers on what wholesalers try to make if its substantially above what a standard rate commish is ... it may lead folks to just hire brokers instead and save money ..

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Ned Carey the other thing I see this doing is if you have this full disclosure.. is I can see a lot of folks circumventing the wholesalers... Once the buyers and sellers realize how much they are leaving on the table.. but we will see

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Jeff Petsche

Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes

9y

@Jay Hinrichs @

I don't live in Texas and I'm not in the transactional wholesale game. However, as an ethical real estate Broker here in CA, the wholesale business here is CRAZY-CRAZY (as I'm sure it is in other states) with a TON of Daisy Chain types of transactions going on, and from what I can tell, NO DISCLOSURE like what is mentioned in the original post is happening.

I'm my humble, professional and ethical opinion as a licensed Broker bound by the California board of ethics, I feel FULL DISCLOSURE as to your INTENT with a transaction is VITAL and could eliminate the muddy water that takes place with wholesaling. In fact, IF I were to get into a wholesale opportunity, I believe because I am a licensed Realtor/Broker in CA, I would be required to disclose that my sole interest in the property is "equitable", I'm not the buyer and my INTENT is to assign the contract to an end buyer, and disclose the profit I would make above and beyond the original agreed upon price. At that point, if I was the seller, I would ask me, "Well why don't you just bring me the cash buyer at the higher price and just get paid a commission for said representation?". Truth is, that would be a 100% fair question to ask. You also have to disclose in the original RPA as to whether you INTEND or NOT INTEND to occupy the property.

Wholesaling is not illegal here in CA. In fact, there is an Assignment clause in the CA RPA (Residential Purchase Agreement) that requires you get consent from the seller in a separate written agreement to a specified assignee. It reads: Assignment: Buyer shall not assign all or any part of Buyer's interest in this Agreement without first having obtained the separate written consent of Seller to a specified assignee. Such consent shall not be unreasonably withheld. Any total or partial assignment shall not relieve Buyer or Buyer's obligations pursuant to this Agreement unless otherwise agreed in writing by Seller (C.A.R. Form AOAA).

The C.A.R. From (AOAA-Assignment of Agreement Addendum) outlines the details of Partial Assignment, Total Assignment, Assignee's Name, etc. and a section where you check a box stating that Seller has been advised that Buyer IS or IS NOT receiving monetary consideration from Assignee for the Assignment. It DOES NOT require you to put in an amount. (Not yet anyway!)

Since it's REQUIRED for the Seller to give written consent to a SPECIFIED ASSIGNEE, I have no clue how these DAISY CHAIN wholesale deals every fly unless each wholesaler is completing NEW AOAA (or legal version of) with the new Assignee, which in some cases is 3 to 4 deep before you get to the actual end buyer! To me I would RUN RUN RUN from Daisy Chain wholesale deals.

I know of a wholesaler in town who advertises his properties and specifically gives a disclaimer that he WILL NOT assignee to anybody other than the END BUYER. NO DAISY CHAIN wholesaling will be tolerated and/or considered.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Jeff Petsche there are long debates on BP about wholesaling and selling RE without a license. I know on the CA BRE website there is a tab to turn in those you suspect of unlicensed activities ...

AS you know on other threads my business is funding A and D all over the country.. I won't personally deal with a wholesaler in general.. I only deal personally with licensed professionals... but a lot of my deals I fund I will see some little wholesale fee on the hud... so my vendors are using them...

the reason this is so prevalent is the belief its easy quick money and the guru's sell the course's that tell the folks they can make a big money with NONE of there own so you get a lot of folks that have little wherewithal that give it a shot burn out rate is higher than burn out rate for agents.. and agents its about 50% based on my owning 3 brokerages over the years I suspect try and fail at wholesaling is closer to 90%...

I am with you anything that comes close to sniffing a daisy chain and i am out..

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Account Closed

Investor · Houston, TX · Member since 2017 · 45 posts · 31 votes

9y

@Shahriar Khan thought you might find this interesting

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Shahriar Khan

Investor · Houston, TX · Member since 2010 · 234 posts · 145 votes

9y

@Account Closed thanks .. I really dont see any issue with this ....following the rule is really "Disclaimer, Disclaimer and Disclaimer"

From selling/marketing (by wholeseller perspective), I think most of the wholesellers already follow this rule. All emails that i receive (as buyer) , they already add this verbiage in "Disclaimer Section" ... and i do it as well.

From buying perspective (as a wholseller) : Just simple add a line in provision 11 stating something like 'this contract may /may not be assigned to a 3rd party by buyer listed on this contract for a fee'

To make it dummy proof... seller should ask Title Company to draft a disclaimer for buyer to sign ...

Now stepping back out of this new....National Association of Realtor has over 1.5 million members where everyone makes money out of transaction ... they also lobby strategically (hint there is a reason why Zillow etc still cant kick HAR/MLS out of business) which is why startups are failing to disrupt the process (at least for now) and this is merely another try to regain market share which i doubt will hold true .....

On that note, it could also reduce competition for existing wholesellers ..... and i completely fail to understand why not everyone be a Realtor first and then wholesale with disclaimers. It should make negotiating easier :) If you cant beat them ... join them :)

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Pratik P.

Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes

9y

I double close all of my wholesale deals and have disclosures in both contracts that the property is being bought and resold for a profit. Also when I'm talking to sellers, I clearly tell them that I may resell immediately, do a little work and then resell, or completely remodel it. No one ever had an issues with that. Disclosures only help us!

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James Green

Wholesaler · Waldorf, MD · Member since 2015 · 459 posts · 245 votes

9y

@Pratik P. I do what you do, but I assign. The seller knows I'm not buying it for myself, but for my investors who will close on the property. I put in bold, underlined, & bigger font, that the property will be bought & resold for a HUGE PROFIT.

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John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

9y

If they SHOW the property are they brokering? They are in FL. Furthermore, FL tightened the statutes to read that those using contracts to circumvent licensing law are considered to be brokering.
Here is the FL statute..and it is not coming too late to deal with these frauds and scammers that broker without a license:

475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

Note it states they cannot advertise the property. I see some of these frauds and scammers email on the property stating "contact us for showings". BROKERING!

There are also the types that build websites claiming they bring buyers and sellers "together". BROKERING!

There are only two ways to legally "wholesale" in FL:
1. be licensed
2. own the property
I expect the state to start making changes due to the number of agents that "wholesale" rather than list and sell. These are blind transactions for sellers and they have no idea how much equity they are losing.

In FL, these unlicensed scammers and frauds have to hide in the shadows because they KNOW they are violating the law. Furthermore, if an agent sees illegal activity they are REQUIRED to report it.

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Shawn C.

Investor · Cedar Park, TX · Member since 2014 · 317 posts · 74 votes

9y

I live in Austin, TX and basically it comes down to disclose, disclose, disclose. I have always done this and have been totally transparent in my dealings. I also have the sellers sign documents stating they understand I am either going to buy this property and sell for profit or wholesale the contract to a end buyer for profit.

So for me there is really no change on how I do business. Now for people that are unethical, I think this will change their business drastically.

As far as enforcement, I think it will be handled on a case by case basis as the complaints roll in. The complaints will get faster investigation if the complainant(s) contact their state reps directly. They almost made wholesaling illegal in Texas but investors banded together and were able to come to a middil ground with state legislators.

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Guy Gimenez

Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes

9y

It only impacts the honest wholesalers, not the dishonest ones. Those who mislead homeowners will not change their behavior because those "investors" dont' follow the rules anyway. I only assign 1 to 2 properties per year...I choose to close and then retail the properties instead. Still lots of cash buyers who scan the MLS and those are my end buyers.

2 Reply

Erin Elam

Little Elm, TX · Member since 2014 · 356 posts · 47 votes

8y

Originally posted by @Gaylene Rogers lonergan:

How will the new Texas Senate rulings on Wholesaling, Assignments and Double Closes affect your real estate business?

If your real estate investor business includes wholesaling, assignments and double closes, you need to know how you will be impacted by Texas Senate Bill 2212 after September 1, 2017. Here’s what you need to know.

Perhaps you have been helping buyers who have experienced financial struggles, divorce, the need to relocate for business, or other matters by purchasing their properties below market value and “assigning” your purchase rights to another person. It’s done every day in Texas. Everyone wins.

Will you be able to continue using this and related real estate investment strategies?

The Bill

Texas Senate Bill 2212, which was enacted in the recent legislative session, effectively changes the way wholesale properties are to be advertised and sold. Specifically the bill amends section 1101 of the Texas Occupations Code to add a new Section 1101.0045 and adds a new Section 5.086 to the Texas Property Code. The new statute takes effect September 1, 2017.

New Section 1101.0045

“(a) A person may acquire an option or an interest in a contract to purchase real property and then sell or offer to sell the option or assign or offer to assign the contract without holding a license issued under this chapter IF THE PERSON:

“(1) Does not use the option or contract to purchase to engage in REAL ESTATE BROKERAGE; AND

“(2) Discloses the nature of the equitable interest to any potential buyer.

“(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest to a potential buyer IS ENGAGING IN REAL ESTATE BROKERAGE.”1

New Section 5.086 to Texas Property Code

“EQUITABLE INTEREST DISCLOSURE”

“Before entering into a contract, a person selling an option or assigning an interest in a contract to purchase real property must disclose to any potential buyer that the person is selling only an option or assigning an interest in a contract and that the person does not have legal title to the real property.”1

What is “Real Estate Brokerage”?

The Real Estate License Act that took effect June 1, 2003, defines what acts constitute “real estate brokerage”:

Specifically a “Broker” means a person who, in exchange for a commission or OTHER VALUABLE CONSIDERATION, or with the expectation of receiving a commission OR OTHER VALUABLE CONSIDERATION, performs for another person of the following acts:

(1) Sells, exchanges, purchases or leases real estate;

(2) Offers to sell, exchange, purchase or lease real estate;

(3) negotiates or attempts to negotiate the listing, sale exchange, purchase or lease of real estate;

(4) Lists or offers, attempts, or agrees to list real estate for sale, lease or exchange;

(5) Auctions or offers or offers, attempts or agrees to auction real estate;

(6) Deals in option on real estate, including a lease to purchase or buying, selling or offering to buy or sell options on real estate;

(7) Aids or offers or attempts to aid in locating or obtaining real estate for purchase or lease…2

What is the effect on wholesale (assignment) transactions?

1) Must disclose in any advertising to buyers that the wholesaler does not own legal title but only equitable title as buyer under a contract;

2) Should offer to sell only the contract, not the property for a designated Assignment Fee price;

3) Assignment Contracts will need to be amended to specify that the wholesaler is only offering an assignment fee for a set fee; and

4) A new disclosure probably should be added to the closing documents for a buyer to sign at closing acknowledging that they were advised that the wholesaler did not own the property and they were aware of the nature of their interest.

Possible Examples of Advertising Dos and Don’ts

“973 Smith Street for Sale - $100,000”

Constitutes real estate brokerage pursuant to the Occupations Code – Offering the underlying real estate for sale.

“Assignment contract for real property at 973 Smith. Assignment fee of $10,000 payable to XYZ Wholesaler”

Should comply with the new Property Code provision and does not constitute real estate brokerage as it does not market the underlying real estate.

Will this effect double close transactions?

Although not directly addressed by the new law, a wholesaler could have an issue on a double close transaction as well.

In particular the wholesaler would still would have to be careful in advertising a property that they do not own. Doing so could cause the advertising to fall within the definition of real estate brokerage.

One fix could be to just add in advertising:

“Under contract – offering 973 Smith for $100,000 subject to XYZ Wholesaler’s closing on the purchase”

Penalties for Noncompliance

Section 1101.758 Texas Occupations Code

(a) A Person commits an offense if the person acts as a broker or sale agent under this Chapter without holding a certificate.

(b) An offense under this Section is a Class A Misdemeanor.

This would be a Class A misdemeanor for EACH OFFENSE.

Multiple Class A Misdemeanors can result in a Felony Charge.

In addition, the Occupations Code provides for a private cause of action for violations such as receiving consideration as a result of acting as a broker. The aggrieved person may receive a penalty of not less than the amount of money received or more than three times the amount received by the violator.3

Conclusion

Wholesaling in Texas can be a lucrative endeavor. However, under this new law, changes are going to have to be made in the way wholesale investors market their properties. Once the law goes into effect in September 2017, we will see how this new law is enforced and investors will need to adjust their behavior accordingly.

1Texas Senate Bill 2212. LegiScan. https://legiscan.com/TX/text/SB2212/id/1557149. Retrieved July 25, 2017

2 Texas Real Estate License Act. Texas Legislature. http://www.statutes.legis.state.tx.us/Docs/OC/htm/OC.1101.htm. Retrieved August 3, 2017.

3 Texas Occupations Code. Texas Legislature. http://www.statutes.legis.state.tx.us/?link=OC. Retrieved August 3, 2017.

I am so elated to have found this post!!!!!! As just yesterday a rep from big wholesaling company pretty much told me no one can wholesale without a license. Then I looked it up and came across a lawyer's website which posted the statute... And when I read the first sentences of the law, i told myself wait a minute this law does not outlaw wholesaling without a license. But @Gaylene Lonergan you explained it so well! I, for one, have no issue whatsoever with letting my end buyer know my fee and that it will be an assignment without my owning property.

When I introduce myself to potential buyers, I let them know up-front that I wholesale and my flat fee - putting it in writing doesn't bother me at all.

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Jordan Petty

Realtor · Sugar Land, TX · Member since 2017 · 22 posts · 24 votes

8y

Hey Everyone, wanted to respond to this since I am trying to start wholesaling, but this is the main obstacle that has been standing in my way. Since I value honesty, I think I can do wholesaling by fully disclosing what I am doing to seller AND buyer as the law states.

Is there anyone here that can help me with how to go about this? I am about to send out my first direct mail campaign soon.

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Jay Mott

Wholesaler · San Antonio, TX · Member since 2017 · 19 posts · 5 votes

8y

It got over saturated with wholesalers yes, but it found a lane because it was a service to investors that didn’t want to take the time to find a deal themselves. It became a lane because investors were willing to pay the cost of the deal even if they knew this “wholesaler” tacked on a couple G’s the deal still made sense.I just hope anyone that talks negatively about wholesalers has never bought a deal from one lol !

1 Reply

Shashank Gokhale

San Antonio, TX · Member since 2019 · 38 posts · 12 votes

7y

Does point (1) in the following mean you cannot use a purchase and sales agreement as there is no purchase of the actual property?

Can one use two purchase and sale agreements, one on the buyer side and one on the seller side?

(1) Does not use the option or contract to purchase to engage in REAL ESTATE BROKERAGE; AND

“(2) Discloses the nature of the equitable interest to any potential buyer.

“(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest to a potential buyer IS ENGAGING IN REAL ESTATE BROKERAGE.”1

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New Texas Senate Rulings: Wholesaling, Assignments, Double Closes

New Texas Senate Rulings: Wholesaling, Assignments, Double Closes

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