Selling homes without a license is a 3rd degree felony
Real Estate Investor · Lutz, FL · Member since 2010 · 52 posts · 6 votes
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?
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
It's only illegal when you market a property you do not own, that is why it is crucial for you to build buyers list prior to getting deals together. Realtors/agents get paid by marketing, so they must be licensed.
What makes wholesaling different from being a broker is that brokers don't put properties under contract, they just "market" propeties. Whereas wholesalers, they put properties under contract, therefore they have equitable interest in the property, with it being assignable they are only excercising an option.
I would build cash buyers list first, find a property, tie it up, and assign it to your end buyer. You get in trouble when you are actually marketing a property you don't quite own, even though it doesn't make sense because once you have a property under contract you are basically stepping in the sellers shoes, however you do not have title on the actual house itself.
Brokers/agents dont deal with contracts/principal interest, and get paid off of commission, where as wholesalers, they deal with contracts/pricipal interest and get paid via assignment. Remember you aren't getting paid to "Market" you are getting paid to have somebody step in your shoes.
Get an option to buy the prperty for a certain price (commissions and sales price considered) and tehn you have an "Interest" in the property...which from where I['m from...means you can sell the proerty because you are a principle of sorts. Seek an attorney as to my advice. I am not one.
It wouldn't be hard if I were the real estate commissioner in many of the states I've done business in to nail many of the investors I've run into for doing unlicensed activity.
As the new investor base grows and bad advice is accepted as the OK to proceed with licensed activity because of a supposed loop hole, and more investors bend that loop hole past the point of reasonableness, and more actually licensed people have it thrown in their face everyday, I think real estate agents will flood the state with specific complaints as a group and demand specific actions. The state attorney general may just place a staff member on duty at the commissioner's office to get the ball rolling. At the least new statutes will be passed to be used in future cases.
State commissions across the country may try to stem the tide with action, and if in this tough budget times it appears there is the benefit of fattening up the coffers the fines will be the maximum, the number of cases pursued will be all of them.
maybe even with a few of the better known violators getting the maximum jail time allowed by the penalty statutes along with the fines to make the point to this newer wave of "investor / quasi-agents" to knock it off, or get a license.
In many cases they are unknowingly creating an agency relation-ship and are totally unaware of what they have done, violating licensing laws and establishing a legal liability to the other party, their unintended new "client". And having a relationship deemed an agency removes the acting as a principal defense.
Don't think so, sit down with a good attorney who is expert in this area of law, and see how well you would do if he were the attorney suing you, and after you have lost, having the case file sent to the Department of Real Estate, where all your other activity may also be a count of unlicensed activity. Kiss your assets good-bye.
One of the biggest errors made is the unintentional labeling of a agency event as a principal event when in truth you were not intending to be a true principal, You just used that label and you didn't really act as one, especially if you have a long record of removing yourself from the deal for a "fee" and your contract attempts to remove your legal liability as a principle.
I hope its ok to post this on this thread at this time but id love the opinions of the people on here if something I am thinking about doing is legal.
Im not a real estate agent. I have a seller that has their home listed for sale by owner and they are having a hard time selling. I ask them "if i could find you a rent to own buyer to pay 3.5% down and x per month would you take it if their credit was ___ and they had a job for ____ years, etc, would you take it"
If they say yes and agree to sign a contract I have a lawyer modify/draw up and then I then find a renter/possible owner that agrees to their terms, signs a rental agreement and an option agreement, Is there anyway I can be paid for this?
The people I see doing it now take 2.5 to 3% from the buyer as compensation. Is this a definite no-no or a grey area or what? I've asked 4 people and gotten 4 answers.
There is no Realtor involved and no one shows the house. Once the seller agrees to give it a shot the house is listed on an internet site and pushed to our buyers list.
Is there a way to NOT get the fee or a way TO get the fee?
Either by the renter, or the buyer, or the seller?
Thanks for any help.
That contract sounds a lot like a listing agreement from a broker entering into an agency relationship with a seller.
I'm certainly not an attorney, but I'd think this would very much be encroaching into "licensed agent" territory...
That contract sounds a lot like a listing agreement from a broker entering into an agency relationship with a seller.
I'm certainly not an attorney, but I'd think this would very much be encroaching into "licensed agent" territory...
man so many questions..
Im not talking about listed properties and i dont know if that matters. Im talking about someone who doesn't have a Realtor and doesn't have a property listed for sale. if anyone cares to answer the following scenarios (Im just looking for opinions, not rock solid legal advice)
1.
Are you saying that 2 private citizens can not come to an agreement in which 1 pays the other for FINDING a buyer? This would mean the owner of a property is not free to pay whoever he wanted to help him?
Or
2.
Are you saying that 2 private citizens can not come to an agreement in which 1 pays the other for PROVIDING (someone attained before approaching seller) a buyer?
ALSO (WHEN RENTING)
3.
Are you saying that 2 private citizens can not come to an agreement in which 1 pays the other for FINDING a RENTER?
Or
4.
Are you saying that 2 private citizens can not come to an agreement in which 1 pays the other for PROVIDING (someone attained before approaching seller) a RENTER?
thanks for any help
Correct. Unless the finding party is licensed to do so.
Some groups have decided that it's in their best interest to ensure that nobody outside the group can practice real estate without being part of their group, or at least being licensed by the state. These groups are large and powerful, and have a lot of lobbying dollars behind them.
Correct.
This is going to be state dependent. In my state, an unlicensed seller can pay a referral fee (on the HUD-1) to an unlicensed person. But, it's still illegal for the unlicensed person to market for a buyer for a particular property without being licensed.
Same rules apply as above...
Again, same as above...
Thomas, in the context of your August 3 post, what you describe is real estate brokering. And indeed, as J Scott points out, #1 in your August 4 post (your last post) is what brokerage is all about. And by (your word, emphasized) "FINDING" there are all kinds of expectations and conditions that are tacked on when you talk about brokerage... like the act of FINDING will screen for those ready, willing, and able to buy your property. And FINDING without steering... without bias, discrimination, or prejudice... while striving to get the top dollar for the seller.
As J Scott points out brokerage is a regulated business.
i need a "tom" lobby.
Thanks a bunch for the insight. Any idea if there is any place to see which states allow some of those scenarios to occur?
"This is going to be state dependent. In my state, an unlicensed seller can pay a referral fee (on the HUD-1) to an unlicensed person. But, it's still illegal for the unlicensed person to market for a buyer for a particular property without being licensed."
Also I was wondering... if a third party internet site which had no license was allowing properties to be listed, by individual sellers how would that be legit?
Regarding "Also I was wondering... if a third party internet site which had no license was allowing properties to be listed, by individual sellers how would that be legit?" The presumption is that the seller "listed" the property, not an intermediary like a wholesaler or unlicensed broker. See the yahoo and other listing site's terms of use statements.
The third party sites are indeed third party. Advertising isn't illegal, just don't misrepresent.
Exactly, it is the owner who is marketing the property, not someone who has no equitable interest.
If you want to market real estate without actually getting it under contract first, I would suggest getting your real estate license and do it legally...
In Maryland the multiple list service says it is OK to list a property you have under contract as long as you make it clear that you are assigning the contract. The language they suggested is that you are the "contract purchaser". That would certainly seem to assume it is legal to assign your contract.
J Scott..
Yea i am willing to get my license its just that my leads come from 50 states and getting all of those licenses obviously wont work. I have lots of buyers in my DB, I just want to be able to say to sellers "let me see if someone on my list wants to rent your property." I can see now if I have a qualified buyer and marry the two up I cant get paid unless licensed, which makes sense.
I know i can get people to list property on my new rent to own website but just want to be able to make money AFTER the seller gets what they want. Any other model of getting listings by charging money up front to list kills it.
I think what was said is that in some states I can expose my buyers to a non-mls listed property and collect a fee if a deal gets done from someone but im not totally sure. It would require me to change up my business a little bit to pursue all this so it needs to be legit.
thanks
Here's something to ponder:
Imagine that you did 25 deals this year, all pretty-much the same:
1. Found a motivated seller with a cool property.
2. You put the property "under contract" (via an option or a signed contract).
3. You "flipped the deal" ("assigned the option" or "assigned the contract") to another person.
4. In other words, you allowed your seller to contract with your buyer and you are paid at closing (an "assignment fee", an "option release fee" or some other "creative term").
5. The deal closes and you're "fee", "payment", etc. is listed on the HUD1 Statement.
6. Now, you close your 26th deal, and suddenly, you get a letter from "the commission", that through an audit of the title company you used, we noticed a pattern that you received a "fee" on each of 25 HUD Closing Statements and;
7. "The Commission" wants to know what these "25 fees" on "25 different HUD Statements" were for?
8. Well what have I done?
9. Did I "back out of 25 contracts" and did I "collect 25 fees" from "25 sellers" for "finding 25 buyers" to replace my position "25 times"?
10. Did I assign my options or my sales contracts "25 times" and received "25 separate payments" as listed on "25 different HUD Statements"?
11. Is the "Real Estate Commission" wondering how I keep making a "fee 25 times" during the same year on "25 different HUD Closings", without being a licensed real estate agent "25 different times"?
12. Well, has a "pattern developed" (yes, now "25 times"! LOL!) that ! need to be worried about? (Well worried about now "26 times this year"?)..
13. As you can see this imaginary scenario of 25 (now 26,) "flips", "options", "assignments" or "whatever they are called" all produced the same results:
14. You NEVER closed on a deal in your name, you just received "25 fees", "25 profits", "25 contract release fees", "25 option fees" or whatever you called them.
15. Are these 25 different HUD Closing Statements like "fingerprints" and have I created a "pattern 25 times" for a "Real Estate Commission" to forensically look at my 25 deals to see if I indeed created a pattern that "The Commission" may say can lead to 25 different felonies? (YIKES!)
16. Nah! I have nothing to worry about! I'm a successful investor! I've done 25 deals this year (now 26 deals! LOL!), so again, what do I have to worry about? I'm not practicing real estate without a license in my State, I'm perfectly legal! Right?
17. Don't worry I'm just having some fun here (AND MAYBE MAKING YOU JUST A LITTLE PARANOID? LOL!!!)
~~~~~~~
18. I do hope every one of you reading this will do 25 or more deals in a year!
19. Are you comfortable with the 25 or more HUD Statements on your deals?
20. I hope so! If not, question how one can improve on them, without changing "the fiber of the deal"? In other words, without "reinventing the wheel".
21. Just always remember, if you are not a licensed Realtor and are sucessful doing multiple deals, try to "look back at the finished products" and see what I can do better?
Good luck to you all!
rd
I was threatened by a judge a few years ago for trying to wholesale a property (was outed by a tax lien holder who wanted the property). I have since stopped my 'public marketing' campaign when wholesaling and gotten a license.
If a judge says it's illegal, it's now 'case law' and just about as good as any law.
It takes more than a judge *saying* it's illegal to make it case law. Judges can say anything...
In fact, even in your example, the judge *told* you it was illegal, but didn't take punitive action. Why not? Perhaps he was concerned that a higher court would have overruled his judgement or it would have been reversed on appeal. Perhaps he was just trying to scare you. Perhaps he was interpreting law that he wasn't fully familiar with.
Who knows...
But the fact that he didn't take punitive action is telling. And makes it NOT case law...
(at least this is my non-expert opinion :)
It takes more than a judge *saying* it's illegal to make it case law.
I agree. But I was also going off of (and I should have elaborated on it) my experience with tax lien foreclosures in NJ. It is now (as of 4-5 years ago) illegal for an investor to intervene in a tax foreclosure once a lis pendens has been file. This is not based on any statute or any other legislative process but merely the case of tristate investments (the tax lien holder and plaintiff) vs. cherrystone bay (investors/wholesaler as defendant) and their attempts to buy a property cheap (via the purchase of an older and senior tax lien) that was under tax foreclosure. Subsequent cases have backed this case with a couple (including one I was involved in) where the judge expanded the 'illegal' label to cover investors like me who were trying to assign the contract.
So when I say that if a judge 'says it's illegal, it's illegal', I was going off of those two experiences (the threat as well as the case I was dragged into). Many judges frown upon us already. Once someone complains about how we're assigning contracts, we don't stand much of a chance of winning, without being organized. Much like Realtors are.
The question is: Is the investor the seller or does he have a contract with the seller?
That could make all the difference. BEWARE of multiple party deals! It's better to deal exclusively with the seller and/or buyer.
The realtor, most likely, has an exclusive contract with the actual seller. If the seller has a contract with anyone else, like an investor, they are in breach of contract as long as it is in the timeframe stated on the realtor's contract. If that time has elapsed, the contract is voided.
You should always have a contract with the investor or seller prior to marketing, which means you must put down some kind of earnest deposit to not only secure the deal, but to give yourself legal right to assign your interest, and MARKET.
You should look for a buyer first and contract with them. Then when you find a property that matches your buyer's criteria, get a contract immediately with the seller. Instead of internet marketing, you email direct to your buyers list avoiding any such displeasantries.
To assure you have a legal claim, you can always enter your paperwork into the county system to make it legal.
My suggestion? Talk to a lawyer NOW, or an escrow lawyer, to make sure you are operating within the legal bounds of the law within your City, County and State. A few dollars now will save you tons or money and time in jail later.
I hope this helps? By the way, I am not a lawyer nor a realtor. Just another fellow investor.
No no no.
INSTEAD OF USING AND/OR ASSIGNS, USE "buyer reserves the rights to title in name of entity of choice".... "The buyer reserves the right to re market property before closing"
That basically gives you the right to advertise your property.
A contract, needs to be defined as I'm sure this can be misconstrued. You can adevrtise if you have closed and filed contrcat for deed in most areas. A sale contract, or an option contract does not give you the right to advertise something you don't own unless you are an agent of the owner. An agent may be a Realtor, an Excutor or Administrator of an estate, a Trustee, or a representative. A representative would be a member authorized with the power of sale of a property owned by an LLC, you are not a legal represetative by holing an option contract or sale contract. Unless your contract puts you in the shoes of one of these positions, you have no rights in title to offer for sale.
This applies to all kinds of property not just RE.
What you have is a contractual right, not title to RE. You do have the right to market your contract to assign it, but you are not in title and therefore you can't offer merchantable title.
I mentioned the filed contract for deed as that is generally considered to be an installment financing arragement and if done properly the deed has been executed and is held in escrow to be delived upon full payment.
A Realtor may be in a different boat, as they may be seen as an agent regardless of which contract they may use, look to the "law of agency", not just Board of Realtor issues.
I totally agree with J. Scott, do not advertise the property, directly, unless you are in title.
I'll say it again, start with the basics, not guru system stuff as much of it isn't even legal or accepted practice and that's why I say know what is customary in your area.
Bottom line, in court your opinion probably won't mean beans, you can argue til you're blue in the face that an option gives you the right to advertise a property in the same manner as an owner would (and you're wrong) but say it's done properly, you advertise the right to purchase or use some notice such as title being subject to closing (whatever) but if a judge disagrees with your assumptions; You can be found guilty in any county and suffer, the burden then will be on you to appeal and fight your position through the legal process. My assumption is that those doing all the alternative investing methods is because they lack money, which also means you won't be hiring attorneys to fight through appeals.
Translation, follow locally acceptable practices! :)
Doesn't it boil down to what is represented? If you say you are going to buy a property but slip in an assignment clause and have no buyer available, tie up the property and cause the seller damage then you could be liable. Most attorneys I have talked to will ask what are the damages.
If, on the other hand you have solid buyers and/or you have financial means, and you close on the property and the seller receives what he was promised, and you have received legal advice supporting your business dealings then you should be fine IMO.
I have seen the equity of the seller, with interest and relisting expenses, being the damages for basically bogus purchase offers. Depends on where you are and how you conducted your activities. And if you impead an insured lender from conducting its business you have another world of fines and state room and board.
If investors would get the basics down and just deal honestly, which is not difficult, you will avoid so much trouble that the gurus and some system mentors can get you into. :)
In California an unlicensed individual can be paid a referral fee for simply introducing a buyer - but that is it. If the unlicensed individual performs any activity aside from a simple introduction, such as negotiating of price/terms of the sale, marketing property etc., then that Individual is performing "licensed activity".
The California Department of Real Estate issued a bulletin (page 3&4) addressing this topic including the 1995 legal opinion issued regarding finders fee for unlicensed individuals. This is the pertinent text:
"One question that is often asked is if a broker can pay a referral fee to an unlicensed person. The answer is yes if that person has not performed any licensed acts in connection with the transaction for which
the fee is being paid.
In 1995, the California Attorney General issued an opinion (78OPS CAL ATTY GEN 71) that stated a real estate broker can pay a commission to an unlicensed person for providing the name, telephone number and address of a prospective borrower provided that the unlicensed person did not obtain the information in the course of soliciting borrowers or lenders on behalf of another or others. The opinion also stated that the finder's exemption can only apply if the activity is limited to arranging an introduction between the parties and the unlicensed person cannot be involved in any role in the negotiation of the loan, no matter how slight.
Also:
The California Assoc. of Realtors there has a "Legal Memorandum regarding referrals, rebates and related arrangements under State and Federal law."
On page 7:
Question: "Can a licensee provide a finders fee to a non-licensee for referral of business?"
State law : " YES a licensee may pay such a fee if the non-licensee merely provides an introduction of a principal to the licensee. If the non-licensee is involved in more than the mere introduction of the parties and actually participates in the negotiation of the transaction, then such a fee would constitute an unlawful payment of commission to a non-licensee."
Federal Law: NO, if the transaction fall within RESPA." (RESPA involves settlement services)
"RESPA generally prohibits anyone from giving a fee, kickback or thing of value pursuant to an agreement for referral of settlement services in a sale of one-to-four residential units involving a federally related mortgage loan."
"settlement services" is later defined in the memorandum as "Title searches, Insurance, Broker services, preparation of documents, escrow and pest control activities".
See also this excellent treatment of the topic. http://www.brewerfirm.com/articles/article-splits-kickbacks-fees.html
The issue of Options and "Equitable interest" is not covered in the above. It's not necessarily a free pass in every state. (http://realestatecounsel.net/tag/equitable-interest/) At least in California according to this case, Equitable interest is not automatically conferred by an Option to purchase. In fact the particular case discussed casts at least some doubt on it. The mere fact that someone is not on title marketing a property is likely to eventually draw unwanted scrutiny and legal hassles.