Realtor wholesaling into a conventional loan?

Question

Hello everyone,

So I am a realtor and came across a property on MLS for sale. Listing agent is wholesaling the property, marketed the property as them being the owners, found out this is an assignment of contract, this was not disclosed until after Inspection was done and LLC ownership was questioned. Buyer plans on using a conventional loan. Lender is questioning ownership. Can this property be wholesaled into a conventional loan and should they have disclosed this information as a real estate licensee?

Tiegen Brickson · Answer

I recently completed a deal where we found a workaround. Mostly the same- it wasn't listed on the MLS and the wholesaler was being transparent, but the same pieces were there- wholesaler assigning a contract to a buyer with conventional financing through a lender.

1. First off, the wholesaler was willing to deal with the extra steps involved rather than the typical easy out with a cash buyer.

2. The lender wouldn’t accept an assignment of contract, so we re-wrote the contract to be a direct sale from the seller to buyer. This way the assignment fee wasn’t being financed.

3.The buyer paid the wholesaler a “consulting” or “marketing” fee, which was drawn up in a separate contract. This was equal to the assignment fee. The lender could accept this on the HUD, or it could be handled privately between the wholesaler and buyer. In this case we handled it privately.

In the end, this worked out for everyone. The buyer’s purchase price was technically even lower than originally planned because of the subtracted assignment fee.

By the way I did this deal in Brevard county FL.

Tchaka Owen · Answer

Making the deal happen aside, if the listing agent violated the law, you need to report to DBPR. There's nothing wrong with wholesaling (despite what some might think), however there is everything wrong with falsifying information. If that agent is not the owner (and please don't buy into the 'having ownership interest' because of the contract BS that you might get). Honesty is important and the RE license should be at stake otherwise. Good luck.

Peter Walther · Answer

I'm not an attorney so I won't attempt to provide an explanation of what the statute means and as I wrote, since the wholesaler received a consulting or marketing fee rather than a real estate commission I assumed (s)he was not a broker.  I've heard many a wholesaler declare what they're doing in a public forum and then be shocked to find out they may be committing a felony.  Several have been law enforcement personal who really couldn't professionally afford to be charged with a crime.

Tiegen Brickson · Answer

@Peter Walther while I’m not equipped with the expertise to decipher all of that legal jargon, what I assume it’s saying is that someone who is not licensed to sell real estate cannot “sell” this property for a fee.

This wholesaler is a licensed realtor in the state of FL, however I believe the way our contract was worded would have avoided issues either way.

We worked closely with an attorney in the process to make sure it was done legally.

Point is, @Angel Hernandez, consult an attorney to make sure you do this correctly.

Peter Walther · Answer

Since the wholesaler was being paid a consulting or marketing fee I assume (s)he is/was not a Florida licensed real estate broker in which case F.S. 475.43 might be of interest.  it reads:

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.

Angel Hernandez · Answer

That was really helpful! Thank you for that. Will be following up with my lender and the listing agent to see how if we can make this happen.

Michael Dumler · Answer

@Angel Hernandez of course the lender is questioning ownership, they do not recognize the assignment of contract nor will they finance the assignment fee, this is why wholesale deals are bought with cash. Hopefully others can shed some light on this and provide a solution, but I'm unaware of what steps can be taken to complete the transaction where the buyer gets proper financing, the wholesaler gets their fee, and the seller is paid out.

Realtor wholesaling into a conventional loan?

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