Wholesaling in Minnesota is Illegal ?

32 Replies

So i've met a real Estate broker here in MN who owns a real estate company in Woodbury, and i was told that Wholesaling in Real Estate in Minnesota is illegal and i can get finned, can trialed. I'm a Junior in college and looking to do some real estate on the side, and i thought about doing wholesaling until this news came up to me. My question is is anyone doing Wholesaling in Minnesota ? 

I think you got bad information.  I have been involved in the real estate market in MN for 14 years and I know of no law that makes wholesaling illegal.  The broker is likely confusing some of the closing tactics that could be structured legally or illegally.  I believe the act of wholesaling is not the issue it is how it's done that can be illegal in some cases.   I recommend you do more research and look to a real estate investment club for ways to do it correctly.

I agree totally with @Tim Swierczek , wholesaling is not illegal even thought the way some people do it may be.

One of the biggest things I have found in my studies and research is that you can not sell the Property (the home) you can sell the contract.  With that goes that you cannot advertise the property, such as pictures of it, the address, things like that.  You can advertise the sale of a contract on a home.  What most wholesalers I see do is try to sell the property and they cant do that unless they have an interest in the property or a broker/real estate license.

Sean is correct, to sell real estate in MN you must be licensed.  it wouldn't surprise me to hear that a licensed realtor/broker said it was illegal.  They may not understand the concept or they may just be upset that you are considering their line of business without a license to sell.

In his defense - I am sure there are wholesalers who are operating as realtors and violating license law.  


Great topic/clarification!

@Sean Wait: you said "What most wholesalers I see do is try to sell the property and they cant do that unless they have an interest in the property or a broker/real estate license."

While I don't disagree that there may be reasons why one cannot advertise the property directly, I would argue that having a contract to purchase the property IS a material interest in the property. 

Further - I have heard (again, hearsay from a broker) that in order to properly wholesale the wholesaler themselves must be able to execute on the contract (EG: must have the financial means to close). I'm not sure that I agree, but I would sure like to know the 100% legal truth here. 

Curious to see if this thread goes further. This could be a GREAT topic for an MNREIA meeting: "The right way and the wrong way to wholesale in MN"

If no one else weighs in I may just call my lawyer to get their take - If so, I will post the answers here. 

@Tim Swierczek thank you sir!  I don't have the exact verbiage but at least for Minnesota there is a difference in having a material interest, I think that maybe I misstated and it is material ownership.  If you would really like I can try to go back and find the exact verbiage

Hey @Sean Wait  I don't need that verbiage today so don't rush but if you do get it, then please post it here.

@Suhaib Hammad

I suggest you google "Twin Cities REIA' and go to a meeting. The first one is free. At the first one, find Mike Jacka, who will be speaking at some point in the meeting, and ask your question.

You need to find a realtor who is a real estate investor.    I am an investor only, and have zero interest in getting a RE license.  I can buy a property, and in the contract if it says 'as is or assigns', I can wholesale the deal to another investor.  Now, in most cases, you get the funds at the closing.  You, acting as an investor, if the language is right in the contract, can legally do this.  

There are title companies that are nervous about this, and just don't have the facts. Then there is North Title, who is very investor savvy and friendly, and does stuff like this all day long. I also know a little about FISH MLS....they seem very investor friendly.

Wholesaling isn't really a good term for this. I like how it was clarified above about selling the contract. I had a discussion with my broker about this last year sometime and he pointed out that there really is no "wholesaler" in the sense of someone who has all the houses sitting around in a warehouse and sells them to sales people who mark them up and sell them to the public. You are really just assigning your contract for a fee. It seems like a lot of work to me so I'm surprised so many people start here, but everyone is diff for sure =) I think wholesaling might contribute a bit to the bad rap that real estate investing gets, of all the methods of investing, it seems to be the grayest. 

As long as you are clear with the prime seller that you intend to wholesale it by assignment, there is nothing illegal.

Hi Amy,

Thanks for weighing in on this as it is always beneficial to get multiple view points on things.

One of the reasons I like Wholesaling and think it is actually easier than many forms of real estate is that I am good at marketing and negotiating and that is the part I like. I don't have to worry about dealing with contractors or deadlines, I don't have to worry about removing a wall and then finding crazy stuff that just increased the cost of my rehab. 

Time wise, at least for me, it is much quicker and more efficient than many types of Real Estate. Fielding phone calls and going to look at the houses are the biggest time investments but the ROI can be really good.

Many investors that I know just want to find the deal, no matter where it comes from and makes sense, and get it done.  That's the part they like. If I can do the part I like and do it in a professional and non-slimey way everyone benefits. 

As a lender in my day job I know that only 3-5% of people selling will fall into the category that I work with as a wholesaler.  But I have the abundance mentality of that 3-5% is plenty enough to make a great living and do the part of the process that I enjoy.  We fill that niche of need where the sellers have a property that they cant or don't want to sell at retail.

I do truly consider this wholesaling as many wholesalers in other industries don't actually have a warehouse full of things either, the manufacturer does, the wholesaler facilitates the logistics of getting the product from the manufacturer to the retail store. Who then gets it to the consumer.

Would love to do coffee sometime f you are interested :)

Good afternoon. I just got in the business and know you need to be licensed to sell real estate in MN. I also know, you must have a license if your flipping more than 4 homes a year. My question it this - What if I want to work with investors (who have the funding, because I don't), get the home in contract, get contractors to rehab the home, and have a friend who is a broker put the home on the market. That's not illegal, is it? I also, would like to know if I do all of the work as in project managing, I can certainly charge a fee, right?

@Sonja Williams your question really sounds best for an attorney.  It's the fee part that concerns me.  I don't know this for certain and recommend you contact and attorney for this but I think the distinction might be its fine if you are a partner in the deal or you are some sort of consultant if the work is in the project management.  My concern would be it probably cannot be tied to profitability or final sales price without being a partner.  Check with @Brad Schaeppi

If one looks at the 2018 MN Realtor PA, you will notice new language in 196-210.  Buyer must represent "financial ability to perform" (if not contingent on sale of home, etc.).  This is a good primer on the topic of "fraudulent inducement" referenced in other bigger pockets blog articles.  If you sign a PA and have NO ability to perform on that contract (wholesaler without any ability to purchase), and the Seller suffers damage (unlikely but not impossible), Buyer wholesaler may be held financially liable for Seller damages.  As with all my posts, this blog posting is NOT fact specific legal advice, merely general information.  Seek legal counsel before acting on all contracts.   

I. Fraudulent inducement claim

A claim for fraudulent or intentional misrepresentation requires a showing of the following elements:

(1)There must be a representation.

(2)That representation must be false.

(3)It must have to do with a past or present fact.

(4)That fact must be material.

(5)It must be susceptible of knowledge.

(6)The representer must know it to be false or, in the alternative, must assert it as of his own knowledge without knowing whether it is true or false.

(7)The representer must intend to have the other person induced to act or justified in acting upon it.

(8)That person must be so induced to act or so justified in acting.

(9)That person’s action must be in reliance upon the representation.

(10)That person must suffer damage.

(11)That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of the injury

Nave v. Dovolos, 395 N.W.2d 393, 397 (Minn. App. 1986)

Hi, 

Very interesting to see fresh a comment on this thread I happened to be perusing. 

Obviously @Sean Wait has done assignments. It would seem there's nothing wrong with that as long as it is clear to the seller that you might be doing so.  It would seem the same would exist with advertising the property wouldn't it?  At least that is what @NickBrogren appears to be stating. A valid contract represents equitable interest in the property, as does any down payment, doesn't it?  And I'd think you need to spell out your possible intentions to the seller, within the agreement. 

Regarding the fraudulent inducement issue: I would hope anyone who signs a contract to buy real estate has at least one or more legitimate methods in mind to handle the property and at least one or more ways to finance the property purchase. 

I am curious how many investors literally use the MN Realtor PA?  I would expect that they would use a contract that, while conforming to relevant state statutes, might be somewhat different?

Jim  M. 

I know there are wholesalers in Minnesota. The MnREIA group had a wholesaling 101 event just a few days ago. Unfortunately I was busy with a property I have under contract to attend but I do want to get into wholesaling here. I was trying to find a video they had put out on wholesaling in MN but I can't for the life of me find it. 

You all have me worried now. I suppose I need to talk to an attorney first. Any recommendations? I'm in Rochester. 

Originally posted by @Brad Schaeppi :

If one looks at the 2018 MN Realtor PA, you will notice new language in 196-210.  Buyer must represent "financial ability to perform" (if not contingent on sale of home, etc.).  This is a good primer on the topic of "fraudulent inducement" referenced in other bigger pockets blog articles.  If you sign a PA and have NO ability to perform on that contract (wholesaler without any ability to purchase), and the Seller suffers damage (unlikely but not impossible), Buyer wholesaler may be held financially liable for Seller damages.  As with all my posts, this blog posting is NOT fact specific legal advice, merely general information.  Seek legal counsel before acting on all contracts.   

I. Fraudulent inducement claim

A claim for fraudulent or intentional misrepresentation requires a showing of the following elements:

(1)There must be a representation.

(2)That representation must be false.

(3)It must have to do with a past or present fact.

(4)That fact must be material.

(5)It must be susceptible of knowledge.

(6)The representer must know it to be false or, in the alternative, must assert it as of his own knowledge without knowing whether it is true or false.

(7)The representer must intend to have the other person induced to act or justified in acting upon it.

(8)That person must be so induced to act or so justified in acting.

(9)That person’s action must be in reliance upon the representation.

(10)That person must suffer damage.

(11)That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of the injury

Nave v. Dovolos, 395 N.W.2d 393, 397 (Minn. App. 1986)

well that pretty much explains the whole business model as taught by wholesale guru's webinars etc.. I mean really here on BP.. you see post after post.

I have no money so I am going to wholesale to get money  LOL.. so they represent themselves as a cash buyer with no intention or means to close on the property we all know it  I suspect MN like OR where assigning contracts that are advertised like a real estate broker would market are illegal.. so there is no contract..  but of course that does not sell 30k guru packages and or others who want to charge money to teach people to do exactly what the statue says you cant do. 

Originally posted by @Jacobus Rex :

Hi, 

Very interesting to see fresh a comment on this thread I happened to be perusing. 

Obviously @Sean Wait has done assignments. It would seem there's nothing wrong with that as long as it is clear to the seller that you might be doing so.  It would seem the same would exist with advertising the property wouldn't it?  At least that is what @NickBrogren appears to be stating. A valid contract represents equitable interest in the property, as does any down payment, doesn't it?  And I'd think you need to spell out your possible intentions to the seller, within the agreement. 

Regarding the fraudulent inducement issue: I would hope anyone who signs a contract to buy real estate has at least one or more legitimate methods in mind to handle the property and at least one or more ways to finance the property purchase. 

I am curious how many investors literally use the MN Realtor PA?  I would expect that they would use a contract that, while conforming to relevant state statutes, might be somewhat different?

Jim  M. E

EM deposit on its face is not equitable interest..  it maybe it may not.. if you get to arguing it in front of a trier of fact then that is the deciding factor whether it is or is not.. and If you whole business model is to tie up and assign which is what 90 plus % of wholesalers do then regulators or trier of fact may deem it a Rouse to circumvent the laws..  believe me I have sat in front of a state regulator on similar issue with my attorney telling me we were right and the regulator saying NOPE.. guess who won. it was not me that one cost me 30k.

Or I could have spent another 100k at administrative law court to argue against the state as to my lawyers interpretation vis a vi the state.

the reality is if a regulator takes a swing at you .. not many folks are going to be able to stand up to it..

@Ed Taslak   A few minutes with Google brought up the reference for MN real estate law:

https://www.revisor.mn.gov/statutes/cite/82.55

It sounds like MN law is very similar to MA law, meaning that wholesaling as it's commonly discussed is illegal.   Here's the pertinent text:

Subd. 19.Real estate broker; broker.

"Real estate broker" or "broker" means any person who:

(a) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts to negotiate a sale, option, exchange, purchase or rental of an interest or estate in real estate, or advertises or holds out as engaged in these activities;

(b) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly negotiates or offers or attempts to negotiate a loan, secured or to be secured by a mortgage or other encumbrance on real estate, which is not a residential mortgage loan as defined by section 58.02, subdivision 18;

I don't have the time to dig any more deeply into another state's laws, but I expect that the legal way to wholesale is to first buy a property and then resell it.

Originally posted by @Ed Taslak :

I know there are wholesalers in Minnesota. The MnREIA group had a wholesaling 101 event just a few days ago. Unfortunately I was busy with a property I have under contract to attend but I do want to get into wholesaling here. I was trying to find a video they had put out on wholesaling in MN but I can't for the life of me find it. 

You all have me worried now. I suppose I need to talk to an attorney first. Any recommendations? I'm in Rochester. 

Ed,     You're ok.  You can wholesale in MN.  I am sure plenty more experienced than myself can attest to that. The video you're referencing: Wholesaling is Legal .  However, the video Jaka isn't defending against any referenced statutes. He is simply asserting as I and others are asserting it.  But you look around and you can see many dozens of MN investors who have or are doing this.  Good luck on your contract.  

@Charlie MacPherson    

Hi, 

I see this statute referring to a person who is acting "for another". These wholesalers are acting on their own behalf, for their own interests. If this were actually illegal MNReia members and anyone like them would not be defending it. They'd have no credibility. I would say that I've had property transactions where assignment was involved. They have passed muster with title company. And assignment documents have been part of Purchase Agreement documents accepted by loan officers and underwriters while originating a loan. In short, it seems we're ok here. To quote a well known REI personage, what we're doing is "moral, ethical and legal."

Regards,  Jim in St. Cloud

@Jacobus Rex They're representing a property that they don't own (for another).  They're not licensed.  They're expecting a fee.

That requires a license to sell real estate and the typical wholesaler doesn't have one.

Twist it however you wish, but you don't have to explain yourself to me.  You have to explain yourself to a judge or jury.

@Charlie MacPherson     Charlie my only point is that alot of people seem to do it here and elsewhere; and they're involving title companies, lenders, etc.  @Jay Hinrichs seems to have a lot of reservation, or at least a strong caution about it based on his experience in NV. . .or CA?  

It's an honor to talk to all of you successful real estate investors. 

Thanks, 

Jim in St. Cloud

Originally posted by @Jacobus Rex :

@Charlie MacPherson    

Hi, 

I see this statute referring to a person who is acting "for another". These wholesalers are acting on their own behalf, for their own interests. If this were actually illegal MNReia members and anyone like them would not be defending it. They'd have no credibility. I would say that I've had property transactions where assignment was involved. They have passed muster with title company. And assignment documents have been part of Purchase Agreement documents accepted by loan officers and underwriters while originating a loan. In short, it seems we're ok here. To quote a well known REI personage, what we're doing is "moral, ethical and legal."

Regards,  Jim in St. Cloud

as these are just friendly debates... I want to point out. title company could give a rip about if its legal or not.. vis a vi do you need a license. same with mortgage companies. only voice of authority here is the state department of real estate..  

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