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Chris Seveney
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We Are Gonna Find Out if Wholesaling Is Legal in MN...

Chris Seveney
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Posted Dec 8 2022, 04:23

Many people are familiar with a certain federal indictment recently in MN. What has not been as publicized is the civil case in which the end buyer has filed a claim against this individual for wholesaling them a property. Here is an excerpt from Pacer that if the party prevails, it will be interesting to see how this impacts other states which have very similar laws and if wholesalers could become sued in a transaction. What are your thoughts? (names changed below)

Beyond Mr X false promises, on this sale, MR X took an illegal fee for himself of over $1.5 Million. MR X is not a licensed real estate broker—and only licensed real estate brokers are allowed to collect fees on the sale of real estate. To achieve this, MR X attempted to use a workaround of this law euphemistically referred to as “wholesaling.”

COUNT I Avoidance of Illegal Contract BUYER Assets against MR X LLCs Management and MR X 

 61. Courts may determine rights, status, and other legal relations of parties to a contract. Minn. Stat. § 555.01 et seq. 

62. A contract to pay for services is void when the service provider lacked a statutorily required license to perform the services. 

63. A real estate broker is any person who, 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. 

64. A real estate broker is also any person who 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, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of any business opportunity or business, or its good will, inventory, or fixtures, or any interest therein. CASE 0:22-cv-01293-PJS-DTS Doc. 26 Filed 10/12/22 Page 14 of 23 15 

65. No person shall act as a real estate broker unless appropriately licensed by the Minnesota Department of Commerce. 

66. MR X and MR X LLCs acted as a real estate broker in connection with BUYER Assets’ purchase of the ABC. Property. 

67. Specifically, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold an interest in real estate to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

68. Additionally, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold a business opportunity to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

69. Neither MR X nor MR X LLCs are, or were at the time of the transaction, a licensed real estate broker. 

70. Consequently, the agreement between BUYER Assets and MR X or MR X LLCs is void. 

71. MR X LLCs and MR X therefore illegally took the $1,550,000 fee from BUYER Assets. 

72. As a result, MR X LLCs and MR X are liable to BUYER $1,550,000

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Charles Carillo
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Charles Carillo
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Replied Dec 8 2022, 06:10

@Chris Seveney

I will never understand why wholesalers don't become licensed. It removes them from the grey area while allowing them the ability to offer more solutions to homeowners (cash offer, traditional listing etc.). 

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Nate Sanow
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Nate Sanow
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Replied Dec 8 2022, 06:20

I’m not sure what I’m more surprised surprised about. That law change, or, that $1m fee. I’m a fan of ethical wholesaling but when the fee is that large… it seems like someone is just pissed about the size. 



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James Hamling#3 Real Estate News & Current Events Contributor
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James Hamling#3 Real Estate News & Current Events Contributor
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Replied Dec 8 2022, 07:30

This is of no surprise, it's been only a matter of time. As @Charles Carillo said, it makes no sense for a person to be a non-licensed wholesaler after deal 1, as any person should have more then enough $ from that first deal to cover the licensing fee's. 

And here is the thing, a million+ wholesaling fee, come on, really, that's just begging to get sued, it is, and it's idiots like that poking the bear on why things will come to new heights of regulation. It was obviously some form of a commercial real estate deal, at that point common sense would say to pull in a commercial agent/broker, to CYA, and what would it cost, $100k would have been a bonkers give in such a deal and by what's stated, a drop in the bucket for wholesaler. And no suite would happened. 

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Mike Schorah
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Mike Schorah
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Replied Dec 12 2022, 20:04

Once you get a license, you are now subject to all fines, levies, and any type of judgement against you. A licensed Board has zoned in each state. The fees are not cheap. Then you need access to the MLS which could be $1,000+. You've got to get insurance and have a physical location. You have to sign a packet that says that you have to abide by all rules and regulations. Anytime there's a complaint filed against you, you now have to answer that complaint. There's going to be a broker/realtor. Our panel is a 6. There are going to be a judge/jury. You don't even need to have a broken state law. I'm not getting a license unless I absolutely have to.

If you get enough complaints against you… and you will. Most realtors are jealous of you or don’t play well with others. Not all realtors are like that. Every realtor I've spoken to tells me I need a license.

A friend of mine had a large assignment. It was 6 figures. He had 9 people on the Board and all they needed was a majority interest. Not only did they fine him $25,000 which was the total fines cause I guess there was multiple violations. He actually had to repay the difference between the commission and the assignment amount which was $80,000. He actually wound up losing money cause he went through the Board. That’s it. They tend to pick on realtors.

Anybody that wants to complain on you, guess who’s going to complain on you the most. Realtors. They don’t understand we’re skip tracing. We’re cold calling. We’re paying for the lists.

I meet a lot of sellers that don’t like realtors.

If I follow what the Board of Realtors says and get the best price for clients, it could take a year to get that and they would actually wind up netting less. Whose going to pay the mortgage? In the eyes of the Board of Realtors, if you buy the house quick cash and you don’t find the highest and best use of that property, you could be in violation. So if you make $5,000-$10,000-$50,000 off of it, that money is subject to review and if they don’t like your answer, gon take it away.

Disclosure ruins your ability to market for wholesaling deals. “I am a licensed realtor.” If that person doesn’t like realtors, they’re never going to contact you. Maybe they had a bad experience with a realtor. If you get licensed, you have to put it on everything. Every marketing material. And it just kills your message. That’s probably the biggest reason why I’ve avoided it.

Do you know what my definition of a license is? The government’s ability to take away your right and sell it back to ya. (Mike Schorah for President)

The way the laws are in illegal states are as I can read them… I am not a lawyer. I am not a financial advisor. But I have talked to other people doing this. They'll get a property under contract for, let's say $100k and offered $150k. I'm not allowed to close this transaction. I talked to $150k cash buyer. I am good, but I can't execute this because I'm not licensed because it's illegal. I have my buddy realtor friend here who he throws me $1,000 and we're JVing on it. So the realtor buddy is going to get $1,000. We're basically splitting the transaction together. Now we go to the title company. "Hey. Me and my realtor have this under contract." Perfect, right? Now we can close on that. You can give them $1,000. You gotta look at the state's laws. Sometimes that realtor might have to sign for you. Have a JV agreement. It has to be somebody that you really really trust. Or sometimes you can get it under contract yourself, have a realtor to have a JV agreement. Some states will allow that. Some states will allow you to skirt around that so you don't have to double close.

If a license is going to chase you away, you were never meant for the business anyway.

It can be as simple as having your acquisitions person sign the contracts for you like a managing member of the LLC. That's all you need.

The Philadelphia City Council made wholesaling illegal. The Philadelphia City Council unanimously without 1 vote saying “no” made wholesaling illegal.

You need to have a license now to become a wholesaler. They would be subject to ethical constraints similar to real estate sales agents. What are these ethical constraints? Buyers’ best interest? Sellers’ best interest?

Wholesalers, for instance, would be barred from making false promises or misleading them about the value of their properties. Are they talking about wholesalers or real estate agents? Because I know real estate agents mislead their clients all the time about the value of their properties. Now if a wholesaler is buying a $1 million dollar house, you’re locking it up for $100,000 and are going to make a $900,000 profit… that’s 100% unethical. I do not condone that at all and that is not what wholesaling is about.

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Tim Swierczek
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Replied Jan 4 2023, 12:30

I think the real issue is the assignment of contracts; if you can close on the property and therefore do a double close, you are a principal.  I buy from wholesalers and see it as a service, but it is questionable if it's legal in assignment cases where the wholesaler had no intention or ability to close.

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Russell Brazil
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ModeratorReplied Jan 4 2023, 12:42
Quote from @Chris Seveney:

Many people are familiar with a certain federal indictment recently in MN. What has not been as publicized is the civil case in which the end buyer has filed a claim against this individual for wholesaling them a property. Here is an excerpt from Pacer that if the party prevails, it will be interesting to see how this impacts other states which have very similar laws and if wholesalers could become sued in a transaction. What are your thoughts? (names changed below)

Beyond Mr X false promises, on this sale, MR X took an illegal fee for himself of over $1.5 Million. MR X is not a licensed real estate broker—and only licensed real estate brokers are allowed to collect fees on the sale of real estate. To achieve this, MR X attempted to use a workaround of this law euphemistically referred to as “wholesaling.”

COUNT I Avoidance of Illegal Contract BUYER Assets against MR X LLCs Management and MR X 

 61. Courts may determine rights, status, and other legal relations of parties to a contract. Minn. Stat. § 555.01 et seq. 

62. A contract to pay for services is void when the service provider lacked a statutorily required license to perform the services. 

63. A real estate broker is any person who, 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. 

64. A real estate broker is also any person who 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, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of any business opportunity or business, or its good will, inventory, or fixtures, or any interest therein. CASE 0:22-cv-01293-PJS-DTS Doc. 26 Filed 10/12/22 Page 14 of 23 15 

65. No person shall act as a real estate broker unless appropriately licensed by the Minnesota Department of Commerce. 

66. MR X and MR X LLCs acted as a real estate broker in connection with BUYER Assets’ purchase of the ABC. Property. 

67. Specifically, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold an interest in real estate to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

68. Additionally, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold a business opportunity to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

69. Neither MR X nor MR X LLCs are, or were at the time of the transaction, a licensed real estate broker. 

70. Consequently, the agreement between BUYER Assets and MR X or MR X LLCs is void. 

71. MR X LLCs and MR X therefore illegally took the $1,550,000 fee from BUYER Assets. 

72. As a result, MR X LLCs and MR X are liable to BUYER $1,550,000


 Going to be finding out in a lot more jurisdictions soon as well. Maryland AG's office opinion is that it is not legal in MD, and currently is investigating the issue. DC had legislation that was due to be brought up for debate this month, but the council member who was working on it was voted out.....but there is a new council member taking up the issue. Ohio, Indiana, Philadelphia have all clamped down recently.

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Jack Seiden
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Jack Seiden
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Replied Jan 4 2023, 16:31
Quote from @Charles Carillo:

@Chris Seveney

I will never understand why wholesalers don't become licensed. It removes them from the grey area while allowing them the ability to offer more solutions to homeowners (cash offer, traditional listing etc.). 


Because in most states “net listing” agreements are illegal wholesalers make a lot more per transaction than a licensed agent. But the reason we regulate real estate licenses are to protect the consumer, and someone taking a large wholesale fee by definition clearly the seller could have gotten more on the open market. I know many wholesalers and most of the trick’s although they wouldn’t put it this way exactly revolves around taking advantage of elderly and unsophisticated home sellers. There is no good reason that we should have realtors regulated and than allow wholesalers to operate in ways that would clearly be illegal in most states if they had a license, and I think there’s a strong legal case that it is in fact already illegal in most states. Anyway I hope to see more regulation in this space in most wholesale transactions the only person benefiting is the wholesaler not the seller and not the general public.

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Replied Jan 5 2023, 20:05

The whole issue is: is someone who offers to purchase a property and gets said property under contract, and then sells or assigns that contract to someone else, for a fee acting as a PRINCIPAL or as a BROKER in that transaction.  

Wholesalers may have a leg to stand on by claiming to be PRINCIPALS. Their contracts state that they, or their entity, are buying the property, in which case they are principals.  But, if they have no INTENT to complete the purchase, and their only intent is to “flip” the contract for a fee, then are they truly PRINCIPALS, or are they merely BROKERING a transaction?

The “workaround” usually being used by the more sophisticated “wholesalers” is whereby the end buyer is identified BEFORE a contract to purchase is signed.  An entity is formed with an ownership structure which includes both the end buyer and the “wholesaler” as principals, members, shareholders, etc.  The “wholesaler then sells his interest, after the contract is executed, but before closing to the other co owner of the entity, who of course is the end buyer. So, the entity named in the contract as buyer does buy the property, and a principal of that entity is still the principal when the deal closes, having bought out his partner, the “wholesaler”. 

For added protect against over zealous politicians, regulators and attorneys, the entity named as buyer can be a Wyoming or Nevada Limited Liability Company, whose ownership does not have to be revealed.  

Although it’s been decades since I flipped a contract ( I do occasionally purchase a property and soon after resell it at a profit), the above is how I would do it in these times.