Wholesaling is illegal in NC?

Wholesaling
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Wholesaling is illegal in NC?

Iris Ortiz
Insurance Agent · Clayton, NC · Member since 2015 · 41 posts · 8 votes

I just ran in to a REALTOR that told me would not work with me because assignments of contract and wholesaling is illegal in North Carolina. I have contacted an attorney that advised assignments and double closings are perfectly legal in North Carolina as long as all parties are aware of it. Any attys, Realtors in North Carolina that can elaborate more on this?

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Curtis WatersBusiness Member
Rental Property Investor · Charlotte, NC · Member since 2013 · 291 posts · 176 votes
9y

Many wholesalers use the 'equitable interest' argument.  I was at a training done by the NC Real Estate Commission.  They advise that assigning your contract and not taking title makes you a real estate broker and you must be licensed.

From NC General Statutes Section 93 - A real estate broker within the meaning of this Chapter is any person, partnership, corporation, limited liability company, association, or other business entity who for a compensation or valuable consideration or promise thereof lists or offers to list, sells or offers to sell, buys or offers to buy, auctions or offers to auction (specifically not including a mere crier of sales), or negotiates the purchase or sale or exchange of real estate, or who leases or offers to lease, or who sells or offers to sell leases of whatever character, or rents or offers to rent any real estate or the improvement thereon, for others

Some real estate agents and attorneys read the definition and will steer clear of you and your deal...

You should be able to do a double closing (i.e., you buy from the Seller at 11AM, sell to new Buyer at Noon) and avoid this.  Some investors use transactional funding to achieve this.  Note that there are fees for this funding plus additional legal fees.  Many wholesalers will do a double close to hide their profit, as it is not uncommon for Sellers or end buyers to walk at closing to avoid giving a wholesaler a significant profit.

In NC the real estate commission doesn't look for wholesalers - but someone could complain about your activities and complain.  This might result in a cease and desist letter from the NCREC.  If necessary they will refer your case to the Attorney General.  The major issue a few wholesalers face is a lack of ethics that lead to problems.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Curtis Waters  if its a actual loan then YES.. in 11 states you need NMLS and state license

    off the top of my head

    CA

    OR

    NV

    AZ

    and 7 more...

    if the money goes in as simply a deposit into escrow with NO loan docs then I don't think any license is required and I don't think it matters if its to a personal escrow or a LLC escrow.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Curtis Waters its also amazing how many HML do not realize there are license requirements.

    they will say they lend in all 50 states then you ask them about license and they default to the fact they are making a loan on non owner occ and to an LLC... well that's fine and dandy but still not legal in those 11 states... So I am always very skeptical of those who say they are nationwide.

    I was at a AAPL conference and going from booth to booth and half the guys all said the same thing when queried further they had no clue..

    Oregon will shut you down in  a heartbeat so will NV  and NV you need brick and motor as well.

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  • Teddy Smith
    Real Estate Broker · Wilmington, NC · Member since 2016 · 236 posts · 126 votes
    9y

    You have to realize that 99% of realtors have no clue about investing. You have to find brokers that specialize, OP.

    Investing takes technical knowledge and reading. There's a ton of crappy agents that haven't cracked open a book since there broker exam.

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  • Account Closed
    Business Owner · Madison, WI · Member since 2017 · 79 posts · 59 votes
    9y
    Just do a double close with transactional​ money.
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  • Randy Johnston
    Residential Real Estate Broker · Beaverton, OR · Member since 2014 · 335 posts · 149 votes
    9y

    @Jay Hinrichs, how about if you get your transactional funding from a private lender? A friend or associate that only makes loans to people he or she knows. Is there a limit as to how many loans a private lender can make in a given year? I'm talking Oregon here?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Randy Johnston  yes there is a carve out for 3 a year.. and you may not hold yourself out as a lender in any fashion IE go to meetups and announce your a lender or advertise on craiglist or any other manner.

    this carve out for 3 a year is basically to accommodate those that lend in their IRA's.

    Just google east side funding and see what happens when you lend without a license in Oregon  LOL.. not pretty.  plus the borrowers then make the claim the loans are illegal because you were never licensed so they don't owe any interest and there could be treble damages to any interest and if a judge really does not like you .. he could wipe your loan out completely  ( not likely but could happen)... Oregon is dead serious about this stuff ... so is Nevada.

    I made one post on B P about wanting to just find a MLO to do a note deal for me in NV and I got a nasty gram from the state of Nevada.. stating that yes I am licensed in ORegon but not Nevada and have I done any loans and if I had they would sanction me.

    Now you can go right across the river to WA and NO licensed required for business purpose loans.

    IN CA you need either RMLO or  A RE broker.. those who say you don't  are just wrong... I see them do that on BP all the time... they just have never been turned in or caught.

    Same with the new laws of assigning equitable interests in Oregon.. I took my CE in Jan.. and there was a whole chapter on this coming into the definition of needing a RE licesne... so I suppose wholeslaers that don't know this will get away with it until they are turned in.. or when someone does not honor their contract because its voidable.

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  • David Grabiner
    Investor · Chattanooga, TN · Member since 2016 · 146 posts · 108 votes
    9y

    @Jay Hinrichs 

    That is interesting I never thought of that. So a savvy seller could use the wholesaler to find a buyer than opt out of the contract because it wasn't legal in the first place.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @David Grabiner  OH yes you see this often .. especially wholesalers who can't get their butts to a wet closing only to come in and the buyer and seller have cancelled their escrow and opened another and cut them totally out.

    Now we don't do wet closings 0n the west coast its totally frowned upon to have the buyer and seller in the same room or even meet or speak.. this is what you need a real estate agent for.

    Title and escrow companies know this.. they set a time for one to come in and sign usually the seller first then the next day buyer comes in and then the next day it records.. everyone leaves wire instructions or asked to have their checked mailed to them.

    NO one gets a check sitting at a table.. LOL...

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    @Curtis Waters Dude. Really?

    Have you even looked at the NC standard forms? Let's look at , the most common form used to buy real estate in NC:

    16. ASSIGNMENTS: This Contract may not be assigned without the written consent of all parties except in connection with a tax- deferred exchange, but if assigned by agreement, then this Contract shall be binding on the assignee and assignee’s heirs and successors. 

    That doesn't smack of illegal, does it? Let's now look at the NC standard form , a common form used to buy commercial real estate in NC, and one I used recently:

    Section 18. Assignment: This agreement is freely assignable unless otherwise expressly provided on Exhibit B.

    Does freely assignable mean... illegal? Now let's look at the NC standard form , a common form used to buy vacant land in NC:

    13. ASSIGNMENTS: This Contract may not be assigned without the written consent of all parties except in connection with a tax- deferred exchange, but if assigned by agreement, then this Contract shall be binding on the assignee and assignee’s heirs and successors.

    Assignments are part of doing business, and the NC Bar and NC Realtors know this so they "standardized" on how to do the assignment right there in the text. That's reality in NC. I use assignments all the time, since I don't always know which entity I will put property in.

    Note this is not a 'green light' for someone who thinks this means they can "wholesale" with no money, no commitment, no real estate knowledge or education, and can screw over people with bogus contracts. Assignments are legal, personal property in NC. Much like an . So read the documents and read your state law.

    @Teddy Smith is right.

    BTW, regarding simultaneous or 'near simultaneous' closings... the concept of 'wet' 'wholesaler' closings in many areas has dried up because the NC title insurance companies (and attorneys that certify their status) don't want to deal with it. This business (simultaneous closings) is such a small part of their business relative to the risk they take, most attorneys just don't do it. That's another reality in NC. (The above sentence doesn't include closely held business or personal assignments to parties identified by contract, operating agreements, etc.)

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Chris Martin  superb post.. most states board of realtors contracts read the same way.

    and its common in my line of work as well.. since I fund out of 12 different buckets and many times I don't know which company I want to take title in when I put in the original offer.

    Or if we are doing a subdivision and we have not named it yet and want to create an LLC just for that build out.. Like most builders do....

    but this does not green light to sell real estate without a license..

    I buy a lot of bank OREO and Auction type properties and they are NUTSO on not allowing assignments.. you MUST close in the original name.

    now I don't really like that much .. but they do that to keep the no money wholesaler out of the game.  and it works... we kill it with those transactions and it levels the playing field I am only competing against other investors who have the means to actually close the deals..

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  • Curtis WatersBusiness Member
    Rental Property Investor · Charlotte, NC · Member since 2013 · 291 posts · 176 votes
    9y

    @Chris Martin -  Don't want this to turn into a back & forth.  I know & respect many wholesalers.

    Yes - I know these contracts & clauses well.  I have assigned a commercial purchase agreement.  But it is not the assignment that is the issue.  It is acting as a RE agent without a license that is the issue.

    (A) Assignment of a real estate contract

    Can turn out different than 

    (B) Offering to purchase a home with no funds to complete the sale and no intent to take title the selling your assignment- and not licensed.

    It is B that is troublesome to the NC RE Commission.  I asked at a Broker-in-Charge training & they said (B) is acting as an unlicensed agent.  Assignment happens in many transactions but the intent to take title is the issue.

    I don't see any simultaneous closings, only double closings.  Any attorney will do these as there are two separate transactions.  You must have funds to complete the A to B transaction that don't come from the C end buyer.  However, most transactional funders will ensure that the C end buyer has funds wired to the attorney or title company (depending on the state) before they wire their funds for the A to B transaction.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    I don't want to go back and forth either. This should be my last post here.

    I believe you when you say "I was at a training done by the NC Real Estate Commission. They advise that assigning your contract and not taking title makes you a real estate broker and you must be licensed." The problem is, in the context of this topic and the OP's post, the REC is WRONG. See my prior posts.

    I am not a broker, but brokers in NC believe what they hear from NCREC. I understand that NCREC needs to send that message. They need to keep their brokers 'in the box' so they don't go wild and disrupt public confidence. I get that.

    But a big problem is that NCREC lets felons have licenses. That is simple fact. My message to NCREC was 'stop giving felons licenses and concentrate on the BIG public risks.' Fell on deaf ears, unfortunately. Look it up. File D13-0168.

    From my attorney, I've been told few companies in NC will provide title insurance with the B-C side of a double closing. Again... my prior post excludes the 'normal' double close provisions of closely held entities and/or familial associations.

    BTW, can you show me one case where the NCREC went after an unlicensed person? Just one. They don't do it unless it is simply because the person is already under a criminal charge. Ironic, isn't it? They don't go after HOA management either. They can't. Not their charter. Those are the facts.
    0Reply
  • Curtis WatersBusiness Member
    Rental Property Investor · Charlotte, NC · Member since 2013 · 291 posts · 176 votes
    9y

    @Chris Martin - see this Bulletin page 15 (Sharma).  Injunctions, and Bulletin page 6  Permanent Injunction.

    There haven't been many.  However, it only takes one case to hit the media and wholesalers throughout the state could be impacted.  As a licensed broker & active investor - I don't care unless the activity hurts someone.   Many wholesalers get to Sellers who never talk to a licensed broker.  As long as the transaction is above board and transparent then the Seller is not likely to complain.

    0Reply
  • Don Harris
    Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes
    9y

    good input guys, it comes down to intent and ability to close. If someone needs transactional funding in NC, I can probably point you in the right direction. 

    1Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    @Curtis Waters

    Dude. Really?

    In the spirit of education, not you but others who may be interested in learning, Sharma is a broker. In fact the BIC of his company. He is licensed. License #261052. Here's how to know. Go to . Under the "CONSUMERS" tab at the top, select "Brokers" under the Search Licensees section. For Name, fill in Sharma and press Submit. He not only has his brokers license, but the Primary Firm is also listed: C27633. Now, from the click on the link. Under Organization Name, put in "AGS KR" without the quotes. A quick tip is that you only need enough characters in the search for a unique match. The smaller the number the better, generally. Click on the link under "Entity Name" and you'll see that this is a perfectly legitimate company, that went through a that they got straight with Reinstatement 3/25/14. The guy wasn't filing annual reports with NCSOS. Note the registered agent matches the Manager (looks like a single manager LLC) and that matches the principal office.

    The up shot: He, as a broker, worked for a firm (his) and his firm didn't file as a Broker Firm. Most likely, the landlords who weren't getting their statements and checks in a timely way filed a NCREC complaint. Everything appears to be correct now. This has everything to do with someone not paying attention to the corporate formalities at NCSOS and NCREC.

    The other guy, from 30 years ago, was running a fictitious company. I don't know the history of this, but it looks like loan fraud was at the root of it. But... regardless, it looks like you found the one guy!
    0Reply
  • Gregory Walter
    Charlotte, NC · Member since 2014 · 101 posts · 40 votes
    9y

    If a REALTOR doesn't want to deal with because he thinks your breaking the law either 1)he's right, you broke the law, and you might just want to move on or 2)he's ignorant and if he's ignorant in his own profession he probably will be more work then he's dealing with.

    Whether or not its illegal - depends on your definition of illegal and the activities involved.  There are so many laws and regulatory agency rules which role up in the what's considered law, that prevent most of the more common tactics in wholesaling. 

    I've only ever met 1 wholesaler out of dozens I've become acquaintances with that didn't appear to be breaking the law.  Most wholesalers I've met set up shop and start practicing without identifying the key laws and regs relate to their industry, or just go by the normal speeding rule - if everyone is doing it, like driving 5 miles over the speed limit, I won't be pulled over unless I'm too egregious with it. 

    Some common mistakes are doing things like doing certain things that require a broker license like advertising property, making fraudulent misrepresentations, practicing law without a license by giving legal advise or writing contracts when you are not a party to a transaction, offering illegal kickbacks, conspiracy, violations of RICO.  There are just so many laws, its easy to cross the line if you don't know what your doing, and even if you do.

    Don't avoid realtors, like someone said.  If they are good they will find out who you are anyway and if they resent you for cutting them out, they may try to nail you to wall.  Just work with the ones that know what's going on and will work with you to get the job done.

    1Reply
  • Wendy Wood
    Winston Salem, NC · Member since 2017 · 6 posts · 1 vote
    9y

    So am I correct in concluding that the wiser choice is to do a double closing when wholesaling properties in NC?

    In that case, one would need the money up front to buy the property from person A before selling it to person C and getting the money back minus attorney fees?

    1Reply
  • Andrea Howard
    Real Estate Professional · Detroit, MI · Member since 2017 · 10 posts · 2 votes
    9y

    @chaz reid are you still a wholesaler?

    0Reply
  • Amber Simmons
    Charlotte, NC · Member since 2017 · 14 posts · 10 votes
    9y

    @Steven Pizarro Jr do you use a title company or a lawyer for your deals?

    1Reply
  • Aaron Phillips
    Rental Property Investor · Burlington, KY · Member since 2017 · 101 posts · 66 votes
    9y

    I hope I'm not too late here..

    I just encountered this problem myself. I kept getting told Real Estate Wholesaling is 100% Illegal, and charges can be pressed since I am not a licensed broker. 

    Well let me shed some truth to this that most Real Estate Agents don't know.. Wholesaling/Assigning Property Contracts to another buyer is LEGAL if you let the Seller know before hand that you will either Buy and Hold the property, or you will assign it to another buyer, then tell your end buyer that you are wholesaling the property. As long as you are up front, and honest about what you're doing then there is nothing illegal about it.

    I terminated what could have potentially been my first deal because I was scared into thinking I was committing fraud, but later found out that I was not and what I'm doing is perfectly legal. I got in touch with multiple investors on BP, got some guidance on how I can stay 100% Legal, and so far I haven't had a problem with it since. 

    I was talking to this wholesaler who has been doing it for over 10 years, was explaining him the situation I encountered, and he immediately said "Who said wholesaling is illegal? They're wrong. That person has a sheep's mentality." "If wholesaling was illegal would title companies, and attorneys be working with wholesalers across the nation every day?" etc.. Someone like a REA saying wholesaling is illegal is because they're probably jealous, or don't know what it is. 

    This is what I would do if I were you.. 

    1. Continue looking for motivated sellers, and if you find a property that you know you could get a really good deal on then POUNCE on it! 

    2. Contact a Title Company, or Closing Attorney to help you with the closing process before you get the property under contract. You need to make sure you get one on board with you so when you do get the contract things can go a smoothly as possible.

    3. Get the property under contract once you find a Title Company, or Closing attorney to work with you. 

    4. Start getting on the phones with your Cash Buyers! :)

    Best of luck on your Wholesaling journey, 
    Keep us updated on how things go! 

    4Reply
  • Steven Pizarro Jr
    Charlotte, NC · Member since 2017 · 13 posts · 3 votes
    9y

    @Amber Simmons I use a Attorney. 

    0Reply
  • Steven Pizarro Jr
    Charlotte, NC · Member since 2017 · 13 posts · 3 votes
    9y

    @Curtis Waters If it's illegal, I'm sure attorneys would not assign contracts. That's just bad business right. It's all in the intent that a wholesaler has. I'm not going to much into that, it's done everyday. There are plenty of people who have been investing for years and still need to learn a lot. 

    0Reply
  • Amber Simmons
    Charlotte, NC · Member since 2017 · 14 posts · 10 votes
    9y

    @Steven Pizarro Jr great thank you. Would you mind sharing who you use?

    0Reply
  • Steven Pizarro Jr
    Charlotte, NC · Member since 2017 · 13 posts · 3 votes
    9y

    @Amber Simmons Sure Harry from Harry marsh law. 

    2Reply
  • Amber Simmons
    Charlotte, NC · Member since 2017 · 14 posts · 10 votes
    9y

    @Steven Pizarro Jr thanks!

    2Reply
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