Wholesaling (Against the Law?)

Wholesaling
11yFollow

Wholesaling (Against the Law?)

James Sinclair
Austin, TX · Member since 2013 · 123 posts · 27 votes

I have not wholesaled a house and finding one that would make a acceptable deal, for a buyer, is very difficult in our area.  I have done two fix and flips and they are a lot of work and a fair amount of risk as well. Selling a deal and making a profit, with little risk, could be a better option that doing the work.  

So is wholesaling against the law?  Does anyone really know?  Do we just have a bunch of realtors out there, that resent anyone doing anything that could possiably put money in their pocket, trying to scare off wholesalers?  Do you know of anyone selling their assignable contract being prosecuted for braking some law?  It appears that most of the negative comments about wholesaling seem to be efforts to protect realtors turf and little to do with protecting the public.  Is the real truth out there because there are a lot of people promoting wholesaling.

1Reply
89 views

Most Popular Reply

Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
11y

Well I firmly believe that in most states as the law stands now, it is perfectly legal to wholesale by assigning a contract. However laws change and the trend is against wholesaling. 

Despite that, is it possible to "wholesale in a way that is not legal?" - Absolutely yes. However it is in most cases absolutely possible to comply with the law while assigning a contract. 

  • Most state's laws say that putting together a buyer and seller for consideration "For Another" is brokering without a license. You are not doing it on behalf of another when you wholesale properly. You are bargaining against the seller for your own interest on the buy side, you are bargaining against the buyer for your own interest on the sell side. Many claiming wholesaling is illegal totally ignore the "for another"part of the law. 
  • Many well respected  members here say to be honest with a seller and that you are going find another buyer buy the property. This is essentially saying you are helping them find a buyer or helping sell the property. This I think crosses the "for another" line and now becomes a questionable practice.
  • Real estate brokerage laws were designed to protect consumers of brokerage services from unskilled practitioners. Since you are bargaining on your own behalf you ARE NOT breaking the INTENT of brokerage laws.
  • Therefore when wholesaling properly, you are complying with both the letter of the law and the intent of the law.
  • The Realtor supported Multiple list system in MD allows you to list a property you have under contract. A clear indication that it is legal to assign a contract.
  • Now are there bureaucrats which are trying to stop the process - yes. , In OH for example, threatening letters have been sent out to investors. Yet a very successful investor, with boots on the ground in OH was unable to get the bureaucrats to put in writing the exact law and basis for any fines. This investor and the investor's lawyer believe the reluctance to put in writing the exact violation means, they know they do not have a legal basis for their actions. Now this is only one investor/lawyers opinion, buy it shows even  in the most contentious state there is reason to believe it is legal.

None of the above is intended as legal advice for any readers specific situation.

4Reply
See this reply in the discussion

86 Replies

Jump to latestLatest
  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    11y

    I have had agents find me end buyers on an assignment.  No listing, no ownership, no contract.  Just a hand shake.  I have found buyers on my own also. The fact remains thought that I haven't sold a property, rather my vested interest in a property that I have put a deposit on.  Gray area... maybe.  Effective and profitable... yes.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Brandon Ingegneri  IRS could give a %$#@  prostitutes file tax returns does not make it legal.

    each state has a different take on this.. and the bottom line is the department of Real Estate is the governing body in any state they are the one's to ask not an attorney or BP audience etc.. 

    Now I have been buying in Texas lately and there is a lot of wholesale activity there and it has to do with this 100.00 option payment that is prevalent there and I think thats what gives folks the rights to market their option.

    If someone really wants to know what their states position is just write the department of Real estate describe your business model and ask for an opinion letter.. get said letter put it in your file and off you go. If your model requires a license adjust it or get a license agent on your team thats not hard.

    Last time I listened to my attorney tell me I was right and the state was wrong it cost me 50 large... A lot of stress and time sitting in front of regulators who really did not care what my 500 dollar an hour attorney was saying  LOL... at the end of the day the state made their position clear do it our way or take it to administrative law hearing which would have cost me over 100 large..  So for me personally I could give a crap of what an attorney tells me they win either way and they are not the law.. they just practice law and give there opinion as they see it or interpret the statues of the state. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    3Reply
  • Matthew Kreitzer
    Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes
    11y
    Originally posted by @Jay Hinrichs:

    @Brandon Ingegneri  IRS could give a %$#@  prostitutes file tax returns does not make it legal.

    each state has a different take on this.. and the bottom line is the department of Real Estate is the governing body in any state they are the one's to ask not an attorney or BP audience etc.. 

    Now I have been buying in Texas lately and there is a lot of wholesale activity there and it has to do with this 100.00 option payment that is prevalent there and I think thats what gives folks the rights to market their option.

    If someone really wants to know what their states position is just write the department of Real estate describe your business model and ask for an opinion letter.. get said letter put it in your file and off you go. If your model requires a license adjust it or get a license agent on your team thats not hard.

    Last time I listened to my attorney tell me I was right and the state was wrong it cost me 50 large... A lot of stress and time sitting in front of regulators who really did not care what my 500 dollar an hour attorney was saying  LOL... at the end of the day the state made their position clear do it our way or take it to administrative law hearing which would have cost me over 100 large..  So for me personally I could give a crap of what an attorney tells me they win either way and they are not the law.. they just practice law and give there opinion as they see it or interpret the statues of the state. 

     Here is the unfortunate side of practicing law. We can be as right as rain when it comes to the law itself, but bull-headed public officials think they have some authority that is not granted to them by their State Legislature or Constitution, and often act in contrast to what the actual law says. There are ways of getting around this, such as Writs of Mandamus. Yes, the process can be expensive.

    However, an actually decent attorney will advise you on these associated costs and how regulatory agencies are treating questions right now, and how much work you would actually have to go through to get things done. 

    From the perspective of my state, there is absolutely nothing wrong with wholesaling property. If anything, preventing wholesaling by regulatory agencies is an unreasonable restraint on alienation and unfair trade practices that are meant to protect a profession that, in my opinion, does not need such protections.

    Alas, we attorneys can only do as much as we are paid to do. We'd be happy to send a self-important Regulatory clerk to jail on a capias. We just need money to do so.

    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    I can understand the feeling @Matthew Kreitzer. Administrative law often looks more to the intent than the written word and agencies are charged by legislative bodies to interpret the law and apply that interpretation. I'm not a lawyer but I have been in regulatory positions. I've argued against attorneys but maybe I was just lucky never losing my case. I too don't care for some overpowering micro-bureaucrat, I also don't like hearing at some large retail outlet or cable provider messing with me that "that's company policy, sir". It is what it is.

    Regulators are to promote the public good, not the interests of any attorney's client, that's the attorney's job. When you get out of administrative hearings and get to court, in real estate matters, my guess would be that the regulators win 85-90% of the time. Generally, some compromise will be made at that point, saying instead of a $50,000 fine, a $25,000 fine is accepted while the violator pays legal fees of $25,000+ to get there, I don't see that as a real win. 

    The best course of action is to ensure you operate in compliance instead of walking along the edge of rules, regulations and law. I've never seen an attorney pay costs for their clients violations after they advised them or represented them, they often walk away with more money in their pockets. It's too bad that an attorney is barred from giving guarantees. 

    First rule for a good defense is to deny, deny, deny. 

    Second rule, justify, justify, justify.

    If you have to justify your actions you're usually wrong.

    I can't really believe that any real estate commission would think that equitable title alone constitutes ownership of a parcel and the requirements to advertise is defined by ownership, from the UCC down to the lowest ordinance ownership means holding legal title, not just an equitable interest or economic interest.  Unless GA statues specifically state that advertising a property for sale while having equitable title is permitted, I'd have to disagree with J. Scott's attorney.

    Equitable title passes upon executing a sale contract, I've not seen many listings, property for sale by "Vendee" or "equitable title holder". I have seen listings, for sale by owner. 

    In real estate agencies relationships, all parties in title are required to sign a listing agreement, it doesn't mean the heirs who may have some future equitable interest, but those holding legal title. 

    Is wholesaling illegal, the way it is usually done as a business venture? Usually it is. Is assigning a contract illegal? No!   These are two different matters entirely and much of the kicker is the conduct as a business venture, a practice that is repeated to facilitate the sale of real estate as opposed to some one time transaction where a buyer simply changed their mind. 

    Wholesalers simply do the same thing as real estate brokers, facilitate a sale, instead of using one type of contract, they use another, the outcome is the same. Chances are, regulators will see things in this light. :)

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Matthew Kreitzer  I get your point.. my point is the state knows the cost of defense in these matters.. I also know that there are no attorney's that are going to take these on contingency. 

    This particular regulator I went up against was not a pencil pusher he was very very bright and there was no way my attorney was going to prevail.  

    So it really depends on the individual if they want to move forward with something that may or may not be legal. 

    I know its free in my state to write in describe your business model provide copies of your advertising your website etc. and the state will give you a written opinion. 

    With that doc in hand you model your business to be compliant and off you go.

    Or you make these silly posts on BP and everyone talks about what they know but really have no authority in these matters.. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y

    Well I firmly believe that in most states as the law stands now, it is perfectly legal to wholesale by assigning a contract. However laws change and the trend is against wholesaling. 

    Despite that, is it possible to "wholesale in a way that is not legal?" - Absolutely yes. However it is in most cases absolutely possible to comply with the law while assigning a contract. 

    • Most state's laws say that putting together a buyer and seller for consideration "For Another" is brokering without a license. You are not doing it on behalf of another when you wholesale properly. You are bargaining against the seller for your own interest on the buy side, you are bargaining against the buyer for your own interest on the sell side. Many claiming wholesaling is illegal totally ignore the "for another"part of the law. 
    • Many well respected  members here say to be honest with a seller and that you are going find another buyer buy the property. This is essentially saying you are helping them find a buyer or helping sell the property. This I think crosses the "for another" line and now becomes a questionable practice.
    • Real estate brokerage laws were designed to protect consumers of brokerage services from unskilled practitioners. Since you are bargaining on your own behalf you ARE NOT breaking the INTENT of brokerage laws.
    • Therefore when wholesaling properly, you are complying with both the letter of the law and the intent of the law.
    • The Realtor supported Multiple list system in MD allows you to list a property you have under contract. A clear indication that it is legal to assign a contract.
    • Now are there bureaucrats which are trying to stop the process - yes. , In OH for example, threatening letters have been sent out to investors. Yet a very successful investor, with boots on the ground in OH was unable to get the bureaucrats to put in writing the exact law and basis for any fines. This investor and the investor's lawyer believe the reluctance to put in writing the exact violation means, they know they do not have a legal basis for their actions. Now this is only one investor/lawyers opinion, buy it shows even  in the most contentious state there is reason to believe it is legal.

    None of the above is intended as legal advice for any readers specific situation.

    4Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    11y

    Be upfront with all sellers.  Do what you do with their best interests in mind.  Always.

    Sell your interest, not the property.  Don't show the property, don't market the property.  Be honest and upfront. Put skin in the game and be ready and willing to close. Avoid weasel/escape clauses disguising an inspection period as a time to find partners and all that.    So and so is not your partner, he/she is a prospective buyer.  Again, be honest.

    Be extraordinary in a sea of no barrier to entry greedy graduates of the latest get rich quick seminar that sums up your 'industry'.  There are some good wholesalers, but they tend to be the one good apple in a batch of bad.   I don't think you will be this way @James Sinclair. You actually have 3 nickels to rub together.  Not everything 'legal' is a good way to do business.   The question should be "how do I be the best, most ethical wholesaler out there"??

    2Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    11y
    Originally posted by @Steve Vaughan:

    Be upfront with all sellers.  Do what you do with their best interests in mind.  Always.

    Sell your interest, not the property.  Don't show the property, don't market the property.  Be honest and upfront. Put skin in the game and be ready and willing to close. Avoid weasel/escape clauses disguising an inspection period as a time to find partners and all that.    So and so is not your partner, he/she is a prospective buyer.  Again, be honest.

    Be extraordinary in a sea of no barrier to entry greedy graduates of the latest get rich quick seminar that sums up your 'industry'.  There are some good wholesalers, but they tend to be the one good apple in a batch of bad.   I don't think you will be this way @James Sinclair. You actually have 3 nickels to rub together.  Not everything 'legal' is a good way to do business.   The question should be "how do I be the best, most ethical wholesaler out there"??

    Here lies the problem with that. Who in their right mind is going to buy a contract from a property that they can't see? You say that I have a contract for a property that's for sale without any info on the property which is legal(I'm not an attorney)is anyone going to bite on that?

    That's why the traditional way of wholesaling is much more attractive but state regulators across the board are cracking down on that(see Ohio for example).

    It's a catch 22. You either wholesale the traditional way and risk getting caught,fined and/or jailed or you market your contract in hopes that buyers will buy it but no buyer in their right frame of mind is going to buy a contract from a property they can't see,inspect,etc until they buy the contract.

    You either have to think outside the box and come up with creative strategies that will keep regulators off your backs or find a new way to get into the REI business.

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    11y

    @James Hiddle I didn't mean the contract buyer can't see it.  You just can't show it as a wholesaler.  I would be ok letting a buyer in or better yet, asking the homeowner to show them around.  

    The gist of my post is to be decent and ethical to people,  not whether you can sell it to your buyer or not.  I'd rather a wholesaler get stiffed than a homeowner any day of the week.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Old saying: The road to hell is paved with good intentions. 

    The problem with "believing" you're right and "being" right are two different things.

    In the original post, there was a comment about Realtors protecting their turf so to speak.

    Not really, not at all, a wholesaler sells to another investor type, that property will likely be back on the market soon. Wholesalers are not a threat to Realtors as far as inventory goes. 

    We've hammered this before, Realtors have obligations in dealing with the public, unlike wholesalers who usually lack general knowledge, the Realtors don't like seeing a public menace to property owners due mostly to the tricks they play and taking a property off market while the play games of "go find me a buyer".

    There are better ways and legal ways, but seems most don't want to take the time to actually learn this business. Wholesaling is a runaway freight train! Thank you TV gurus! :)  

    1Reply
  • Christopher Brainard
    Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
    11y
    Originally posted by @Ned Carey:

    Well I firmly believe that in most states as the law stands now, it is perfectly legal to wholesale by assigning a contract. However laws change and the trend is against wholesaling. 

    Despite that, is it possible to "wholesale in a way that is not legal?" - Absolutely yes. However it is in most cases absolutely possible to comply with the law while assigning a contract. 

    • Most state's laws say that putting together a buyer and seller for consideration "For Another" is brokering without a license. You are not doing it on behalf of another when you wholesale properly. You are bargaining against the seller for your own interest on the buy side, you are bargaining against the buyer for your own interest on the sell side. Many claiming wholesaling is illegal totally ignore the "for another"part of the law. 
    • Many well respected  members here say to be honest with a seller and that you are going find another buyer buy the property. This is essentially saying you are helping them find a buyer or helping sell the property. This I think crosses the "for another" line and now becomes a questionable practice.
    • Real estate brokerage laws were designed to protect consumers of brokerage services from unskilled practitioners. Since you are bargaining on your own behalf you ARE NOT breaking the INTENT of brokerage laws.
    • Therefore when wholesaling properly, you are complying with both the letter of the law and the intent of the law.
    • The Realtor supported Multiple list system in MD allows you to list a property you have under contract. A clear indication that it is legal to assign a contract.
    • Now are there bureaucrats which are trying to stop the process - yes. , In OH for example, threatening letters have been sent out to investors. Yet a very successful investor, with boots on the ground in OH was unable to get the bureaucrats to put in writing the exact law and basis for any fines. This investor and the investor's lawyer believe the reluctance to put in writing the exact violation means, they know they do not have a legal basis for their actions. Now this is only one investor/lawyers opinion, buy it shows even  in the most contentious state there is reason to believe it is legal.

    None of the above is intended as legal advice for any readers specific situation.

    This has been discussed in many other topics, but the issue here is when the wholesaler does not have the ability to close and then inserts various "escape clauses" in order to exit the contract when he/she is unable to assign it. Due to the conditions, the wholesaler is not gaining equable interest in the property, therefore, is acting for another. I would wager that this is the case for 99% of the members on the site asking this question. It falls under that mindset of: "I have no money, no experience, and no business plan. What do I do? I'll wholesale properties!".

    The MD MLS probably allows this type of listing because it can be done legally - the issue is that the techniques being taught are not compliant with the law. Additionally, many newbie wholesalers are causing deals to go bad, which is casting a huge shadow over the entire strategy.

    If there are no escape clauses and the wholesaler has the ability to close, I doubt you would get any push back from the commission what so ever. There were a few videos from Ohio that touched on this subject that were posted a while back.

    -Christopher

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    11y

    If done in the wrong manner, the State of Florida calls it brokering without a license. We have local people that are currently under investigation for just that. If found guilty, they could be fined up to $5000. More importantly, if they ever apply for a real estate license, they may be denied due to previous unlawful brokering.  I am watching a case against a "wholesaler" out of the Bradenton area. He had a complaint filed against him and his name shows up on the state website for having a complaint for unlicensed activity. There will be more according to some locals that have been in contact with DBPR. Having a license solves a lot of issues.

    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    11y
    Originally posted by @Todd Plambeck:
    Originally posted by @James Hiddle:

    If you are marketing the house whether or not you're under contract without a license is against the law as you are brokering without a license. You can't advertise or sell something you don't own.

    So the traditional way to wholesale(find a discounted property,get it under contract and market it to a cash buyer)is starting to get the attention of state regulators especially in California,Ohio and Florida and fines and jail time are being issued to those who are marketing/selling properties they don't own without a license.

    So unless you can find a way to market your contact without marketing the property itself which isn't against the law you'll need to either get your RE license or find another REI strategy.

     And how many states are you licensed to practice law in?  That sounded a lot like legal advise...

     Dude - what part of what he said do you disagree on? That States he mentioned are really cracking down on wholesalers? This is a fact. That fines are ridiculously high? This is also a fact. 

    Stop being a smartass and listen to someone who is obviously paying attention!

    0Reply
  • Tim Hall
    Flipper/Rehabber · Tallahassee, FL · Member since 2014 · 462 posts · 237 votes
    11y

    Potato, potarto. As far as wholesaling goes if you use the mls to find your deals and sell your deals then you should be a licensed realtor. If you find properties that are not on the mls, get them under contract, without the help of a realtor and do the transaction through an re attorney you do not need a license. That's why the seasoned wholesaler has a buyers list, so they don't have to advertise properties. I'm not messing in your sand box, so you do the same for me. It's the people who have a little bit of knowledge, just enough to get themselves into trouble that are making it hard for the rest of us.

    0Reply
  • James Sinclair
    OP
    Austin, TX · Member since 2013 · 123 posts · 27 votes
    11y

    @Bill Gulley I am curious about your statement indicating properties are being taken off the market. Most of what I read about wholesaling indicates that people look for "off market" properties that need work to get them ready to list on the MLS. I am also wonder about the UCC stating that commerce requires holding title to property when most commodities are sold based on futures contracts and option contracts.

    The biggest issue I have with wholesale deals is that they are just not good deals for me. The ARV is suspect, The discount from ARV is more like 80 to 85% instead of 70%, the cost to rehab looks like it is under estimated. This could be that the wholesaler just does not know but it could be that they are just looking for a sucker/investor that is too eager to get a deal.

    Marketing to find a deal cost money and time and I am more interested in having options of recovering some of that cost if I find more deals that I want.  It seems like wholesaling it to another investor should be an option.  

    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y

    Is it legal

    Exactly, If done in the wrong manner you can be breaking a law. The question was "Is Wholesaling against the law?" Driving through a red light is illegal, but that doesn't make driving illegal. In most states, wholesaling can be done in a way to comply with the law. (PS not picking on John, the quote just fit my point.)

    Being an agent makes it OK - bull poop

    I disagree strongly with the belief that being an agent makes it OK. An agent has a higher duty to disclose facts. If an agent knows a property can be sold for a higher price (or believes so strongly that he or she puts it under contract for their own benefit) it could be argued that the agent hasn't dealt honestly with the seller. (Unless he or she has disclosed that fact)

    Furthermore most states do not allow Net Listings. Wholesaling could be construed as a net listing. How do those that say wholesaling is against the intent of the law reply to that. Clearly wholesaling as an agent goes against the intent of a ban on net listings.

    Gurus are the problem

    I believe the whole reason this is an issue is Gurus setting unrealistic expectations and pushing newbies to do unethical things. They promise that there is no risk and act as if no harm is done to a seller if you walk from a deal. Wholesaling is a legitimate business model. Sadly too many people screw it up.

    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Ned Carey  posts on BP on the subject have the same effect on newbies as guru's I lump them all together :)... 

    I have personal experience with this net listing VS  undisclosed profit.. as a young buck in RE in the late 70's I sold land in Northern CA... it was much like what wholesalers do now. and I look at different markets and how unique they are.. in some areas folks are buying low value assets IE 5 to 20k adding a 5k fee or so and wholesaling them off to rehabbers and many times those homes end up in some turn key companies inventory. 

    The way we dealt with Net listings was to simply charge a flat fee or higher % commisish. 

    I see flat fee's all the time on low value deals I fund.. IE one of my guys or gals bought one for 10k and the realtor has a flat fee of 2 or 3k... 

    me personally when I was selling land ,, it was very hard to sell these properties.. One just  finding them was hard.. the gas and time involved so my way to compensate was to take listings at 20 to 35% commission... I rarely took anything for less than 15%... commissions as we know are negotiable ( although the negotiating is usually downward pressure)... 

    I think the major issue we see in this wholesaling segment is that between guru's and BP we launch the least experienced less capable folks into the business thinking this is the way they need to go to get to the brass ring IE quit my day job and live the life of a RE investor ( remember us full time RE investors everyone wants to be us living the life of rily collecting checks spending time with the kiddos' etc)

    We see it all the time on BP   " Hey I want to start wholesaling then I want to acquire buy and hold then I want to quit my day job"  thats pretty much the mind set.

    And as you probably know you unleash uneducated folks into this industry and all sorts of mayhem can ensue.. Not everyone is straight up.. not every cares about the other person. they only care about what they can make etc etc.. I see it all the time.

    As for brokering without a license that is state specific like you said... one would be wise to just check with their particular state.  

    And like all things RE at the end of the day 9.5 out of 10 folks that think they are going to have a carrer wholesaling will end up failing in less than a year.. and very well have spent a lot of money on their marketing etc with nothing to show for it.

    this is just not as easy as sending out letters and website etc. you MUST have some skills to close a deal.. To even know what a deal is.. As I round into my 18th month on BP and come to understand how prevalent this wholesaling is nationwide.. I take notice of the bigger wholesalers in most states and most of them are licensed ... I know the big players in Orlando I deal with are.. CA same thing. At the end of the day as long as RE agents disclose what they are doing they are fine on fiduciary level.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y

    @Jay Hinrichs I agree pretty much completely. That is one reason I post so much on BP. I try to correct misconceptions about all aspects of real estate.

    I certainly don't do in on every post but I regularly tell people that wholesaling is much harder that you've been led to believe. It does take money and it does have risk.

    What gripes me is when people will Poo Poo something like wholesaling but make no effort to educate the right way to do it.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Ned Carey  I guess I am just old school and a lot of this goes to the three C's

    and intent.. the three C's being character capacity and Collateral I think you need all three to be a RE professional.. be it wholesaler,, builder developer, Real Estate broker etc.

    And so much of this goes to the intent or the lack thereof and the deception and the justifying it because this is what others tell them to do.. IE sale subject to my partners approval.. excessive Due diligence periods IE 60 and 90 days.. 100 dollar EM all of that to me just screams of Bush league. 

    And again being old school and having never wholesaled a property IE if I want something I buy it then resell it.  And or if I want to make a fee I broker it with my licenses.

    What I think is really hurting the industry and or the quasi profession of wholesaling is unleashing these newbie type folks who then use weasel clauses and just sling stuff up on the wall hoping something will stick.. god for bid they risk 1,000 dollars of EM.

    I see RE as being a progression of knowledge and I understand folks have to start somewhere but I for one have zero interest in going through one's learning curve.

    Just like your core competency of tax sales etc.. Its completely OK for those with no knowledge to jump in.. because they are risking their own money and not harming anyone else but themselves when they make a bad buy or poor decision. Although we as professional bidders get frustrated when a new crop of newbies comes in and continually overbids for these assets, but its their right.

    I draw the line when these same folks with lack of knowledge capacity and collateral abuse Sellers who in most instances are innocent or unknowledgable.  As for a wholesaler that closes on inventory I have absolutely no qualms about that they are now taking a financial risk for a financial reward seller is happy they got a straight up sale and all is good

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    11y

    You can't really blame some of these newbie wholesalers as they are drinking the koolaid tainted by these so called gurus that promises them the world but in reality they're only getting a grain of sand.

    The promises of doing this in only 5 hours a week with little or no money to make a ton of money is a luring and an attractive diamond being sold to the poor souls that buys into their game but in reality they're only getting a lump of coal.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    @James Sinclair

    Good question! The "market" is a broad term. Being "in the market" to transact business includes those with an intent to buy or sell, contemplation to act. "On the market" is an asset that is made known to the public that it is for sale or lease. 

    Consider expired listings, is the owner still in the market to sell if the property is "off the market"? Most often they are. The guy who has an old boat in his yard with a for sale sign on it.....there were no buyers.....he takes the sign off and pulls the boat around to the side of his driveway. The boat is "off the market" but the owner is more likely still "in the market" if a potential buyer were to ask.

    The MLS is not the entire market, there are FSBOs and those who are in the market.

    Realtors look for off market properties with owners who are in the market, interested in or contemplating selling. That's how Realtors get listings.

    My comment as to the UCC was to the definition of ownership of an asset. The owner must agree to sell legal title. They let an option contract on soy beans. A broker or contract holder doesn't sell the soy beans, they sell the contract, only the one who holds legal title can sell the soy beans. My comment to the esteemed attorney was more in reference to "uniform law". 

    I see @Ned Carey might be getting steamed with his opinion, LOL. I think there is a little bit of "protecting the turf" going on, but that's understandable, not sure on that. 

    I think Ned was calling me out to teach the right way to wholesale, by implication :)

    I could "wholesale" the house across the street from the regulator and attorney in that Ohio video on wholesaling and she couldn't or wouldn't say a word. 

    I would use an LLC. I would get a purchase contract for my LLC to purchase. I then market the contract to my known buyers, like Ned. It takes about 20 minutes to admit Ned into the LLC. Ned now has a capital account in the LLC. We go to closing and Ned buys the property through the LLC, his title interests are protected by the Operating Agreement and lien he has on the asset of the LLC, this is internal to the LLC. Ned rehabs the place and flips it. Sale proceeds go to the LLC at settlement, proceeds are then cash deposits and are still in Ned's capital account. Ned can remain in the LLC or he can withdraw with his money going on his merry way. This arrangement would be legal in all states, I'm pretty sure of it.

    It may sound complicated to some, but it's pretty simple. An LLC is not hard to set up. Any decent bookkeeper can set up the accounts. Any attorney doing corporate law can set up the Operating Agreement and lien assignments. Later on, I'll be giving instruction on this arrangement.

    They thing that keeps going past everyone is understanding the difference in acting as an individual or entity in a one time transaction, where the activity is unique to other operations that one may do; and acting as a business model, repeating the activity putting you "in the business of" doing something. "Being in the business of" requires a license. Having a license is also problematic, but it can be accomplished ethically and legally.

    The point of a licensee having a higher duty to an owner is no more of an issue than an investor dealing honestly, ethically and fairly, where is the investor's integrity? Is there any? Most sellers of a distressed property don't want to mess with it, that's why it's sitting there as a distressed property.       

    If you are providing a service, as under the Fair Trade and Services Act, pricing your service so that you are not gouging the public but in line with similar services then you won't be seen as deceiving an owner and stealing excess equity. Most newbies are taught predatory dealing as the way to make money, it sells guru books, but following that path can come back on you from many unpleasant ways. 

    There is a gross lack of knowledge among wholesalers, even those who believe they have mastered the strategy are lacking knowledge. Real estate requires an ongoing educational effort if you are really going to succeed in this business. :)

    0Reply
  • Larry K.
    Investor and Architect · Ramsey, NJ · Member since 2010 · 305 posts · 84 votes
    11y

    @Ned Carey

    Being an agent makes it OK - bull poop

    I disagree strongly with the belief that being an agent makes it OK. An agent has a higher duty to disclose facts. If an agent knows a property can be sold for a higher price (or believes so strongly that he or she puts it under contract for their own benefit) it could be argued that the agent hasn't dealt honestly with the seller. (Unless he or she has disclosed that fact)

    Thank you for pointing this out. Realtors have a fiduciary responsibility to their client and should be getting them the highest price possible, not keeping the highest price hidden.

    0Reply
  • Todd Hutcheson
    Wholesaler · Orlando, FL · Member since 2008 · 111 posts · 251 votes
    11y

    Tim Hall, your assertion is just not accurate at all in the State of Florida. Whether you buy in the MLS or directly through a seller has no bearing on anything.

    We had the legal counsel for the state of Florida FREC at our CFRI advanced investors luncheon and he said that if you have a contract you can sell it no problem.

    It becomes illegal to wholesale when you do not have a contract and are attempting to advertise and sell someone else's contract. That is practicing real estate without a license in Florida. ( a felony by the way )

    0Reply
  • Matthew Kreitzer
    Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes
    11y
    Originally posted by @Bill Gulley:

    I can understand the feeling @Matthew Kreitzer. Administrative law often looks more to the intent than the written word and agencies are charged by legislative bodies to interpret the law and apply that interpretation. I'm not a lawyer but I have been in regulatory positions. I've argued against attorneys but maybe I was just lucky never losing my case. I too don't care for some overpowering micro-bureaucrat, I also don't like hearing at some large retail outlet or cable provider messing with me that "that's company policy, sir". It is what it is.

    Regulators are to promote the public good, not the interests of any attorney's client, that's the attorney's job. When you get out of administrative hearings and get to court, in real estate matters, my guess would be that the regulators win 85-90% of the time. Generally, some compromise will be made at that point, saying instead of a $50,000 fine, a $25,000 fine is accepted while the violator pays legal fees of $25,000+ to get there, I don't see that as a real win. 

    The best course of action is to ensure you operate in compliance instead of walking along the edge of rules, regulations and law. I've never seen an attorney pay costs for their clients violations after they advised them or represented them, they often walk away with more money in their pockets. It's too bad that an attorney is barred from giving guarantees. 

    First rule for a good defense is to deny, deny, deny. 

    Second rule, justify, justify, justify.

    If you have to justify your actions you're usually wrong.

    I can't really believe that any real estate commission would think that equitable title alone constitutes ownership of a parcel and the requirements to advertise is defined by ownership, from the UCC down to the lowest ordinance ownership means holding legal title, not just an equitable interest or economic interest.  Unless GA statues specifically state that advertising a property for sale while having equitable title is permitted, I'd have to disagree with J. Scott's attorney.

    Equitable title passes upon executing a sale contract, I've not seen many listings, property for sale by "Vendee" or "equitable title holder". I have seen listings, for sale by owner. 

    In real estate agencies relationships, all parties in title are required to sign a listing agreement, it doesn't mean the heirs who may have some future equitable interest, but those holding legal title. 

    Is wholesaling illegal, the way it is usually done as a business venture? Usually it is. Is assigning a contract illegal? No!   These are two different matters entirely and much of the kicker is the conduct as a business venture, a practice that is repeated to facilitate the sale of real estate as opposed to some one time transaction where a buyer simply changed their mind. 

    I have a significant number of things to correct  from a legal matter. The UCC, at least in my state and in the vast majority of states, does not govern the sale and execution of land contracts. In Virginia, that is governed entirely by common law and statute. 

    Just because one is a regulator and "That is how I do things" does not make it legally correct. I am an attorney, and I am in Court when these administrative decisions are appealed. The vast majority of time regulators lose. Why? Because the vast majority of time they are stepping beyond the boundaries that the law has laid out for them. The vast majority of time they are exceeding the limitations placed on them by the Dillon's Rule of Local Government Law, or the delegation of powers rule as promulgated by Federal Law. Unless statutes specifically gives a power, one do not have that power. 

    I would also disagree with what you assert to be the principle purpose of a regulatory agency. A regulatory agency's purpose is whatever the law defines its purpose to be. Regulatory Agencies are not some supra-national legal body that does not have to bow to the whims of our legal system. Everything a Regulatory Agency does is governed by the law. I would agree with the assertions of Ms. Scott's attorney, as an attorney. As would the Judges in my state were this to go to the Court of Appeals.

    The reason for why I think this would be the case is that, because these situations are governed by Common Law and NOT the UCC in the vast majority of states, is because this ultimately becomes a matter of Contract Law. If the situation you are discussing is that in which a person has entered into a contract related to land that gives them some interest in the land (whether that be financial or otherwise) but a Deed of Title has not been conveyed, that person's powers for the land depend entirely on the terms of any Contract that have been entered into. Absent provisions of a state statute to the contrary, the terms of the Contract control entirely. That would be any implied terms, necessary terms, or stated terms. 

    If a person wishes to give a third party Vendee the ability to market their land, they are more than able to do that as a matter of Contract Law. I would go so far as to say they have the power to do that if it is reasonably necessary to carry out whatever arrangement exists between the Vendee and the Owner in Title.  

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y
    Originally posted by @Matthew Kreitzer:
    Originally posted by @Bill Gulley:

    I can understand the feeling @Matthew Kreitzer. Administrative law often looks more to the intent than the written word and agencies are charged by legislative bodies to interpret the law and apply that interpretation. I'm not a lawyer but I have been in regulatory positions. I've argued against attorneys but maybe I was just lucky never losing my case. I too don't care for some overpowering micro-bureaucrat, I also don't like hearing at some large retail outlet or cable provider messing with me that "that's company policy, sir". It is what it is.

    Regulators are to promote the public good, not the interests of any attorney's client, that's the attorney's job. When you get out of administrative hearings and get to court, in real estate matters, my guess would be that the regulators win 85-90% of the time. Generally, some compromise will be made at that point, saying instead of a $50,000 fine, a $25,000 fine is accepted while the violator pays legal fees of $25,000+ to get there, I don't see that as a real win. 

    The best course of action is to ensure you operate in compliance instead of walking along the edge of rules, regulations and law. I've never seen an attorney pay costs for their clients violations after they advised them or represented them, they often walk away with more money in their pockets. It's too bad that an attorney is barred from giving guarantees. 

    First rule for a good defense is to deny, deny, deny. 

    Second rule, justify, justify, justify.

    If you have to justify your actions you're usually wrong.

    I can't really believe that any real estate commission would think that equitable title alone constitutes ownership of a parcel and the requirements to advertise is defined by ownership, from the UCC down to the lowest ordinance ownership means holding legal title, not just an equitable interest or economic interest.  Unless GA statues specifically state that advertising a property for sale while having equitable title is permitted, I'd have to disagree with J. Scott's attorney.

    Equitable title passes upon executing a sale contract, I've not seen many listings, property for sale by "Vendee" or "equitable title holder". I have seen listings, for sale by owner. 

    In real estate agencies relationships, all parties in title are required to sign a listing agreement, it doesn't mean the heirs who may have some future equitable interest, but those holding legal title. 

    Is wholesaling illegal, the way it is usually done as a business venture? Usually it is. Is assigning a contract illegal? No!   These are two different matters entirely and much of the kicker is the conduct as a business venture, a practice that is repeated to facilitate the sale of real estate as opposed to some one time transaction where a buyer simply changed their mind. 

    I have a significant number of things to correct  from a legal matter. The UCC, at least in my state and in the vast majority of states, does not govern the sale and execution of land contracts. In Virginia, that is governed entirely by common law and statute. 

    Just because one is a regulator and "That is how I do things" does not make it legally correct. I am an attorney, and I am in Court when these administrative decisions are appealed. The vast majority of time regulators lose. Why? Because the vast majority of time they are stepping beyond the boundaries that the law has laid out for them. The vast majority of time they are exceeding the limitations placed on them by the Dillon's Rule of Local Government Law, or the delegation of powers rule as promulgated by Federal Law. Unless statutes specifically gives a power, one do not have that power. 

    I would also disagree with what you assert to be the principle purpose of a regulatory agency. A regulatory agency's purpose is whatever the law defines its purpose to be. Regulatory Agencies are not some supra-national legal body that does not have to bow to the whims of our legal system. Everything a Regulatory Agency does is governed by the law. I would agree with the assertions of Ms. Scott's attorney, as an attorney. As would the Judges in my state were this to go to the Court of Appeals.

     Actually, I agree in principle, absolutely agencies and regulators are governed by law and they should (I think most do) operate within the duties they have been charged with. I can't speak to your experience with micro-bureaucrats and I'd imagine local types would be different than at the federal level, where most of my dealings have been. Those that say you can't fight city hall don't know you can and win. 

    My mentioning the UCC may not have been the best example, but I was speaking more to definitions of ownership, not jurisdiction over real estate, the Code is limited as to real property, but theories are adopted from uniform law, such as with options and contracts. All real estate is local, just like politics. 

    Federal agencies can have broad police powers and federal regulators don't act independently to their whims, generally there is a long process of fact finding, diligence, evidence gathering and legal opinion before charges or allegations are made. 

    As to wholesaling, my opinion is rather simplistic, if it walks like a duck, quacks like a duck, lays eggs like a duck, it's a duck. Facilitating the same outcome as a broker and calling it a pigeon because different contracts are used as a business venture doesn't mean the wholesaler isn't acting as a broker. And holding only equitable title is not ownership of the property. Advertise the contract, not the property. 

    If you're nailing bad regulators, I applaud you! I think your win-loss tally really depends on what agency you're talking about, FDIC rarely loses. I'll bet the CFPB will have similar results as does HUD. They usually don't get the hammer out unless they know they can use it. :)

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free