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.
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.
Are you prepared to take the stand and testify that (a) you intended to take title to the property which you agreed to purchase, (b) you did not intend to use that contract as a tool for facilitating a sale of real estate of another with the intent of receiving a commission or fee, (c) your intent in dealing with the seller was not to facilitate the sale of his real estate to another, (d) your intent with dealing with the buyer was not to facilitate the sale of the real estate of another to the buyer, (e) that the sale of real estate would have occurred regardless of your contract assignment, (f) that you performed your obligations pursuant to the real estate contract before you assigned it, creating ascertainable rights of ownership, (g) that you did not receive a commission or fee for assigning that contract, (h) that the subject matter of the contract was not real estate, (i) that the assignment of your purchase contract did not facilitate a sale of real estate you did not own for a fee that you collected?
If you can testify to confirm these facts, you're perjurer. If you can't, prepare for the consequences.
Seems to me that any professional investor can honestly testify to A, B, C, D, E & F for any transactions they might do.
So, let's discuss the others...
G - Can you point me to a specific statute that specifically prohibits earning a fee for assigning a real property contract in your state? What is it?
H - Are you talking about the purchase contract or the assignment contract? The purchase contract is obviously about real estate, the assignment contract has nothing to do with real estate. Is there an OH law that specifically prohibits assigning a contract where the subject matter is real property? What is it?
I - I don't understand this one. An assignment of a purchase contract -- by definition -- facilitates the sale of something. Whether it be real property or personal property. Is there an OH law that prohibits assigning a purchase contract, regardless of the underlying asset being sold? What is it?
Perhaps OH is completely backwards and is the one state in the country where these things are specifically prohibited by law (I'm curious to see the citations you provide). If so, I'd be surprised if those statutes would stand up to challenge.
Regardless, they are not law on the books of any other state that I'm familiar with. So, if you can provide evidence to support these claims, perhaps it's then best to say that wholesaling is illegal in Ohio, and leave it at that. Though I'm still skeptical that such laws exist, and if they do, that they would be deemed constitutional, if challenged.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
11y
@Christian Carson, I agree with @Matthew Kreitzer on this. He said in part:- "However, his (Ohio) statute has absolutely no bearing on any activity that takes place in any of the other states, and I would say his state is in the minority in terms of whether such prohibitions have been codified". In MANY States therefore, unlicensed wholesaling activity, assigning Contracts after the fact, making preposterous profits from uninformed Sellers, and other heinous legal activities continue to be "the American way"! No?...
@Christian Carson, I agree with @Matthew Kreitzer on this. He said in part:- "However, his (Ohio) statute has absolutely no bearing on any activity that takes place in any of the other states, and I would say his state is in the minority in terms of whether such prohibitions have been codified". In MANY States therefore, unlicensed wholesaling activity, assigning Contracts after the fact, making preposterous profits from uninformed Sellers, and other heinous legal activities continue to be "the American way"! No?...
Please don't take my statements as a normative acceptance of whether that should be the way or not. I'm not one to get into policy arguments on whether something should or should not be the case. I'm a legal professional, my role is to explain the state of the law. I would argue such statutes are, from a legal perspective, Unconstitutional. Whether they are morally acceptable or should be expected in modern business ethics I leave to philosophers and practitioners.
That is not to say that such laws couldn't be revisited with a Constitutional Amendment or a revision of federal jurisprudence.
Yes, and what you may find here are hard headed politically influenced constitutionalist and libertarian views of where our legal system should be, no, I'm not bringing up politics but as to the basis of underlying opinions.
In a practical world, I doubt some no money, no job, newbie wholesaler will want to finance fighting any government agency through the appellate level fighting on the grounds that the intentions and actions of the legislature and regulatory agency are unconstitutional. If a lawyer is going to rely on that thinking to get business, I think they will starve. Just speaking from a practical view, not a legal argument.
Your comment as to facilitating a transaction is the basic language in MO. statutes, as well as others I'm sure.
And, as you pointed out, it is the intent of the wholesaler that we look to, I'm not a lawyer, but I have been to court and it seems judges weigh the intent of ones actions heavily. They also look to the intent of the law. In real estate, if you are going to buck local customs and the application of laws, you better have deep pockets.
If you do not have the means nor the intent to execute the terms and conditions of a sale and you represent yourself as having such abilities and intentions, such are then simply fraudulent representations.
And, I don't think we have touched on the risks associated with wholesaling, besides the question of it being a legal strategy, the techniques used by guruized newbies leads to other issues, tortuous conduct, fraud, predatory dealing and to federal violations when there is interference in a foreclosure.
To call this strategy viable from the view point of the "rights of assigning a contract" is rather simplistic and naive. :)
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
11y
@Matthew Kreitzer, oh, I totally agree! Hopefully, my own disdain for such "guilty as hell, free as a bird" behaviour was shining through too! Cheers...
Austin, TX · Member since 2013 · 123 posts · 27 votes
11y
To @Bill Gulley and @Brent Coombs and anyone else that wants to provide input I would like to know what laws make it ok for Real Estate Brokers to wholesale property.
1) They do not have a listing agreement with the property owner.
2) They do not have any other understanding with the owner to sell their property.
3) They do not own the property.
4) They have a purchase contract on the property just like every one else.
So your contention that the Brokers contract is a good contract and they can wholesale it and everyone else's contract is a sham contract and selling it is against the law just seems strange.
Do your opinions all henge on the concept that the contract is some form of listing agreement and that instead of selling the rights to buy a property at a predetermined price they are just bringing a buyer and seller together for a commission.
I have not bought a property from a wholesaler but if presented with one that fits the definition of a good project would certainly look at it. I know that the person that found it did a lot of work to uncover a viable project and that they need to be able to make a profit off the work that they have done. I am not crying a lot of tears over the poor little financial institutions that may occasionally get a foreclosure messed up, they have dealt the rest of the world plenty of misery there will never be enough pay back for them.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
11y
@James Sinclair, we don't need to show which laws say that we CAN do something; it's - we watch out for those laws that say we CAN'T do something. If Licensed, we can become the principal, or get a listing agreement from the owner (disclosure is the key). In Ohio, the Regulations indicate that in order to advertise Real Estate OR Real Estate Contracts - you MUST either be on Title, or have your RE License. Pretty simple really.
I am not sure if anything about that should stop you from buying through a Wholesaler though. In principle, If you are KNOWINGLY buying something though an illegal process, the law is likely to have something to say about that. If you are satisfied that the Wholesaler is acting within allowable procedures, you should be fine (even if the Wholesaler isn't). [Not legal advice]. Cheers...
Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
11y
Here is what my lawyers have told me. "An option to buy a property is an ownership right to the property and therefore anyone with an option can market it." Of course, they were only speaking about in Texas. They would want several thousand dollars to research other states before they told me the same thing about them.
To @Bill Gulley and @Brent Coombs and anyone else that wants to provide input I would like to know what laws make it ok for Real Estate Brokers to wholesale property.
1) They do not have a listing agreement with the property owner.
2) They do not have any other understanding with the owner to sell their property.
3) They do not own the property.
4) They have a purchase contract on the property just like every one else.
So your contention that the Brokers contract is a good contract and they can wholesale it and everyone else's contract is a sham contract and selling it is against the law just seems strange. "
James, That is not my contention. Any contract with intentions of not following the agreements made is a sham contract.
"Do your opinions all henge on the concept that the contract is some form of listing agreement and that instead of selling the rights to buy a property at a predetermined price they are just bringing a buyer and seller together for a commission."(?)
NO, but doing so is facilitating a sale, two means of getting to the same place, a listing as a car, a sale contract as a truck, it's not what you drive to get there, it's if you get there.
"I have not bought a property from a wholesaler but if presented with one that fits the definition of a good project would certainly look at it. I know that the person that found it did a lot of work to uncover a viable project and that they need to be able to make a profit off the work that they have done. I am not crying a lot of tears over the poor little financial institutions that may occasionally get a foreclosure messed up, they have dealt the rest of the world plenty of misery there will never be enough pay back for them."
Don't see a question there, never said wholesalers didn't provide a service and I'm not crying for them either. :)
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.