Our REIA Meeting With DBPR: re what is unlicensed brokering

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Our REIA Meeting With DBPR: re what is unlicensed brokering

John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

We had the REIA meeting yesterday. DBPR was kind enough to send an investigator down and cover the topic: what constitutes unlicensed brokering. She did address one specific case where the file has been turned over to the state attorneys office for prosecution. The person is a "wholesaler". However, many other questions were asked and the answer was "that depends", give me "specific situations", etc. Part of the issue I believe that brought on these answers was that she is NOT an attorney, but an investigator. Once she has gathered facts, she sends them up the chain of command for a decision. There was one term tossed about: equitable interest. Is $1000 adequate for "equitable interest"? Depends! Everything considered, our local REIA is top notch and their goal is education. No hype. No seminars promoted. The investigator gave the best answers she could without giving legal advice.
Special thanks @Jeff Tumbarello for this great organization.

Last, it was a pleasure to meet my friend @Wayne Brooks. He drove over from the east coast.

Some questions still remain as to how assignments MAY work, if that particular method or actions are legal, etc. By far, the absolute safest way is to get on title. You can buy and sell all you want without being a licensee and without having someone with the state claiming illegal activities. 
Here's to prosperous investing to all in the coming years!

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Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
10y

I also attended the meeting and spoke with several investors afterward about their interpretation. I don't wholesale and don't have a vested interest in whether they follow the law or not. But, we didn't hear what Jeff and John heard for the most part.

All of the investors that I spoke with felt that the realtors were out to make a point that wholesaling was illegal and we felt that she told them it was not.

She even shot down one realtor saying "I told you 3 times already", it was kind of comical.

I heard her say, loud and clear, and several times "wholesaling is not illegal", "we would rather educate then prosecute".

It was also clear that if you had equitable interest in the transaction, i.e. $5,000 earnest money deposited in escrow, and if there wasn't malintent that you would probably be ok. She also made it clear that everything is a case by case basis.

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  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @John Thedford

    Kind of what I expected John. No disrespect to the investigator, but while I was working for the State of Ohio very few understood how the real estate transaction works and what was a violation and what wasn't. I gave two presentations to State investigators (from around the US) and each time it was apparent that they needed to be educated on how short sales, wholesaling and every other form of REI that may be questionable to State regulators.

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  • Jeff TumbarelloPro Member
    Real Estate Broker · Fort Myers, FL · Member since 2008 · 1k+ posts · 323 votes
    10y

    They are serious now about enforcement. She gave the perspective of an investigator who decides whether to escalate the complaint. While a contract must have consideration to be valid. If both parties agree to a dollar for escrow, how does that not constitute an equitable interest? I have seen documents recently sold to new investors in a seminar that describe their "wholesale fees". These documents were given to a the public as part of their "system". The moment you use the word fee, you need to be licensed. Statue 475 is very clear as to the exceptions. Many seem to use circular logic to justify breaking the law. If they spent as much time figuring out how to do business within the realm of the law as circumventing it.....

    I got this email from Rachel a few minutes ago:"

    Dear Jeff, Mike and Cristina:

    I just wanted to write a quick note to thank you for having me at the SWFL REIA luncheon meeting yesterday. I thought the energy of the group was terrific, and it was great to answer questions. I hope that my talk was informative for your members and guests, and that they now have a better understanding of the Division of Real Estate and what may constitute unlicensed activity.

    With regards to equitable interest, I have requested the statutory citation from our legal department and will provide it to all those who asked. I will also provide each of you with a copy of the statute.

    I am not in the office today, but when I return on Monday, I will be sure to scan a copy of the handout I provided to those in attendance and send it to each of you so that you can distribute it to anyone interested or to anyone who lets you know they did not receive a copy at the meeting and would like one."

    We will distribute this, when we get it.

    What many fail to understand, a cease and desist for unlicensed real estate activity can prevent you from becoming a plumber or anything else that requires a license.

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  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @Jeff Tumbarello

    I get it that they all want to take unlicensed activity seriously but how does an investigator have the ability to determine whether the complaint should be investigated. Does he/she request a copy of transactional documents for review before making the determination or is it based on the review of whatever is sent in with the complaint. I have another question: What do they consider consideration? There is a big problem if the purchase contract doesn't have an agreed upon purchase price, I haven't seen anything like that in a couple of years. I hope they aren't considering EM as consideration.

    And while I am not an attorney I am not sure how a C&D can prevent someone from applying for and obtaining a license/certification, I would think that there would be an issue with the presumption of guilt without having been formally investigated, charged and found in violation or guilty. Would like to hear from some of the attorney on this site on this.

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  • Jeff TumbarelloPro Member
    Real Estate Broker · Fort Myers, FL · Member since 2008 · 1k+ posts · 323 votes
    10y

    Ladies and Gentlemen:

    Thank you again for attending the SWFL REIA luncheon at Pinchers Crab Shack yesterday. I truly enjoyed meeting all of you and hope that I was able to provide you with some useful information and insight into what may constitute unlicensed activity.

    As promised, after seeking guidance from our Office of General Counsel, I am forwarding Florida Statute 475.43 for your review. This is the statute dealing with presumptions regarding unlicensed activity and substantial consideration. For those of you who like to read case law, please use the link below to read a Florida Supreme Court case, Old Port Cove Holdings, Inc., v. Old Port Cove Condominium ***’n One, Inc., 986 So. 2d 1279 (Fla. 2008), which also deals with this subject matter.

    Case law link: https://scholar.google.com/scholar_case?case=11893346149393893891&q=986+So.+2d+1279&hl=en&as_sdt=4,10

    I hope that these will be helpful to you. As you know, the Division of Real Estate is prohibited from providing any legal advice. Should you need further clarification regarding this issue, please seek the advice of an attorney who specializes in Florida real estate law.

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  • Account Closed
    Saint Petersburg, FL · Member since 2013 · 110 posts · 38 votes
    10y
    Originally posted by @Jeff Tumbarello:

    Ladies and Gentlemen:

    Thank you again for attending the SWFL REIA luncheon at Pinchers Crab Shack yesterday. I truly enjoyed meeting all of you and hope that I was able to provide you with some useful information and insight into what may constitute unlicensed activity.

    As promised, after seeking guidance from our Office of General Counsel, I am forwarding Florida Statute 475.43 for your review. This is the statute dealing with presumptions regarding unlicensed activity and substantial consideration. For those of you who like to read case law, please use the link below to read a Florida Supreme Court case, Old Port Cove Holdings, Inc., v. Old Port Cove Condominium ***’n One, Inc., 986 So. 2d 1279 (Fla. 2008), which also deals with this subject matter.

    Case law link: https://scholar.google.com/scholar_case?case=11893346149393893891&q=986+So.+2d+1279&hl=en&as_sdt=4,10

    I hope that these will be helpful to you. As you know, the Division of Real Estate is prohibited from providing any legal advice. Should you need further clarification regarding this issue, please seek the advice of an attorney who specializes in Florida real estate law.

    Jeff,

    Now I have a RE License but it's inactive. I'm not affiliated with a Brokerage firm but suppose I want to wholesale some properties would I still get in trouble?

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  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    I also attended the meeting and spoke with several investors afterward about their interpretation. I don't wholesale and don't have a vested interest in whether they follow the law or not. But, we didn't hear what Jeff and John heard for the most part.

    All of the investors that I spoke with felt that the realtors were out to make a point that wholesaling was illegal and we felt that she told them it was not.

    She even shot down one realtor saying "I told you 3 times already", it was kind of comical.

    I heard her say, loud and clear, and several times "wholesaling is not illegal", "we would rather educate then prosecute".

    It was also clear that if you had equitable interest in the transaction, i.e. $5,000 earnest money deposited in escrow, and if there wasn't malintent that you would probably be ok. She also made it clear that everything is a case by case basis.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Adam Bartomeo Yeah, as you may know, I was that "I told you three times" guy.  Still couldn't get an answer to the simple question..."if you have what is considered a reasonable deposit (i.e. $5k) does that give you equitable interest, and marketing an assignment is okay....yes or no!  Apparently, she doesn't know the answer to that.  The example she gave, that was deemed illegal, was a small EM, 30days due diligence, no ability to buy, and advertised on Zillow and craigslist.  That's all well and good, but we don't know if you need all those elements or just one to be illegal.  The link she sent us later, was useless.  As I said at the meeting, I don't dislike wholesalers because I think they could cost me money, they never have, I just don't like the way the typical wholesaler screws around the home owner and just generally screws up a deal.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y

    I'd like to hear @John Thedford attest to that post above, what was the investigator calling "wholesaling" taking title and selling or selling a contract with a fee arrangement?

    There are different types of "consideration" in contracting, and what will be required as far as investor operations go, it will be earnest money showing good faith, intent and having a financial risk in a sale contract taking an equitable interest.

    And it does depend, no two situation may be alike. Is a $1,000 deposit enough on a marketable $100,000 home, it certainly can be, is $100? Not really, as the property is tied up and a seller can be on the hook for 3 or even more months of expenses for $100.

    Is a $100 EM deposit on a $100,000 home sufficient when the seller faces foreclosure in 24 days and the property has been marketed for 6 months with no offers? You bet it is, the degree of risk changes for both parties, as a buyer you might not get it done in time, for the seller, it a last hope deal. 

    EM reflects the degree of risk of both parties, the circumstance of the sale and the time frame required to conclude a transaction. No state is going to say you must have X% as EM or a down payment. Consideration must be reasonable for the size and scope of the transaction. 

    If a seller takes $10 on a contract and later backs out, I'd like to see a judge tell the seller he needs to sell his $100,000 property based on that consideration with an "investor" 90 days later. The risks assumed by each aren't in balance, consideration isn't equitable.

    If you want to get by on the cheap, use an EM Note. :)

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  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    @Wayne Brooks

    If it makes any difference to you, admitting you were that person has built a lot of credibility with me. I often say, if you beleive something then you need to fight for it. 

    In your example, I agree. I try to be as transparent as possible in all of my dealings and if ever did wholesale then I would follow the same principles. But, I can say a lot of unethical practices happen all time with realtors. They say one thing to the home owner but they are really trying to get a deal no matter the cost. Lots of them will do or say anything to make money.

    What I don't like is unethical people, period. I don't think wholesaling is unethical but there are unethical people. That's the price that is paid for having free choice.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y
    Originally posted by @Wayne Brooks:

    @Adam Bartomeo Yeah, as you may know, I was that "I told you three times" guy.  Still couldn't get an answer to the simple question..."if you have what is considered a reasonable deposit (i.e. $5k) does that give you equitable interest, and marketing an assignment is okay....yes or no!  Apparently, she doesn't know the answer to that.  The example she gave, that was deemed illegal, was a small EM, 30days due diligence, no ability to buy, and advertised on Zillow and craigslist.  That's all well and good, but we don't know if you need all those elements or just one to be illegal.  The link she sent us later, was useless.  As I said at the meeting, I don't dislike wholesalers because I think they could cost me money, they never have, I just don't like the way the typical wholesaler screws around the home owner and just generally screws up a deal.

     3 things must be present for a buyer in a sale contract for it to be valid. 1, the intent to perform under the terms of the contract as agreed, 2. the ability to perform as agreed and 3. sufficient consideration appropriate for the size and scope of the contract. All three must be there for a valid contract. You can't really have an interest to sell in an invalid contract. :)

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  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @Wayne Brooks

    Thanks for supporting my earlier post regarding the level of knowledge of most State regulators when it comes to something that they are not familiar with, REI versus basic real estate law violations. Case by case usually means has someone laid the investigation out for us or do we have to figure it out.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Account ClosedYeah simply couldn't answer the question, as a wholesaler; "if I have a legit contract, ability to buy, sufficient EM...can I advertise a property I don't own yet, to the world...yes or no?"She couldn't answer that.  The thing that bothers me about the state regulation of this, and it took a lot of restraint to not say this to the presenter, is;  it seems like wholesaling is regarded the same as when  the senate subcommittee was trying to regulate porn, and the statement came out..."well, we can't really define porn, but we know it when we see it".  I mean come on, if the criteria is not in black and white somewhere, how does someone determine if it's legal or not!  And also, how does having a license make it legal?? If I do a wholesale assignment type deal (where it would be illegal for a non licensed person to do it), I'm acting as a principle, and I certainly have no agent/agency relationship representing anyone in the transaction, with disclosures to document that.  I would be collecting an assignment fee as a principal, so that fee would not be going thru my broker, getting their split.  But yet, any fee I collect when I AM working as an agent, must go thru my broker.  So, how does having a license make me legal and legit with a wholesale assignment deal???

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  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @Wayne Brooks@John Thedford@James Wise

    Not sure what Florida law says about advertising real estate you don't own but in Ohio the law is clear, you CANNOT advertise a property in which you are not the owner unless you have a real estate license. You can market a contract but not the property. Unfortunately, the Ohio Division of Real Estate contradicted this in a video they did with a real estate attorney. Ohio Revised Code 4735, specifically 4735.01, states what is allowed by a real estate broker.

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  • John Thedford
    OP
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    @Account Closed

    She left lots of unanswered questions. Bottom line: get on title. Buy and sell as many as you want without scrutiny of regulators and their potential subjective opinion that your actions are illegal. To be sure, with the number of contract assignments growing, and the number of people attempting to make a quick buck thanks to BP and guru promoters, the practice will continue to grow. No doubt at some point the courts will be asked to clarify, define, and make decisions regarding the practice. 

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  • John Thedford
    OP
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y
    Originally posted by @Wayne Brooks:

    @Adam Bartomeo was right. No disrespect to her, she cannot issue legal opinions. 

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  • Account Closed
    Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    With all due respect, I don't put a lot of stock in what somebody's attorney has to say.  I have gotten a lot of bad advice over the years, and the majority of it has come from attorneys.  

    Law degrees are pretty easy to get, and the market is flooded with struggling attorneys. Having a law degree doesn't make someone smart nor does it make them automatically competent or the the last word on anything. In fact, the less competent they are, the worse their advice, and the worse their advice, the more money they make because you have to pay them to get you out of the jam they created for you.  Talk about a conflict of interest!

    Recognize the alarms many of them sound for what they are - an attempt to drum up business and make a living.  Understand further they are no substitute for sound business practices and solid integrity.

    The main reason wholesaling has come under scrutiny is because of people out there practicing it who lack one if not both.  The result is people get burned.  People who get burned get mad, and when they do, they run to authorities to do something about it.

    The scariest thing I read on any of these forums are "newbies" who list wholesaling as one of the things they want to do along with a list of other stuff.  That's the wrong approach.  People can get mishandled with it and get hurt.  It's not right.

    Bird dogging for an experienced wholesaler is starting point in this business.  Not dabbling in it on your own.

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  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @Account Closed You Agree

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  • Account Closed
    Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    @Nick Chucales

    Thanks, for the kudos Nick.  I don't know that's it's fair to classify all gurus/mentors/coaches as opportunistic sociopaths.  I know of at least one good one (I know because he taught me) that gives you a specific game plan that delivers.  That notwithstanding, sadly you are right.  Many, many of the ones out there are all about "training" and more "training". Their "training" is nothing more than generalities cloaked with hope and enthusiasm and nothing of substance, or it's enough to generate some activity but not results.  Their game plans are to convince the person they don't know enough, and to keep upselling to a more "intensive" training until the person is maxed out on credit cards and has exhausted savings and then move on.

    What is even more despicable, when they hold their mass gatherings in hotels, they berate anyone publicly who asks any question that shows a healthy skepticism as being negative with a bad attitude instead of addressing the person's concern in a professional way.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y

    Yes, attorneys are human, so are regulators. Some may be brilliant, some not so much.

    There are a lot of moving parts on this runaway freight train of wholesaling, no one teaching it or it appears even doing it is aware of the engineering involved, much less attempting to explain all the parts.

    Getting a license isn't a cure for wholesaling, the license presents other legal and ethical issues that a non-licensee is not exposed to. Brokers can have liability for their agents regardless of that agent dealing on their own behalf or with representing the public. Most brokers I'm certain will not allow an agent to use a sale contract to wholesale as is common with newbies.

    We cannot legislate morality but the courts may apply morale judgment to protect the public and they do. I'm sure there are people on BP that don't even understand that statement. Everyone doesn't have the same moral outlook or base line in business or in dealing with other people. Industry ethics, rules, regulations and laws are an attempt to level the playing field and give a guideline to an expected moral conduct. One person saying they are moral and fair is not necessarily saying they are in line with social expectations, rules, regulations or laws. It's not about how you perceive yourself, it's how you are perceived by others that allows you to be successful in life or business. 

    :)

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  • Account Closed
    Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    @Bill Gulley I appreciate your thoughts.  My only comment is be fair.   You may not know of anyone who teaches the proper engineering of wholesaling (other than yourself) as you call it, but they are out there and do exist.  That being said, you are right.  A lot, and I mean a lot, of the ones out there are selling little more than hope and enthusiasm.  As the saying goes, you have to kiss a lot of frogs.

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  • Account Closed
    Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y

    @Account Closed

    Rod please share, who do you think is teaching/coaching on how to become an REI in an ethical and transparent manner?

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    10y

     Well I don't want to beat my own horn but I believe in getting on title, whether it is 

    subject to, 

    land contract, 

    using private lender money, 

    using credit or cash partner money, 

    buying a wraparound mortgage, etc. 

    then and only then advertising the property for resale

    If you're advertising "paper" like a an option or sale and purchase agreement "and/or assigns" then state that on craigslist or whatever

    I don't think the regulators would care saying that you placed an ad on craigslist...

    "I have a contract on a single-family 3B2B2G house on  XYZ suburb at 73% of average comps for a cash buyer. Contact me for full details"

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  • Jeff TumbarelloPro Member
    Real Estate Broker · Fort Myers, FL · Member since 2008 · 1k+ posts · 323 votes
    10y

    The real issue at hand. The DBPR has awaken from about an 8 year nap. They are serious about this. They have carved out a group for unlicensed activity. Govern yourself accordingly. There is a local wholesaler about to get popped with a few felony charges. We invited her there as a PSA for our members to be aware.

    The case law posted above is what the legal side of the DBPR is using. The lady at the meeting is an investigator not an attorney. People keep pushing her to issue a legal opinion which she can not. While they may or may not be right in how they interpret Fl St 475 as well as the case law. I disagreed with how they qualified "an interest"  as well but does it really matter what I think? You have to have the time and treasure to prove them wrong. While in the end you may win. Most crusaders and pioneers tend to come back tired and with arrows sticking out of them.

    You can sell an interest in a contract but you had better make sure you use the right verbiage. That verbiage should cone from an attorney with a working knowledge of Statue 475. The key is in the execution and how the deal is structured.

    Make sure you know who you are pitching a deal to as well.

    1Reply
  • Terry Royce
    Real Estate Investor · Baltimore, MD · Member since 2008 · 619 posts · 75 votes
    10y

    @Jeff Tumbarello -  you stated" There is a local wholesaler about to get popped with a few felony charges."

    Jeff, can you elaborate on this?  What charges.

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  • Jeff TumbarelloPro Member
    Real Estate Broker · Fort Myers, FL · Member since 2008 · 1k+ posts · 323 votes
    10y

    Real Estate without a license

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