Is wholesaling in Washngton State Illegal?

6 Replies

I read another Bigger Pockets post about this but it didn't really get to the meat of the question.
I am a newbie looking to get into wholesaling in the puget sound/seattle area. I recently sent my P&S agreement and agreement to assign to a legal zoom lawyer to review. He basically just told that Washington state not only made it illegal but criminalized flipping and wholesaling properties and that you needs to be a licensed broker to wholesale houses. He said:

1. Buying and selling a property for someone else and being paid for it requires a real estate license.

and 2. You aren't allowed to purchase or flip property from someone who is behind on mortgage payments (or facing preforeclosure/foreclosure) per Washington Law RCW 61.34. And real estate property purchased from someone who is behind on mortgage payments is construed as 'equity skimming' and therefore may be illegal.

Can someone please clear this up for me? I know lots of people in washington and in the seattle area wholesale without a real estate license.
So how is everyone doing it and what makes it NOT illegal by whatever laws that some people think makes it illegal?

Thank you

I have a real-estate lawyer that I asked to help me regarding pre-foreclosures. Please make sure you only deal with real-estate lawyers only. There is a Law regarding distressed pre-foreclosure homeowners only. They have up to three years to sue you for obtaining the property while they where in distress.I was advised to go the the pre-foreclosure agent handling the property, however there are investors engaging in pre-foreclosures; it is not illegal, just not recommended unless you know what you are doing.If you obtained a real-estate license you would be in a better position for pre-foreclosures,

Wholesaling is completely different, as long as the home is NOT in pre-foreclosure. You do not need your real-estate license and it is NOT illegal. A Realtors income should not be threatened by wholesalers, due to the fact we mainly seek off-market properties. Could they have the potential to be on-market properties yes, and some may choose to use a realtor instead of you. Regardless you are fine. Just make sure all your documents are aligned with WA state. Take them to a real-estate attorney and they will take a look at them for you!You are fine Marshall. Good luck! make sure to attend a few Real-Estate Investors(REI) meet ups in your area. There are a lot to attend in Seattle. You will meet many investors that will be willing to help.

Lourene. Thank you for the information. I have gone to a few meet ups so far. They are very helpful. It sounds like I shoulld be good with wholesaling as long as I stay away from preforeclosures for now. Maybe i'll just target out of state landlords and probate/inherited properties I suppose.

Thanks again

Any additional comments are gladly accepted as I'd like to hear what everyone has to say!

1. You are not buying and selling property, but just the contract to the property. That's how people get away with that fact.

2. I'm not sure on this one.

Have you checked out Seattle Investor's Club? I hear they are great and Joe Bauer could be a great resource for you.

I do not advertise the property or show it, just like Julie mentions.  I only reference my contract position.

Here we only assign. Excise taxes will kill you if you double close.

My fee is never a percentage - smells too much like 'commission'.

I only wholesale properties that aren't a fit for me though. Not at all my primary business model.

You are smart to research legal practices here in WA.  Lots of rules!

Couple of things.

First: I am not an attorney

Second: I like Legal Zoom just as much as the next person.  But in this case I'm not sure how closely the attorney look at the RCW.  If points number one and number two are what he said, there is a very important aspect of the law he neglected to mention.  Namely, that the code refers only to sellers and/or would-be sellers who occupy the home as the primary residence.  If an owner has a rental property that is facing foreclosures you are most definitely ALLOWED to "wholesale" it.

Third: RCW 61.34 is an incredibly vague law in which theoretically every single person who has a mortgage could be considered in distress.  The law does not clearly define the term distress to the extent most real estate attorneys would like.  Perhaps this is done on purpose.

Fourth: most laws are enacted as the results of some previous behavior or action society deems it appropriate or wrong.  If you look at the reasons why this law came into being you will notice it was due to the behavior of a single, horrifically crooked and evil individual.  When you read what this person did you will understand why the state legislature needed to do something.

Fifth: it could be argued that wholesalers are only selling contracts to agreed-upon purchase and sales agreements.  They are not selling the property itself.  There is a huge difference between these two activities, namely that the latter requires a license.  Currently, selling a contract to purchase a property is not against the law.

There are a few more points but none more important than the fact that the code does not refer to non-owner-occupied properties (rentals).  Nor does it apply to properties with five units or more, occupied or not.

It is great to see these questions vetted out so clearly on here. I know there is a ton of misinformation out there, and these forums really help to clarify some of the details that are otherwise overlooked in some of the blanket "wholesaling is illegal" examples.

@Marshall Hawley good luck to you, and glad to see you utilizing the expertise of the folks on here that have been doing it for a long time in this area.

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