RE wholesaling in Florida is highly illegal?

2 Reply

OP

Winter Park, FL · Member since 2016 · 40 posts · 26 votes

9y

Again, great insights and real life examples. Thanks @John Thedford and @Jay Hinrichs.

I really am starting to love BP, lol.

For me personally, the main thing that got me serious about the RE license, is the ability as John says, to list and advertise properties especially on my website with no legal backlash. Either way, I like to do things the right way and in a big way that benefits me.

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Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

9y

Thank you @Wayne Brooks for being the first in many dozens of threads and hundreds of posts to be the first to bring credible evidence that wholesaling maybe illegal.

I would point out this has a very vague term "Substantial consideration" what or who defines "substantial consideration"?

I would point out that closing on a property and then quickly reselling is in my eyes wholesaling and no one has put up one shred of evidence that is illegal. I stand by my assertion that Wholesaling IS LEGAL in all 50 states, Can it be done in an illegal way? Yes. Can it be done in a legal way? Yes again. Driving over the speed limit is illegal. That doesn't make driving illegal.

I don't agree with Wayne Brooks, @Bill Gulley @John Thedford or, @Jay Hinrichs that wholesaling is illegal. However I certainly agree with their points that is can be done and is often taught in both an unethical and illegal way. I also see some laughable arguments on the "Wholesaling is legal side".

The law can be complex. Often whether something is legal or not has to do with the specifics of a particular case. While I disagree in general with those mentioned above you would do well to heed their warnings.

5 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Kurt Charles Of course I am 100% bias in this as I have been a agent at 18 broker and 20 and have done this all my life.. then a NMLS licensed mortgage banker so I could legally lend money.. so getting licensed is in my nature. I OWE all of what ever success and failures I have had to real estate and there have been many on both sides of the ledger LOL.

But having the license and engaging in the industry has treated me well .. and if I was a money hoarder I would have retired by 35 LOL.. but I like life I like to travel.. fly my own plane that sort of thing so its a fine balance.

but once you get in the game you get in the game.. I did not start out being a developer I was hired as a 20 yo agent to list and sell a development for a large developer I will say my maturity level at a young age helped me. and this developer was a big aircraft owner so I was all about that.. he actually bought me my 2nd airplane.. well he put the down payment I got the loan I think he flew it maybe 4 times.. LOL... but the connections you get in this business will just take you over the top.

sitting there trying to snaggle people out of equity and flip homes .. Unless your a 1% er its a tough go with no real long term career path..

that's my take on it.. I love being an agent I love all the great people I have met .> I love going to the office and herding all my agents.. ... much more than being a property owner and dealing with dead beat tenants that I don't care for much anymore LOL

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Sekelle O.

Real Estate Investor · Irmo, SC · Member since 2012 · 106 posts · 90 votes

9y

If you are licensed and you have a property under contract with you as the buyer but no listing agreement with the owner, does being an agent mean you can list it for sale?

Also, can anyone direct me to a case where a wholesaler was prosecuted? I would love to read up on how the law was applied.

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Ned Carey this is simply real estate social media.. if people read it great if not great.. comes down to what a regulator in a state is going to do..

to each their own.. I do believe though many folks that think wholesaling is the way to get in the industry are lead down a dead end path.

yOu will always have rock star's in each business model wholesaling is no different..

I see this as absolutely no difference than the big TV gurus who want to charge 40 k to teach you to slip a home.. I go to those events I fund many of the students over the last 15 years.. and like everything for every 400 who run through the program and handful actually do anything with it.

in RE sales its a little better those that stick it out 5 years its about 50% failure rate maybe a little higher in bad times.. but I would say a full 20 to 25% will do it for a lifetime..

AS you know your a tax sale expert there are so many more ways to make money at this then following the herd about wholesaling..

There simply is not enough property for everyone who wants to wholesale to actually do it and survive not enough inventory.. ( well maybe Detroit and some of the bigger inner city waste lands) but in much of the other parts of the country. if you unleash 1,000 people one month that are all going to wholesale there simply is not enough property to buy and sell.. LOL> becomes the law of the jungle and survival of the fittest...

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Account Closed

Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes

9y

I love reading the forums, but the sheer amount of wholesaling related posts is getting absolutely absurd.
Maybe BiggerPockets should create an offshoot.. call it "SmallerPockets" - A forum for terrible ideas.

6 Reply

OP

Winter Park, FL · Member since 2016 · 40 posts · 26 votes

9y

@Ned Carey . Wholesaling is legal as far as I know as long as it follows state laws. The original post was disputing wholesaling without an RE license, not wholesaling itself.

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

9y

@Ned Carey

It might be more appropriate if there were some standardized terms related to different practices. "Contract broker" might be a better description of those not taking title. In FL, without a license, no that probably would not be legal. I prefer the term "flipper" once one takes title and then resells. Others prefer the term "wholesale" as that leads one to believe the properties are discounted. And I do prefer the term "unlicensed broker" for those playing games and skirting laws. Getting by on technicalities MAY be legal, but not sure the spirit of the laws and their intent are being met. We all agree that laws are in place to protect the public. I have no problem buying under market for my personal investments but the sellers are FULLY informed of FMV and if they want it gone today...and I agree to do so at a discount that meets my needs...we are both fully informed consenting parties. I have maintained all along that brokering real estate without one of the requisites IS illegal in FL. You MUST:
1. be on title
2. be licensed as an agent or broker
3. have equitable interest
As I have mentioned, DBPR came and spoke at our REIA a few months back, They stated you must put down a "reasonable" EMD but could not define "reasonable".

The fact remains there are many that simply want to skirt laws for their own benefit rather than operating under the rules we are all supposed to be under. There are many cheerleaders on BP that promote $10, $20 EMD, and then marketing the property. That MAY fly in some states, but if reported to the state, I doubt they would consider that equitable interest. If you read this entire thread, I mention a fraud in FL that put a house on Marco Island under contract for $20 and then proceeded to market it. They were nowhere near FMV, lied to the seller about their "inspector", and then walked away when they could not assign. Reporting people like this to the state is not an option...it is required. Even if NOT required, these people ARE victimizing the public. We, as investors, owners, agents...whatever...hopefully will not accept these methods of operation to be ethical, honest, nor any value to the public...or...maybe better described by Bill Gulley--they are a public nuisance.

BTW--I have been saying for months and months...READ chapter 475. I have pointed out to several BP posters that they are operating illegally. Some have taken the clue, and some of the frauds simply continue:)..I guess they are desperate!

Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

9y

@Jay Hinrichs yes I believe many of the bad deals you often see wholesaler put out, are not because they are crooks. It is because they are naive newbies that have been misled and don't really know what makes a good deal.

The one that really gets me is the people who push Co-wholesaling. "You don't even need to find a deal, just recycle someone else' deal" It is always funny to see someone else trying to sell one of my properties.

I started putting a clause in my sell contract saying "Seller (Me) is entitled to 50% of any assignment fee." That weeds out the phonies fast.

OP

Winter Park, FL · Member since 2016 · 40 posts · 26 votes

9y

@Account Closed That's great. I did sign up for one and wondered if they would send a reminder email because I forgot the date. It may be this exact one. Thanks for sending the link again, I will definitely be attending.

Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

9y

Originally posted by @Kurt Charles:

@Ned Carey . Wholesaling is legal as far as I know as long as it follows state laws. The original post was disputing wholesaling without an RE license, not wholesaling itself.

Kurt, Others may disagree, but I believe wholesaling with a license is a bigger legal risk than doing it without one. Two major issues (among others)

It could be construed as a net listing.
As an agent you have a duty to the public to deal honestly and fairly. Knowing that you are going to resell this property quickly at a higher price without disclosing that could be a problem.

OP

Winter Park, FL · Member since 2016 · 40 posts · 26 votes

9y

hmmm @Ned Carey . Didn't really understand 'net listing' before now, I'm just learning. After reviewing its legal definition, it does now make wholesaling seem 'sketchy' licensed or not. I understand what you are saying.

Thanks for the insight. I guess that truly is a fine line and perceived in different ways by many.

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

9y

Net listing are legal in FL ..but not necessarily good. This still leaves the door open to take advantage of the misinformed.

Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

9y

@John Thedford Just to play the devils advocate, Judge Learned hand said:

To Paraphrase that "There is nothing wrong with arranging one's affairs to comply with the law" One person's complying with the law is another's skirting it.

When I am buying a house it is clear I am buying for my own benefit. I am not there to "Help" the owner. It is clear, it is an adversarial relationship and the better for me the worse for the seller and vice versa. By the way in the hundreds of deals I have done, I think I have only assigned 2 contracts.

Interesting. I would not have guessed that.

Rod HanksBusiness Member

Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes

9y

I didn't read the entire post just the title. In one word NO...flipping is not illegal. Do a little more research.

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

9y

@Rod Hanks

Not sure where you got that idea. Flipping is legal in FL without a license.

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

9y

@Ned Carey

Yes I am well familiar with Judge Learned Hand and his saying about taxes. Actually had one of the unlicensed brokers on BP (who didn't care for my posts LOL) label me as "HONEST" John for one of my web pages titled "Don't Pay Taxes". I pointed out he must not have any rentals and understand writeoffs and depreciation. He has been pretty silent lately:) I think his term "HONEST" John was an insinuation that I am doing some wrong:) Poor guy...really needs to learn a few things about the tax benefits of real estate!

I 100% agree with you---when I am buying, anyone for that matter, they aren't there to do a favor for the seller. Some of the unlicensed brokers try to portray their actions as that, but being one to take apart arguments as honest or bogus, it was pretty easy to show their motivations were strictly financial for themselves:)

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

9y

@Stephen Schoon there is no issue, generally (unless the end buyer's lender has objections or a letter of instruction to the settlement agent to the contrary) with a double closing.

The American Land Title Association (ALTA) governs member title insurers and real estate settlement procedures. ALTA has restricted settlements on the same property within a close time frame requiring good funds be available in escrow and on deposit to close a transaction before title can be conveyed.

All states have "escrow account laws" that follow Generally Accepted Accounting Principles (GAAP) as to how funds in any escrow or trust account may be deposited, retained, accounted for and disbursed and how any interest on such accounts must be credited if interest is allowed.

Title cannot be transferred to a buyer without full consideration having been paid.

The funds in escrow of any end buyer cannot be credited to fund the purchase of another sale transfer, in years past this was a common method, but it violates the use of funds of escrowed funds of a depositor who is unrelated to that transaction. You can't borrow or lend escrowed funds held by and on the account of another party.

So, a buyer must have good funds available at settlement to obtain title before they can transfer title to another buyer.

That's where transactional funding comes in, it is a loan crediting the account of the buyer, while those funds may not be disbursed or used in a transaction, the accounting methods required can show good funds available to close which is what is required. Funds can be credited and a final disbursement can be made to balance the escrow account showing the use of funds.

Another way to show funds required is by using seller financing from the first seller, that transaction can be closed and the next transaction can payoff the seller's loan.

Now, while this addresses the legal requirement you can also have other restrictions at a local level or state level. Each title insurance agent can set policy as to how they conduct certain aspects of their business as well as having to comply with a title insurer's policies. While these back to back settlements can be accomplished legally that doesn't mean an agent must get involved with such transactions. Most I know of don't have additional restrictions other than having good funds available.

:)

3 Reply

Sekelle O.

Real Estate Investor · Irmo, SC · Member since 2012 · 106 posts · 90 votes

9y

I am think a lot of good opinions have been expressed. It would be great to have some examples of legal cases that have been prosecuted so that we can see the laws cited in action.

I have learned something from this thread that is going to change how I operate as a wholesaler.

I am not convinced that I need to be licensed to wholesale by flipping the contract. I don't need a RE license to enter into a purchase contract as a buyer, and I don't need a RE license to sell my contract to someone else for a fee. Based on what I have learned, I do think that when I am looking for an end buyer, I have to be careful of what I say I am selling and how I market it. I don't want to appear to be marketing a house that I don't own.

Frankly, I think that would be a pitfall for a licensed agent as well. If marketing a house of which you are not the legal owner (i.e. not on title) is illegal, then that is true of an "unlicensed broker" or a licensed RE agent that does not have a listing agreement with the owner (unless the sales contract is somehow a substitution for the listing agreement - which I cannot see being true since a listing agreement gives an agent permission to list on behalf of the owner and to act in the owner's best interest but in a wholesale transaction, the agent is acting on his own behalf and in his own best interests).

Again, I see a lot of arguments about unethical behavior, untrained/naive newbies, "unconscionable profits", etc. that again is not inherent to wholesaling without an RE license but is just the result of bad practices that can be found in any activity/profession.

There is a reason that when the DBPR spoke to that REIA, that they could not define a "reasonable" EMD. That is because all EMDs are "reasonable" if the purchase contract that the seller and buyer signs says they are reasonable. The only time that EMD stops being reasonable is when one party challenges the contract in court and presents sufficient evidence to the judge/jury/arbitrator to convince them otherwise. Same goes for "unconscionable profits": it is only unconscionable when a court of law says so.

And when it comes to "informed sellers", I encourage every homeowner I deal with to seek advice from the relevant expert (tax expert, RE lawyer, RE agent, psychic/medium, tea leaves, whomever they feel is working in their best interests) on what is best for them in the transaction. I do not advise a homeowner that I am buying from of FMV. I advise them that I am looking to buy the house for my own investment purposes. I am not accepting liability for a seller making the decision to sell based on what I say the property is worth; I can only say what it is worth to me.

But again, I would love to see some examples of cases that have been prosecuted and see how the law was actually applied. I think the 3 points of contention are 1. does the sale contract give "equitable interest" 2. acting on one's own behalf vs as an agent for someone else and 3. how one markets for an end buyer. Please let me know if I have missed something in the list.

7 Reply

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

9y

Okay, to catch up.....

@Ned Carey I don't think you'll find me saying that "wholesaling is illegal" in that context, it is illegal, generally, as the gurus teach it, assigning bogus contracts, And let me further or better define "illegal" as some act that violates statues, regulations, ordinances or governing policies, we may say "illegal" when out of compliance might be more accurate. Being out of compliance can create basically the same disciplinary outcome as not complying with statues. Fines and being barred from conducting business can destroy your life more so than a couple years in jail due to a violation of statue.

Those that read statutes (trying to find loopholes) probably haven't studied regulatory law or administrative law, which is much different than Perry Mason law. It often boils down to the "intent of the law" rather than to the word of law, but the word can certainly be violated clearly as well.

I won't repeat my previous post, but I'm also talking about using a bogus contract, not a valid contract where one has the ability and intent to buy.

@Kurt Charles

"Net listings" are an arrangement where an agent/broker agrees to accept sales proceeds above a certain price owed to an owner, they "net" the difference between what an owner will take and what a buyer might pay. Two states allow this to my knowledge, might be more but I don't think so, FL and CA and those require additional disclosures to be given to an owner by an agent/broker. The NAR sees net listings as unethical regardless, violating the duty of an agent to a principal.

Now for everyone;

Statements as to "equitable interest"; a real estate sale contract passes equitable interest but not legal interest, however, for equitable interest to pas the contract must be valid meeting all the requirements of basic contract law. Again and again, wholesalers who do not deal in good faith, have the intent and ability to buy cannot gain any equitable interest through a bogus sale contract, they have nothing!

Consideration, your EM deposits, this is a gray area as to what is reasonable, but reasonable for real property is never ten dollars or a promise to kiss your baby.

The reason it is gray is due to circumstances associated with the marketability of the property, its condition, the ability to convey good title, its use, seller's motivations and the value.

A pretty house that has no title flaws, is in good condition that is reasonably priced to value with a seller who is motivated but not distressed and is marketable demands a higher consideration to the value than a property that cannot be easily sold, transferred in the market, that requires significant repairs and is not as marketable.

The concept of the EM deposit is to allow a reasonable amount to be recovered by a seller in the event of default by a buyer. Financial harm is suffered by a seller when they don't close as agreed!

Real estate is not a liquid asset, it takes time to convert real property into cash near or at its true market value. This makes time a factor in the real estate market.

When an owner offers a property for sale it will be during that current market cycle, lets say in the middle of Summer. This is generally the best marketing period where more buyers will be active.

Let's say Willy Wholesaler comes along, talks the owner into taking ten buck down and contracts for 5 months to close. Willy fails to close. Now, that owner has lost all buyers in that market period, they will be listing or offering the property again, but 5 months later. That can be in the dead of winter and it may not be as marketable again until next Spring. That means that the owner is also stuck with carrying costs, mortgage payments, taxes, insurance, liability for damages and repairs is real money!

That's not even mentioning what a reasonable owner might do to prepare for settlement, like move furniture out, store things, incur expenses trying to find a place to move to.

Then, upon Willy's failure to perform, the owner has incurred what can be thousands of dollars as a loss and they are only entitled to ten bucks under the contract.....? I don't think so folks!

Now, for all the no money types, learn to use an earnest money note and make that note in a reasonable amount, say 5% of the sale price. Be it known, that note represents a debt obligation that is terminated at settlement or is due upon default, but at least there is no cash required at the time you contract.

The amount of any earnest money deposit needs to be sufficient to indemnify a seller for any financial loss arising from the sale, this then varies due to the factors I mentioned before. Will the owner of a shanty that's falling in suffer by having entered into the contract than if they had not? Not likely which then means a lower EM might be reasonable.

If your EM is not sufficient, then your contract will be difficult if not impossible to enforce. Your contract can be voidable, again missing the basic requirements for a valid contract.

Next topic, value, in another post, this is too long already. :)

3 Reply

Sekelle O.

Real Estate Investor · Irmo, SC · Member since 2012 · 106 posts · 90 votes

9y

I did not know that I had to have the ability to buy the house for the purchase contract to be valid. Where do I find the law/regulation that states this?

Because if this is true, then why did my agent make me jump through hoops trying to meet the terms of my financing contingency when I bought my primary residence, so that I would not default and lose my EMD? I mean if I cannot get financing, then I don't have the ability to buy and that nullifies the contract, right?

Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

9y

@Sekelle O. No, this discussion is not about the contract being valid, it is about using assignments to flip that contract trying to circumvent licensing laws, and whether that contract would be an "equitable interest" in the property before actually buying it.

Sean Cole

Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes

9y

Originally posted by @Jay Hinrichs:

@Sean Cole or in other words the cream rises to the top !!!... really up to the regulators to decide what they want to do..

My comments are in my way of thinking just simple logic... why have a Real estate commission or industry if licenses are not required to bring parties together.

However as you say its really up to each individual to dial in their moral compass.

I close a lot of deals that some wholesalers are tagged into.. I don't know them they don't know me .. I am just the funding source... The bigger one's that I do know like and Altura in Orlando were I probably bought close to 10 million dollars worth of deals from them.. they know me I know them.

and as a cash buyer you can imagine the amount of direct mail I get .. and phone calls etc.. most of it generic and exactly like the last guys post card simply because that's what they are taught the few times I acutally called them.. I could tell they were knew reading form a script.. so its those that have no real training that can foul up a seller pretty good.. and that is what those of us in the industry and are licensed do not like to see

My cynical take (even as a licensed agent) is that the Commission exists to protect the NAR and MLS from extinction more than anything else. I refuse to donate to RPAC or whatever they call it (our lobbying arm) because I think that most of their priorities result from self-interest of REALTORS rather than abiding by our Cannon of Ethics, which requires us to look out for the public above our self-interests.

I agree with your take about inexperienced folks fouling it up, but I work with way too many long time real estate agents who foul things up because of lack of knowledge or integrity. I'm not saying that I have a better idea than the current system - just that the current system isn't perfect or altruistic.

3 Reply

Sean Cole

Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes

9y

Originally posted by @Wayne Brooks:

@Sekelle O. No, this discussion is not about the contract being valid, it is about using assignments to flip that contract trying to circumvent licensing laws, and whether that contract would be an "equitable interest" in the property before actually buying it.

In Ohio, the Commission is very clear that a purchase contract does not grant equitable interest in a property. If you're going to assign a contract and publicly market, you had better not include the address or any details of the house in your advertisement. It's got to be just that you're selling a contract to buy a house.