Wholesaling and the equitable interest theory

Wholesaling
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Wholesaling and the equitable interest theory

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

I just completed my CE for my mortgage bankers license here in Oregon today.

what I found interesting and wanted to share is there was a module on license requirements as it relates to selling real estate.

State of Oregon has now included Equitable interest in their definition of selling real estate.

the laws we know are virtually the same in the country.. and only some state enforce this.

But Oregon is the first one I have seen that has included equitable interest.

It goes on to say any marketing of equitable interest in any manner requires a license.. IE website craigslist  e mail blast etc.

Further it went on in great detail about dealing with those properties in foreclosure.. this new term

for a buyer is  Equity conveyance buyer and there are strict rules with regard to this activity.

And having personal knowledge about how Oregon is pretty intense on enforecing these business and professions codes .. I see a lot of unlicensed wholesalers are going to have to deal with this.

IE  transaction fund... Close on the property  or get licensed

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

@Jay Hinrichs on the one hand getting licensed seems like the easy work around. But Im curious Jay as to your thoughts on this.....I am of the belief that a licensed agent should not be engaging in the act of wholesaling using assignable contracts because I feel it is in essence a Net Listing.  Property under contract for $200k, assign it for $210k, make the Net difference of $10k. So to me, that seems like a huge issue for a licensed agent. 

My broker is on the commission in Maryland, and I keep meaning to ask him the commissions view on it when I run into him, but I only see him a couple times a year. (Big company)

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    @Jay Hinrichs on the one hand getting licensed seems like the easy work around. But Im curious Jay as to your thoughts on this.....I am of the belief that a licensed agent should not be engaging in the act of wholesaling using assignable contracts because I feel it is in essence a Net Listing.  Property under contract for $200k, assign it for $210k, make the Net difference of $10k. So to me, that seems like a huge issue for a licensed agent. 

    My broker is on the commission in Maryland, and I keep meaning to ask him the commissions view on it when I run into him, but I only see him a couple times a year. (Big company)

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Russell Brazil  those are good points... I suspect its going to boil down to you need to close then resell.. I know the bigger wholesalers in our market are all licensed and they pretty much all close.

    as much of the wholesale inventory is bought at courthouse steps..

    I wanted to mention this as I thought it odd to have a real estate licensing module on my Mortgage bankers CE but it was a whole chapter this leads me to believe the state is making AGents and Mortgage professionals aware of this.

    and these are Class A felonies.

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  • Uriah D.Pro Member
    Investor · Apex, NC · Member since 2014 · 340 posts · 188 votes
    9y
    Jay Hinrichs Russell Brazil I hope they crack down on wholesaling across the country without a license. As you mentioned Jay, close on it and resell if you are an Broker like myself. It will keep the shanagans lower!.... hopefully. Russel, agree on the net listing aspect. I've always closed then resold. Always seemed like the right thing to do. Wholesaling well is one of the hardest things to do. It should be done by the best of the best, not the newest of the new. If unlicensed wholesalers worked as hard as they do at their "job" and turned it into a profession with a license (being a broker) they would be much more successful in my opinion.
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  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    9y

    I think it's pretty clear from the language and how it's written that it seems to be directed right at wholesaling. I wonder if other states will adopt the same. And more importantly will they enforce it? 

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  • Richard Adjou
    Real Estate Agent · Montgomery Village, MD · Member since 2014 · 39 posts · 8 votes
    9y
    The fact p
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  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Russell Brazil  I was at lunch today with a guy I partner deals on with.... he got in trouble by RE division for simply placing a for sale sign in the yard he did not own..  so any other marketing of a home you do not own is prohibited

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

    @Jay Hinrichs

    @Russell Brazil

    It is only a matter of time before some other states mimmick this. The big secret is--everyone KNOWS they are skirting laws and playing games to broker RE. I have posted this before but here is FL Chapter 475.43:

    475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

    Note the PRESUMPTION of brokering and the person has to PROVE they are not. 
    As to your statement about agents and "wholesaling" I believe those that do are doing a disservice to sellers. Their greed comes before honesty. When someone contacts an agent about selling they expect the agent to work for their benefit. Little do they know they are being scammed by a licensee. I have written a letter to the governor of our state addressing these very issues. There is nothing wrong with buying under market IF the seller is informed of FMV and making a quick sale cash offer. These agents aren't educating sellers. There is so much greed in this industry it is pathetic.

    Look for the post from the unlicensed broker that got a bid approved, started advertising on craigslist, and got a call threatening a cease and desist. Just another fast buck skirt the laws operator. Until people speak out against this it will continue. I file at least 2-5 complaints a week. It takes a little time but otherwise the frauds will continue to operate and more often than not, victimize people. 

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

    @Nick C.

    Florida IS enforcing laws. It takes complaints to bring these frauds to their attention. I have no problem spending $.49 to do my part:)

    1Reply
  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @John Thedford ya I saw the HUD one.. I think HUD will black ball buyers.. if I am not mistaken and most OREO sales like that require you to close in the name of the company that made the offer.

    I know the govmit is not keen on house flipping IE deed restrictions etc.. that one will be interesting

    I was trying to tag Greg in TExas I think its Greg Hall anyway he buys a ton of HUD so he would know

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

    @Russell Brazil

    Two states allow net listings: Florida is one of them. I don't believe in those personally. We either serve the PUBLIC or serve OURSELVES. Why not serve the public and get paid for doing so? My first duty to any buyer or seller is working for them. My needs should not factor into the transaction.

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  • Account Closed
    Investor · Madison , WI · Member since 2016 · 48 posts · 10 votes
    9y

    The funny thing is it's all so preventable: get a license, line up some money or buy creatively...

    No need to broker with a license, people need to use their heads and stop listening to gurus from Arizona. 

    1Reply
  • Mindy Heidel
    Investor · Valparaiso, IN · Member since 2016 · 4 posts · 0 votes
    9y

    Anybody ever run into any problems selling property that you own in an LLC where you own and manage the LLC?

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  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Mindy Heidel   No its how we take title no issues there. And again this is Oregon I am talking about

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  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Jay Hinrichs   I am in total agreement that buy and resell is what all the regulators want.

    In Texas, the problem is a little more complex.  Developers love using options.  They often do not want to close until years after they have started marketing the property.

    I personally know of thousands of acres that closed after being under option to the same people for more than 6 years.

    They marketed it and "developed" it for six year before they bought it.

    The legislature is not going to do anything that gets in the way of that.  I guess they could require it on small lots or something.

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Account Closed could be like the mortgage laws and safe act.. that really the number 1 target for wholesale is SFR house flippers.. and like the mortgage industry with safe act and all..

    Commercial is exempt  land is exempt  multi is exempt.

    It was just really weird to be doing a CE for mortgage banking and have this module on licensing to sell RE.. I am a broker in Oregon as well RE broker as well as NMLS and state licensed Mortgage banker.. so I take CE in both.. and I could see this one the RE CE class's but not in mortgage.

    they are going after the equitable rights argument and they are really hammering on anyone dealing with a pre foreclosure or anyone in foreclosure has special rights..

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  • Elliot Smith
    Investor · Vancouver, WA · Member since 2014 · 270 posts · 111 votes
    9y

    I agree that there should be regulations. However in Washington you have a great 1.78% excise tax anytime you transfer title so it would wipe a ton of profit away to double close. I think the issue is when new wholesalers tie up property for way too much and have no abilitly to close is the issue, they don't realize that they are affecting someones life. However I have told sellers in multiple occasions that they should list the home (I take a realtor with me on most appointments) alot of time they would rather go with me. People always want to assume that $ is people's #1 priority and its not. 

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Nicole Adams

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Elliot Smith  agree about Washington.. and for sure there are those that don't want to use a realtor for many different reasons..  Extreme hoarder houses have been our target the last 2 years..

    But as you know we close everything we aim at.. LOL.. I am buying one in Battle ground today that I will let you take a swipe at.... trashed house.. vacant neighbors encroaching.. looks like some one squatting in a travel trailer.. but lots of PO in this one..

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Mindy Jensen I was trying to TAg Greg H. on the thread were the lady got a call from HUD for trying to wholesale a HUD home as she does not have the means to actually close it.. he did chime in on the post thank you.. messing with the govmit is never good.

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  • Greg H.Pro Member
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    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    @Jay Hinrichs

    I saw the HUD one and commented. That is a big no-no for HUD. It would be hard to blackball a buyer as they could just start another LLC but the agent would be in jeopardy of losing their ability to sell HUD homes

    @Russell Brazil

    I agree with you regarding the net listing. I recall during my CE that as an agent/broker if we represent the client we are attempting to purchase the property from we are required to provide a market analysis on the property prior to entering into an agreement. Not sure if this is a NAR rule or a TAR rule. CE is not my idea of a good time! I do not wholesale in the manner discussed as I have always had the resources to close first. There was a BP thread a couple of weeks ago where an agent wanted to put properties under contract and then market to his pool of investors as he thought he should be profiting more than just a commission. I can't imagine that not ending well

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Greg H.  I get the whole reason for this wholesaling mania for the empty pockets crowd IE those with no real nest egg that want to go from zero to a RE investor in 3 months  :)

    I am thinking the real issue at hand is the non sophisticated owner of a 1 to 4.. and at some point the govmit stepping in.. just like dodd frank stepped in to dissuade bad lending in sub prime areas etc.

    But I see a flip side if you have sophisticated sellers IE accredited like you do for investing in PPM's and such.. then no rules are really needed as the common wisdom is they are sophisticated enough to know how to value a asset and or what a fair price and terms are.. Know what a weasel clause is.. Know to ask for a real POF know to ask for a REAL EM deposit.

    your state is somewhat of an outlier in that its customary to put up 100.00 or so for a 10 day option.. which in our area we simply call that a 10 day due diligence but you don't pay 100.00 for it.. its free you just need mutually acceptable EM to get into contract.. do your 10 day inspections then move to closing.

    Its just going to take a couple of poster child type transactions that get on the Late night news to bring regulators into these deals.. we will see.. and of course every state is different.

    But I know in MS if your turned in there and you advertise a Prop in any way you do not have title to you will get a cease and desist and you will get fined.. do it again and you can go to jail.. I had a client I funded that happened to.

    So we will see.. makes for good fodder for BP that's for sure.

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    9y

    I guess I don't understand the whole reasoning for getting the property under contract if there is no plan on closing for some better purpose than to assign the contract. If you are a licensed agent, why not just list it if you are not buying it? or not list it on the MLS but market it to whoever you want (Have the owner sign a paper saying don't put in MLS and you are within your ethics for board) Then email, TV, Website, flyer till your heart is content?

    In the example @Russell Brazil posed, the seller feels that in order to pay off his loans and make the numbers work he has to get at least 200K after expenses to close (same as every buyer they need to know what they are going to NET). Now we know that it is worth more because we CMA it and who would Wholesale at retail prices or even close really? So we agree to list it for a 10K flat fee at a sell quick price. A NET listing is when the seller says you get everything over what I need to clear. So if they say they just want to walk with 200K and I list it for 350 and walk with 150K I am wrong. But flat fee listing to ensure they hit their NET instead of percentage should be fine in most areas correct?

    I know our contract has "I agree to pay agent __% of the sales price or $_______"

    For the question how are you working in the best interest of your seller? I assume their motivation is to sell the house quickly and to get the price they need as well as whatever else is in their best interest and you are working toward that.

    The whole equitable interest just doesn't make any sense to me if you have your license. 

    Just my 2 cents. 

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  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Mike Cumbie  I think that the fact that commissions are negotiable is lost on many and of course new folks who really want to get into wholesaling have basically little to zero knowledge on how the industry works as they are starting out.

    I started my career in the land game.. I sold lots and land.. 10% commish was minimum.. properties that were 1 hour drive by dirt road back into the national forest of Northern CA.. commish for those I charged anywhere from 15 to 30% ...

    I did a duplex ( new construction ) in Vancouver Washington in 05.. 22 of them and I set my fee at 30k per duplex.. the builder was happy to pay it as I sold them all literally in one weekend in San Fran.. but I spent 35k getting 300 people to a big room to listen to me present this opportunity.

    and on low value assets IE homes that sell under 100k  I see it very common to have fixed commission by dollar not percent on these deals.  especially the ones that sell for 5 to 20k there will usually be a minimum fee of 2 to 5k . basically the same amount a wholesaler may mark them up.

    but what I see. is wholesalers tying something up then trying to make HUGE hits on one deal.  So one of two things has happened.. the wholesaler is not knowledgeable about the actual value. or they have told the seller the home is worth FAR less than in reality.   Except for a very few I see wholesaling as a short game IE 99% wipe out rate... but for everyone that tries and can't make it 100 replace them.. thanks to internet and Guru's and what you see on BP.... when someone post and boasts about how they just made 15k on an assignment fee. and you have your beginners on this site in a low wage environment somewhere in amercia were 15k is 1/2 or 1/3 a years salary well you can see how that gets these folks jacked up

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  • Sean Cole
    Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    9y

    In Ohio, having a RE license doesn't get around the marketing of a property you don't own as it pertains to wholesaling.  We still can't market the property the way most wholesalers do.

    We close and resell here, so I guess I'm a flipper and not a wholesaler, but I still have the same marketing issues unless I've already closed on it. I have a RE license more to collect commissions if I buy off the MLS and to resell property than anything else, since the Division of RE claims jurisdiction even if you aren't licensed.

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  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Sean Cole  well as I stated it was the first time I have seen a govmit agency address EQUITABLE interest in the definitions.... most wholesalers as you know bring up the Equitable argument to circumvent they are not selling RE without a license.. It appears state of Oregon has no closed that loop hole.

    As well as its kind of Moot here.. are market is SO robust that most sellers on a distressed asset or anything perceived to be under market give you 5 to 10 days to close want big EM and POF with your offer.... there are still the uneducated that get scammed and their always will..

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