Wholesaling and the equitable interest theory

Wholesaling
9yFollow

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

Podcast Guest on Show #222
JLH Capital Partners51 Review
WebsiteView Page
11Reply
276 views

Most Popular Reply

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)

[email protected]301-893-4635Podcast Guest on Show #192
District Invest Group545 Reviews
WebsiteView Page
4Reply
See this reply in the discussion

52 Replies

Jump to latestLatest
  • Peter Schaub
    Real Estate Agent · Austin, TX · Member since 2016 · 14 posts · 1 vote
    9y

    @Jay Hinrichs

    I agree that wholesalers are creating a de facto net listing. As an agent, this would be a problem if you also signed any buyer/seller representation agreements, which I do not. (I'm a licensed agent and a wholesaler) I know there is an attraction to wholesaling for those new to real estate, because of the common myth that you don't need capital to get started. Everything in real estate requires capital, though some approaches need more than others. I'm curious, what is everyone's opinion on closing contingent upon finding a buyer? Is this common? or do most wholesaler's actually buy and relist for a period? 

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Peter Schaub  as it relates to most of the BP wholesalers I think they fall into a two categories.. ones that are established and can close if they need.. and the beginners who have no hope of closing unless they resell.. I would say its 90% they don't close and 10% do close. I could be off a little but I bet that's close after watching these wholesale posts the last 3 years I have been on BP. my 3 year anniversary is middle to end of FEB this year.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Sean Cole
    Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    9y

    @Jay Hinrichs it's pretty similar here in Ohio.  I've actually been on a call with someone from the Division talking about Equitable Conversion/interest/ownership/title and their position is that they don't care.  "Either you own in or you don't."  They'll expand and say, "either you've paid for it or you haven't" if you try to get cute.

    Most wholesalers are doing so few deals that they likely don't come up on the radar for enforcement.  There's an outfit here in town that probably does 30-40 deals a year and blatantly breaks advertising rules but doesn't ever seem to face consequences.  We choose to abide by the rules.

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    My 2 cents.

    I understand the text of Ohio laws. I understand the intent. I find it hard to believe that Ohio REC (whatever it's called) will enforce their own laws on lenders advertising their REOs before the lender gets the recorded deed. Without trying, I found a case of just that about 4 months ago. I still think this is a common business practice, and worth noting that it's a practice that is done through a licensed broker. Maybe Ohio will prosecute the lenders, but I think in reality they have a de-facto (and unwritten) new set of 'exemptions' for some cases, like lenders marketing their interest. IMO, lenders/banks should be allowed to market w/o ownership. My opinion only.

    For me, if I ever start buying at the courthouse again, I plan to market property when my rights are set by statute. In hind sight, I should have done that anyway. I didn't. I closed on everything I got winning bids on. However, I am in NC and don't have the crappy regulatory issues that some other people have to deal with.

    Let me clarify that last paragraph. I am against these "wholesaler" poser types who intentionally avoid broker laws. I am for allowing common sense business practices, like marketing property when the entity/person's interest exceeds some non-trivial (5%+?) amount. It's not hard to identify the difference.

    0Reply
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @Russell Brazil You make a good point.

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Chris Martin  lenders have carve outs when it comes to the foreclosure issues.. they have all the risk in the deals... contract assigners have little to none..

    In most states I have bought court house steps foreclosures.. you receipt that you paid for the property is ownership.. IE you can evict you can insure it etc etc.

    LIke in GA it takes 60 to 90 days to get your deed but you have forked over 50 to 200k or more for the property in CASH.. and you don't get the money back once you buy it you bought it.. so that is ownership

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Sean Cole  lucky that company doing 30 to 40 is not in southern FLA  :)

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Elliot Smith
    Investor · Vancouver, WA · Member since 2014 · 270 posts · 111 votes
    9y
    Originally posted by @Jay Hinrichs:

    @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..

     If you want to shoot me info I would love to look at. PM me. 

    0Reply
  • Sean Cole
    Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    9y
    Chris Martin in Ohio, we get a "Confirmation of Sale" within about 10 days that the State says acts as evidence of ownership. Hamilton County locally makes it very easy to assign your winning Sheriff Sale bid, too. They have their own form and everything.
    1Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Sean Cole  it so very different your seller is the Sherriff or trustee service in our case.. your buyer is someone who is bidding... and puts up a significant non refundable deposit.

    Or like in the case of Indiana its a felony to bid on a property and not follow through.. not only do you lose your bid deposit the Sherriff can have you arrested.  these keeps the empty pockets folks out of the game.

    out our way. you have to hand over the entire purchase at the auction in the form of a cashiers check.. and once its out of your hands and in the criers hand or sheriffs hand its done. its none refundable and you get a receipt...  And I have flipped a few this way.... someone who can't come up with 250k on the post wants to buy it but needs a loan and walks up to me and offers to buy it.. we make a quick 10 to 20k for a 30 day escrow with no work.. that happens..

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    Regarding "...you receipt that you paid for the property is ownership..." Interesting. Not in my book. Not in my state's book. A trustee's deed is legal ownership. Not that I care because as I said in NC the approach is rational.

    The Ohio statute says, as posted above, basically "Either you own in or you don't." The legal test of ownership is the deed. Again, for people like me that close, it doesn't matter. But lenders, technically, violate the letter of the law when they market REOs (that haven't settled) and pre-foreclosure and short sales of abandoned property.

    Yes, it's a detail. The law is all about details.

    @Sean Cole I know that is your interpretation. The question is can you advertise, without the state stepping in, before you get the deed and then assign with those "...easy to assign your winning Sheriff Sale bid..." forms?  It is, as Jay said, "...receipt that you paid for the property is ownership..."

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Chris Martin  great Thursday evening conversation my last post I have to go work out a bit LOL

    but a deed does not always have to be recorded to prove ownership.

    think of land contracts of sale..  and or deeds that are filled out but not recorded .. recording is not mandatory for ownership... its smart to do that lest someone does something nefarious . but not mandatory.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Matthew Olszak
    Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
    9y

    This thread has me thinking. Of those who advocate the 'equitable interest' argument to justify skirting licensing laws, how many have actually been challenged by their respective state agencies and successfully defended themselves?

    I believe its a lot like the 'sovereign citizen' movement skirting tax laws. To those who believe in this sort of thing, it seems like a totally reasonable and logical defense/argument. But to the courts and the rest of us, its a bunch of garbage.

    Its nice to see at least one state clarifying what was clearly the intent of the law all along.

    2Reply
  • Lauren Lockett
    Investor · Arlington, TX · Member since 2015 · 200 posts · 61 votes
    9y

    Very interesting thread! 

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    I thought the contract as the buyer was considered a form of equitable interest in most areas?

    0Reply
  • Sean Cole
    Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    9y

    @Matthew Olszak I have, that's why I've had the conversation with Ohio about their enforcement.  To be clear, @Chris Martin it's not MY interpretation, it's the interpretation of the enforcement folks at the Ohio Division of Real Estate in our Department of Commerce. If the Division were to ask the question about advertising the property won at SS, the Confirmation of Sale is all that's needed to shut down the conversation. That (the C of S) is what allows lenders in Ohio to list properties on the MLS prior to having the deed recorded. Hamilton County is currently looking at an 8-12 month delay between Sheriff Sale and deed recording.

    I have very clearly been saying that Ohio doesn't honor Equitable Interest or any of the other theories as it relates to wholesalers advertising houses.

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Sean Cole  your comment on deed taking 8 to 12 months to record got me to thinking.

    in Atl when I was buying court house there it was routinely 60 to 90 days as I mentioned.

    but when I was lending in Detroit Circa 2002 that city was all messed up. and it would take our loans 30 to 60 days to get recorded.. and we had to buy gap insurance.. our loans were in force even if they did not show on public records.. It was nerve racking to say the least.. along with transfers of title.  lest a nefarious person slip something on title prior to your deal recording .. I have had that happen to me in all place it was San Francisco.. I made a loan there and when I got my title policy I was suppose to be in 2nd but I was in 3rd.. some yahoo jumped in front of us with a bogus deed of trust .. My title company had to pay it off and remove it then sue them for their bad behavior

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Matthew Olszak

    Check out FL statute 475.43
    They are closing the door on unlicensed brokers. Note the verbiage that they must PROVE they are not brokering real estate. 

    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: PRESUMED to be brokering RE. I suspect it won't be long until FL addresses equitable interest because there are thousands of unlicensed brokers using contracts to skirt the intent of the laws in this state. I turned on in just a couple weeks back. He has a house "under contract" with -0- EMD and is advertising it. The owners told me he is "selling it for them". He is a FRAUD operating as an unlicensed broker.

    0Reply
  • James Green
    Wholesaler · Waldorf, MD · Member since 2015 · 459 posts · 245 votes
    9y

    @Jay Hinrichs love the thread, even if I'm not "broke & desperate" but still a wholesaler.

    Any thoughts on how the equitable interest argument plays out if you live or wholesale in a state where all residential purchase contracts are by law assignable? You technically don't have to do the "..and or assigns".

    Also for arguments sake, let's say I'm going to buy a SFR & I put the house under contract with the purpose of living there. Then while the house is in escrow, someone else that "loves" the house & wants it so bad that they offer to buy it from me at a higher price, Is the state of Oregon saying I need to wait until closing until I sell? Just a thought.

    I have many seller that don't want to sell via a Realtor for whatever the reason + they know I will be assigning the contract to another investor. I don't hide that & I explain what that means. I don't gloss over it, nor do a verbal drive by of an explanation, etc.

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @James Green  I don't think any state will get bothered by a one off deal.. IE someone trying to buy a home to live in then assigning.

    where I see the issue is those that hold themselves out as in the Wholesaling business..

    there are usually carve outs for most things.. Like in Oregon you can do 3 fix and flips a year without being a licensed developer.. or you can do 3 seller carry backs with out being a mortgage broker or having one do the paper work.

    But If you have a website  e mail blasts and are doing volume then I think they will start to enforce the laws here in Oregon.

    I just got of a call with a lender in SF  that got a cease and desist for making 4 loans in Oregon because in most states you don't need a Licesne for commercial purpose loans.

    But as I said in the original post this state is pretty tough on enforcing the business and professions codes.. and there is only 3.5 million people here. .so its not like trying to herd cats.. someone wholesaling and running craigs list adds and a website they will get noticed.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • James Green
    Wholesaler · Waldorf, MD · Member since 2015 · 459 posts · 245 votes
    9y

    @Jay Hinrichs makes sense.

    0Reply
  • Ryan Jones
    Colorado Springs, CO · Member since 2017 · 32 posts · 17 votes
    8y

    What if you create an LLC for the property that you get a contract on, then technically are selling the LLC which has interest in the property due to the contract, and market the LLC?

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free