Heads Up Ohio Wholesalers! Potential NEW Legal Ramifications of Wholesaling
Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes
Heads Up Ohio Wholesalers! Potential NEW Legal Ramifications of Wholesaling
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Darrin CareyPro Member
Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votesEveryone should note the lead sentence in the article includes the clause "which may be providing instructions on how to circumvent real estate license law"
@Steve Babiak @Jonny S. @Andy Argonaut The unlicensed activity on page 8 was for Property Management without a license. There is no court of law involved, only the Division of Real Estate.
- Interestingly, after looking through several years of disciplinary actions for unlicensed activity, I did not find a single instance where it was for wholesaling. @James Wise have you found any?
I've had a few conversations with the State of Ohio Division of Real Estate about wholesaling and other typical real estate investor activities.
Back in 2007 the Division of Real Estate head Attorney explicitly stated that wholesaling by assigning a Purchase and Sale agreement did not need a license, however for an option agreement she thought it did need a license.
In Sept 2013, I had a lengthy conversation with one of the Division of Real Estate enforcement section investigators. I believe he was the lead investigator.
The summary of the conversation is as follows.
- The Dept is concerned about people who are writing a lot of contracts with the intent to only wholesale, and no intent or ability to close otherwise. He gave an example of people writing 40-50 contracts a month, and only closing on one or two.
- Assigning a real estate contract is legal. I was very specific about this one. I literally told him I was about to assign a current contract to another investor for a few bucks, because I had decided I was too busy did not have time to rehab it. He said it was fine.
- One of the items he keyed in on was I had the intent and the ability to close the contract.
- I was unable to pursue the marketing of a real estate contract due to time constraints, The methods how wholesalers are marketing their deals may be an issue.
- See #1 for what the states hot button is.
202 Replies
- Investor · St. Petersburg, FL · Member since 2013 · 28 posts · 1 vote13y
Thanks for information!
- 13yJohn HornerPro MemberFlipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
Wow, good information to know. What is their benefit in taking this stance against wholesalers?
What does "market" mean? If I call a single cash buyer and they wrap it up does that count? Or does it mean posting on Craigslist, zillow, etc?
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
Hi John, not sure there is a benefit for them to be that way; I think it is just that they are misinformed and do not understand.
He said any kind of marketing whether it's on craigslist, or privately marketed. Prior to talking with him on the phone, he actually had submitted his information on my website's contact page asking me to send him everything I have in Ohio, so be careful in Ohio.
Originally posted by John Horner:
Wow, good information to know. What is their benefit in taking this stance against wholesalers?What does "market" mean? If I call a single cash buyer and they wrap it up does that count? Or does it mean posting on Craigslist, zillow, etc?
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
You're welcome!
Originally posted by Dan MacDuffie:
Thanks for information! - 13yJohn HornerPro MemberFlipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
So I did some research, what about equitable interest?
It just doesn't sound like anything can stick.
In an assignment, like you said, you are marketing the contract, not the property.
In a double closing, you actually take ownership, if only for a few seconds, and it is legal to market your own property.
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
John Horner That was my thought when I asked the executive director about marketing an equitable interest vs. marketing the property. He never responded.
I am going to talk to a real estate attorney about this, as the uncertainty of this situation is unacceptable. One way or another, we need to find clarity on this issue; because it doesn't seem right to me either. I tried to explain that we would ultimately own the property before selling, if only for a few minutes. It didn't seem to phase him.
Until we have more definitive answers, wholesalers need to be careful in Ohio. If the DOC was just using scare tactics, then it needs to be addressed immediately. The only way to know for sure is to talk to a real estate attorney in Ohio. If an attorney confirms that marketing a contract is not the same as marketing the property, then perhaps it would be wise for me to ask for a Letter of Opinion from the attorney stating that fact; and then send a copy of the letter to the Department of Commerce in order to assert myself on the points of what a wholesaler actually can, and cannot, do legally in the State of Ohio.
scare tactics = harassment
When you know your rights, people usually won't mess with you including exulted state employees who act before understanding.
Originally posted by John Horner:
So I did some research, what about equitable interest?It just doesn't sound like anything can stick.
In an assignment, like you said, you are marketing the contract, not the property.
In a double closing, you actually take ownership, if only for a few seconds, and it is legal to market your own property.
- 13yJohn HornerPro MemberFlipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
Thanks for the response! Keep us updated if you learn anything from you real estate attourney!
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
I sure will. I will write a blog about it once I know for sure what the situation is in Ohio.
Originally posted by John Horner:
Thanks for the response! Keep us updated if you learn anything from you real estate attourney! - Real Estate Investor · San Joaquin County, CA · Member since 2012 · 27 posts · 8 votes13y
Interesting subject, and thanks for posting the info, Suzette. We are shopping Ohio, and have considered wholesaling off properties we come across that we don't want to add to our current portfolio, so I'll be following this thread.
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
@Alex Hurley
Thanks...
Originally posted by Alex Hurley:
Interesting subject, and thanks for posting the info, Suzette. We are shopping Ohio, and have considered wholesaling off properties we come across that we don't want to add to our current portfolio, so I'll be following this thread. - Springfield, OH · Member since 2012 · 155 posts · 50 votes13y
Hi Suzette,
I'm an active wholesaler in Northern Virginia, however, my husband and I are both from Ohio and thinking about moving back to the Columbus area within the next few years. Because of that, I've been studying the Cbus market with the intention of wholesaling there in the near future.
Am very interested to see what your attorney's response is - this issue directly affects our business as well.
Thank you for posting.
- Jessica
- Flipper/Rehabber · Anaheim, CA · Member since 2010 · 188 posts · 118 votes13y
Hey Suzette, how certain are you that it was the executive director of the Ohio Department of Commerce who called you? Is it possible this broker has it out for you and just got a friend to pose as the executive director to scare you off? If not, did the caller at least show you where in the laws it states wholesaling is considered "unlicensed activity"?
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes13y
Okay, just to be clear...I dance on both sides of this fence, somewhat. I work as an agent, short sale negotiator and do a little fix and flip, and "wholesale". By wholesale I mean I actually buy it, then flip without any rehab/upgrade. I don't do assignments.
I'm guessing the broker mentioned by mentioned by the OP Does understand wholesaling, and doesn't see any wholesaler as a threat to their business. If they're like me, they just roll their eyes when they get the "typical" wholesale offer....assignable or in a trust name, 15-30 day inspection, maybe EM up front, maybe not, "cash" offer but no real POF, either a letter off the Internet or a letter from a transactional lender, etc. If you are putting out low ball offers resembling the above, you shouldn't be surprised with a "please don't waste our time any more" phone call.
Should there be some regulation of wholesalers out marketing their "equitable interests".....probably. I see a growing trend of clueless wannabe's, and unethical SOB's, tying up properties with sub2's, L/O's and sandwiching/assigning these to some buyer who is just as uninformed as the seller they talked into this without realizing the future ramifications when the seller defaults, the buyer defaults, etc. these guys are putting "deals" together, getting a fee, and walking away not caring what happens later. "After all, the whole idea of sub2 is to get the deed to a property and the loan is still the seller's problem".
Should someone be allowed to market a property they have under a straight up purchase contract.....I say yes. I think it's the other convoluted "creative" stuff that's going to bring down the regulators, and rightly so. - Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
Thanks for chiming in, Jessica. I will post updates as things develop.
Originally posted by Jessica Swingle:
Hi Suzette,I'm an active wholesaler in Northern Virginia, however, my husband and I are both from Ohio and thinking about moving back to the Columbus area within the next few years. Because of that, I've been studying the Cbus market with the intention of wholesaling there in the near future.
Am very interested to see what your attorney's response is - this issue directly affects our business as well.
Thank you for posting.
- Jessica
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
@Chris Weiler
I just found the email I received. It was sent by Nicholas Chucales; he is an Investigative Supervisor, and not the executive director. My mistake, but same effect...$1,000.00 fine per violation for what he called "unlicensed activity."
Here is his information:
Nick Chucales
Investigative Supervisor
Ohio Department of Commerce
Division of Real Estate & Professional Licensing
77 S. High St. 20th Floor, Columbus, Ohio 43215
(614) 728-5919
www.com.ohio.govOriginally posted by Chris Weiler:
Hey Suzette, how certain are you that it was the executive director of the Ohio Department of Commerce who called you? Is it possible this broker has it out for you and just got a friend to pose as the executive director to scare you off? If not, did the caller at least show you where in the laws it states wholesaling is considered "unlicensed activity"? - Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes13y
Can you go back to the Investigative Supervisor and ask him to give you specific code and/or case law? Specifically, you are looking for code or case law that 1) outlines what requires a license when it comes to marketing real property, and 2) defines marketing.
The equitable interest argument is weak, IMO, when you are talking to bureaucrats. Most of them, including DAs and GAs will not know or understand contract law, so I doubt that's the way to go about making your case. Unless you want to go all the way to court to make it. You can sell and/or assign your interest in options and contracts and there is no law against that. But you'd have to dig into code and case law to get details on who can market and what marketing is.
The way I see it: part of the problem is that wholesalers often refer to their mark-up or profit on their buy as a "fee". Every state law I've looked at says collecting a fee is restricted to licensed individuals. For starters, how about you all stop calling it a fee.
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
Hi Wayne,
I am in the process of looking for an attorney who is knowledgeable about this issue. While there are strong opinions on either side of the fence regarding wholesaling, the biggest issue I see is when things go undisclosed. If everything is disclosed upfront, and if both buyer and seller still agree to enter into a contract, then they should be able to do so.
The real issue here is the DOC's definition of "unlicensed activity," and that they consider "marketing properties you do not own without a real estate license" a violation of Ohio real estate licensing laws. Even with a purchase and sale agreement in place, the investigative supervisor said that their department is actively pursuing violations, and that they will be fining people $1,000.00 per day per violation .
The cost to obtain and maintain a real estate license is a significant expense to bear over time. I know this, because I have been in the business since 1996. It does not seem right to me that real estate investors should be forced to license themselves as brokers in order to sell the inventory they buy. To me, this seems like an undue financial burden, because such regulation would impose a significant increase in the cost of doing business. It seems unfair and wrong.
Originally posted by Wayne Brooks:
Okay, just to be clear...I dance on both sides of this fence, somewhat. I work as an agent, short sale negotiator and do a little fix and flip, and "wholesale". By wholesale I mean I actually buy it, then flip without any rehab/upgrade. I don't do assignments.
I'm guessing the broker mentioned by mentioned by the OP Does understand wholesaling, and doesn't see any wholesaler as a threat to their business. If they're like me, they just roll their eyes when they get the "typical" wholesale offer....assignable or in a trust name, 15-30 day inspection, maybe EM up front, maybe not, "cash" offer but no real POF, either a letter off the Internet or a letter from a transactional lender, etc. If you are putting out low ball offers resembling the above, you shouldn't be surprised with a "please don't waste our time any more" phone call.
Should there be some regulation of wholesalers out marketing their "equitable interests".....probably. I see a growing trend of clueless wannabe's, and unethical SOB's, tying up properties with sub2's, L/O's and sandwiching/assigning these to some buyer who is just as uninformed as the seller they talked into this without realizing the future ramifications when the seller defaults, the buyer defaults, etc. these guys are putting "deals" together, getting a fee, and walking away not caring what happens later. "After all, the whole idea of sub2 is to get the deed to a property and the loan is still the seller's problem".
Should someone be allowed to market a property they have under a straight up purchase contract.....I say yes. I think it's the other convoluted "creative" stuff that's going to bring down the regulators, and rightly so. - Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
Here is a section of what I found.
4735.01 Real estate broker definitions.
As used in this chapter:
(A) "Real estate broker" includes any person, partnership, association, limited liability company, limited liability partnership, or corporation, foreign or domestic, who for another, whether pursuant to a power of attorney or otherwise, and who for a fee, commission, or other valuable consideration, or with the intention, or in the expectation, or upon the promise of receiving or collecting a fee, commission, or other valuable consideration does any of the following:
(1) Sells, exchanges, purchases, rents, or leases, or negotiates the sale, exchange, purchase, rental, or leasing of any real estate;
(2) Offers, attempts, or agrees to negotiate the sale, exchange, purchase, rental, or leasing of any real estate;
(3) Lists, or offers, attempts, or agrees to list, or auctions, or offers, attempts, or agrees to auction, any real estate;
(4) Buys or offers to buy, sells or offers to sell, or otherwise deals in options on real estate;
(5) Operates, manages, or rents, or offers or attempts to operate, manage, or rent, other than as custodian, caretaker, or janitor, any building or portions of buildings to the public as tenants;
(6) Advertises or holds self out as engaged in the business of selling, exchanging, purchasing, renting, or leasing real estate;
(7) Directs or assists in the procuring of prospects or the negotiation of any transaction, other than mortgage financing, which does or is calculated to result in the sale, exchange, leasing, or renting of any real estate;
(8) Is engaged in the business of charging an advance fee or contracting for collection of a fee in connection with any contract whereby the broker undertakes primarily to promote the sale, exchange, purchase, rental, or leasing of real estate through its listing in a publication issued primarily for such purpose, or for referral of information concerning such real estate to brokers, or both, except that this division does not apply to a publisher of listings or compilations of sales of real estate by their owners;
(9) Collects rental information for purposes of referring prospective tenants to rental units or locations of such units and charges the prospective tenants a fee.
http://codes.ohio.gov/orc/4735
Originally posted by K. Marie Poe:
Can you go back to the Investigative Supervisor and ask him to give you specific code and/or case law? Specifically, you are looking for code or case law that 1) outlines what requires a license when it comes to marketing real property, and 2) defines marketing.The equitable interest argument is weak, IMO, when you are talking to bureaucrats. Most of them, including DAs and GAs will not know or understand contract law, so I doubt that's the way to go about making your case. Unless you want to go all the way to court to make it. You can sell and/or assign your interest in options and contracts and there is no law against that. But you'd have to dig into code and case law to get details on who can market and what marketing is.
The way I see it: part of the problem is that wholesalers often refer to their mark-up or profit on their buy as a "fee". Every state law I've looked at says collecting a fee is restricted to licensed individuals. For starters, how about you all stop calling it a fee.
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
Interestingly, there is an exemption for commercial brokers and salespeople under certain conditions:
- 13yBrandon SturgillBusiness MemberReal Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
Thanks for bringing light on this topic. I will certainly follow the developments. I would be curious if this will be a developing campaign, but it seems like there is very little to be gained by a state agency imposing fines...are realtors/brokers truly that offended by non-licensed wholesalers? Thanks again for starting the thread.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes13y
I think everyone who is reading this thread would do well to look at what the issue is and see if it applies to your own activities and the states where you work. According to the OP, the Ohio DOC is telling her that marketing properties you don't own is unlicensed activity.
How many of you are tying up properties with contracts and then publicly marketing/offering to sell your option or contract? Be honest. Don't most of you market the property first and foremost, using the property address? Are you even including any language about the contract? Most state laws say you can't market properties (offer to sell properties) that you don't own. There is no law against selling what you do own. But I'd be careful about marketing property that you don't own.
How many of you are marketing using language that says: Equitable interest in purchase agreement for sale? Option assignment available for cash? I usually have to ask the wholesalers who call me more than once if they own the property or not. They tend to be fuzzy on the ownership issue.
I stopped double closing and assigning contracts several years ago because I wanted to control the timing and price on the resale. The issue is up again because I have several investors offering to take over my contracts for cash. I'm thinking there are no marketing violations there, as I'm not offering any properties. The negotiations involve my options and contracts. Even so, I'll be checking with my attorneys on that one.
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
I have spoken with a local attorney about the situation; it turns out that the law only exempts people with an "interest" aka a deed. It says nothing about an "equitable interest"--therefore people with contracts, options, etc., are not protected.
The attorney is looking into this more, but it seems that unless you want to be the "guinea pig" that establishes case law, then I would highly recommend finding a way to operate within the boundaries of the law--as the DOC is interpreting it.
This may mean working with lenders who offer extended transactional funding, which lets the wholesaler close without an end buyer in place, and then have up to 90 days to place and close with the new buyer.
The only trouble is that there aren't very many lenders out there that work this way, so you may need to seek out private lending sources that will look at deals on a case-by-case basis, and fund based on the merits observed.
Any other ideas how Ohio wholesalers might legally workaround this problem?
- 13yJohn HornerPro MemberFlipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
To be honest it may just be easier to get your license. I have considered it simply to have access to the mls. Local community colleges here offer all 4 classes for about $1500 total. May be worth it!
- Full time real estate investor · Port Orchard, WA · Member since 2013 · 54 posts · 16 votes13y
John Horner,
This is very true. A real estate license would avoid all the slack. The only problem is that a real estate license also comes with its own set of dues and fees that must be paid, and more often than not, they are not just a few dollars. The cost to maintain a real estate license, as well as the dues and subscriptions required to maintain MLS access is no light thing--at least not in Washington State where I am licensed as a designated broker.
However, with all that said, if we can compare the cost of maintaining a real estate license in the State of Ohio to the cost of being fined $1,000.00 per day per "unlicensed" violation, then it makes sense that the cost of a real estate license would be the lesser of two evils.
So, we now have two possible solutions:
1. Extended transactional funding
2. Get a real estate license
Does anyone else want to add anything here?
Originally posted by John Horner:
To be honest it may just be easier to get your license. I have considered it simply to have access to the mls. Local community colleges here offer all 4 classes for about $1500 total. May be worth it!
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