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
- Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes12y
I get where you're coming from when you say that you need to own a house before you try to sell it. However, you can own a contract on a house and sell that contract for a fee so long as the contract is assignable. This is standard contract law and it is far from illegal.
Let's take an example. Investor X advertises for motivated sellers. Investor X negotiates deals and gets 4 properties under contract in a given month. 1 property investor X closes on and rehabs for resale. Another property investor X closes on, rents it, and holds as a buy-and-hold rental. For various business reasons (current inventory, workload, working capital, etc), investor X decides to sell the remaining 2 assignable contracts to another investor so he/she can either fix and flip or hold.
Pray tell, exactly how would investor X run his real estate investing business if he is working with private sellers yet IS REQUIRED to be licensed to put a property under contract? Is this not a free market society? Are we not capitalists? What is the investor to say: "Mr Private Seller, I really want to buy your house. But, I have to get a license and secure a listing agreement with you before I can write up an offer. I know that you don't want to be represented, otherwise it's likely that you would have called an agent. The good news is that I am not really representing you. I just want to buy your house. However, it may appear I am representing you because this is the way the state wants the paperwork done. And, by the way, this will cost you an extra 6% of the sales price."
You can tell that for investor X this way of doing business would shady and nonsensical. Instead of the real estate commission's claim of "Practicing without a license," investor X would be (and should be) accused of "Impersonating a real estate agent." After all, what does investor X know about being a real estate agent? He has no parts of being an agent. He's an investor!
If investor X can in fact negotiate a deal and secure a purchase agreement with a private seller WITHOUT A LICENSE, doesn't this investor have right and the freedom to do as he chooses under contract law? After all, if a contract is legally binding in terms of responsibilities, isn't it also legally liberating in the sense that there are certain rights - one of which is the right to sell the contract to a ready, willing and able buyer? I would argue to say that you can't just sever certain legal contractual rights and still insist that the contractual responsibilities remain in tact.
So now I feel like I just opened up a can of worms. This would be totally fine if I planned on going fishing, but honestly I had no such intent. Free bait anyone? : )
- Columbus, OH · Member since 2014 · 61 posts · 19 votes12y
What implications does this have for bird dogging? I remember being told by a Realtor/presenter at an investors' meeting a few years back that bird dogging is illegal in Ohio. I've been a Realtor and I do not want to be one again. I would also wonder how many brokers would want to sponsor a licensee who will be only investing.
Caution. Rant ahead:
I know this is a pointless argument, but it has always seemed to me that a seller should be able to choose whether to pay commission to a licensed agent because they want the benefits and protections a licensed agent can provide, or...choose to let a friend, for example, market their house for them. You can take your car to a certified mechanic and pay for their expertise and guarantee that your car will be fixed properly. Or...you can let your neighbor try to fix your car, save money and take your chances.
I would not want to see backyard mechanics subject to fines for practicing without certification. Is this a really bad analogy? lol. I just don't see why two competent adults cannot enter into an agreement for any otherwise legal activity without being subject to huge fines. I think what should be fined is fraudulent representation...not wholesaling itself. If one discloses to a seller their intent to assign, for example, or market the house for 30 days, and that they will be compensated by any buyer of the contract, that is not fraud. Sellers who can't afford an agent's commission, and do not have the resources to find a buyer themselves, can wind up in foreclosure when the wholesaler may have a buyer for their property. Where is the seller protection in that?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
@Jerry Kisasonak you said "I see where your coming from" like my comments were my "opinion" Then went on to give your "opinion" as to why it is ok.
did you read the article? It's clearly states selling property you do not own is considered unlicensed activity. There is no back and fourth here. No giving of opinions. The Ohio Real Estate Commission Says Its A No no.
debate over. No can of worms is opened.
FYI as for opinions I agree with the RE commission.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
As for opinions. Here is an opinion I have and this is my personal opinion so feel free to debate this comment but let's put the is wholesaling in Ohio legal or not debate to bed. RE commission and ORC make the rules end of story.
This stuff about a "seller can't afford to pay an agent 6% commission so a wholesaler can save them money, they are just going around doing people favors"?????
What is that? Who in their right mind says something like that and actually believes it?
Are people forgetting that the only reason they are in the business of wholesaling is because they are trying to sell the property WAY under FMV. As in like 70% ARV. 30% is a lot bigger than 6%!
- Columbus, OH · Member since 2014 · 61 posts · 19 votes12y
@james wise, you honestly do not know of any homeowner who lost their house to foreclosure because it failed to sell at a price high enough to pay a 6% commission when selling at 70% ARV (flipper) or 80% (buy and hold investor) would not have been better? I'm really new to wholesaling, so maybe I am not in my right mind, but I believe, and that from my experience as a Realtor, that those situations exist. You may feel free to correct me, but I, personally, am not running around trying to cheat people in difficult situations.
Let's clear something up and please correct me if I'm wrong. That Ohio Division of Real Estate section about unlicensed activity is nothing more than the way they govern themselves internally. This is not to be taken as law or any real basis of legality if you are unlicensed.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
@Barbara Riley I'm not seeing the point your trying to make?
Are you saying that wholesalers are not earning any money on the deal?
Are you saying that Agents don't know investors?
It's the same thing people. Earning a commission to sell Real Estate for someone else. The law just requires you to be licensed to do it.
You want to be a teacher? Need a license.
Drive a taxi? Need a license
sell cars? Need a license
sell mortgages? Need a license.
sell Real Estate? Need a license.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
Originally posted by @Jonny S.:
Let's clear something up and please correct me if I'm wrong. That Ohio Division of Real Estate section about unlicensed activity is nothing more than the way they govern themselves internally. This is not to be taken as law or any real basis of legality if you are unlicensed.Please see O.R.C. 4735.01 for a list of activities which require licensure.
This is what I don't understand. How exactly did these people end up being called out on this page. Were they charged and found guilty in a court of law or were they simply just accused by the board and that's enough to be blacklisted?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
Originally posted by @Jonny S.:
This is what I don't understand. How exactly did these people end up being called out on this page. Were they charged and found guilty in a court of law or were they simply just accused by the board and that's enough to be blacklisted?
The task of regulating real estate activity in Ohio has been delegated to the Department of Commerce. To best address the needs of the state and real estate industry, the Department of Commerce created the Division of Real Estate and the Ohio Real Estate Commission. These two bodies share the responsibilities for implementing and enforcing the existing licensing laws.
They were not black listed. They were fined HUGE money.
UNLICENSED ACTIVITY
Chad Fields, a person not licensed under Ohio Revised Code 4735, Delaware, Ohio, was
ordered to pay a civil penalty of $930,000.00 for committing between the dates of about
November 14, 2010 through on or about May 31, 2013, 930 violations of 4735.02 by renting,
leasing or negotiating the rental or lease of the subject property; offering, attempting or
agreeing to negotiate the rental or leasing of the subject property; managing or offering, or
attempting to operate or manage the subject property; and/or holding himself out as engaging in
the selling, exchanging, purchasing, renting, or leasing of real estate for another, for a fee,
commission, or other valuable compensation or the expectation of a fee, commission, or other
compensation.
The above conduct constituted 930 violations of R.C. 4735.02, which provides that no person,
partnership, association, limited liability company, limited liability partnership, or corporation
shall advertise, act or assume to act as a real estate broker or real estate salesperson, without
first being licensed under R.C. Chapter 4735.
GOA Realty, LLC, Cleveland, Ohio, a company not licensed under Ohio Revised 4735 was
ordered to pay a civil penalty of $1,499,000.00 for committing between the period of August 23,
2010 until on or about March 17, 2011, 149 violations of 4735.02 by renting, or leasing or
negotiating the rental or lease of the subject property; offering, attempting, or agreeing to
negotiate the rental or leasing of the subject property; managing or offering, or attempting to
operate or manage the subject property; and/or holding himself out as engaged in the selling,
exchanging, purchasing, renting, or leasing of real estate for another, for a fee, commission, or
other valuable compensation or the expectation of a fee, commission, or other compensation.
The conduct constituted 149 violations of R.C. 4735.02, which provides that no person,
partnership, association, limited liability company, limited liability partnership, or corporation
shall advertise, act or assume to act as a real estate broker or real estate salesperson, without
first being licensed under R.C. Chapter 4735.
Our Wives Are In Charge, LLC, Akron, Ohio, a company not licensed under Ohio Revised
Code Chapter 4735 was ordered to pay $82,000.00 for committing 82 violations of RC 4735.02
by renting, or leasing or negotiating the rental or lease of the subject property; offering,
attempting, or agreeing to negotiate the rental or leasing of the subject property; managing or
offering, or attempting to operate or manage the subject property; and/or holding himself out as
engaged in the selling, exchanging, purchasing, renting, or leasing of real estate for another, for
a fee, commission, or other valuable compensation or the expectation of a fee, commission, or
other compensation. The conduct constituted 82 violations of R.C. 4735.02, which provides that
no person, partnership, association, limited liability company, limited liability partnership, or
corporation shall advertise, act or assume to act as a real estate broker or real estate
salesperson, without first being licensed under R.C. Chapter 4735.
Paul Marcel-Rene, Akron, Ohio, a person not licensed under Ohio Revised Code 4735, Akron,
Ohio was ordered to pay a civil penalty of $82,000.00 for committing 82 violations of RC
4735.02 by renting, or leasing or negotiating the rental or lease of the subject property; offering,
attempting, or agreeing to negotiate the rental or leasing of the subject property; managing or
offering, or attempting to operate or manage the subject property; and/or holding himself out as
engaged in the selling, exchanging, purchasing, renting, or leasing of real estate for another, for
a fee, commission, or other valuable compensation or the expectation of a fee, commission, or DISCIPLINARY ACTIONS
PAGE 11
other compensation. The conduct constituted 82 violations of R.C. 4735.02, which provides that
no person, partnership, association, limited liability company, limited liability partnership, or
corporation shall advertise, act or assume to act as a real estate broker or real estate
salesperson, without first being licensed under R.C. Chapter 4735.
Delitha Gail Sparks, a person not licensed under Ohio Revised Code 4735, Cleveland, Ohio,
was ordered to pay a civil penalty of $1,499,000.00 for committing between the period of August
23, 2010 until on or about March 17, 2011, 149 violations of 4735.02 by renting, or leasing or
negotiating the rental or lease of the subject property; offering, attempting, or agreeing to
negotiate the rental or leasing of the subject property; managing or offering, or attempting to
operate or manage the subject property; and/or holding herself out as engaged in the selling,
exchanging, purchasing, renting, or leasing of real estate for another, for a fee, commission, or
other valuable compensation or the expectation of a fee, commission, or other compensation.
The conduct constituted 149 violations of R.C. 4735.02, which provides that no person,
partnership, association, limited liability company, limited liability partnership, or corporation
shall advertise, act or assume to act as a real estate broker or real estate salesperson, without
first being licensed under R.C. Chapter 4735.
Originally posted by @Jonny S.:
This is what I don't understand. How exactly did these people end up being called out on this page. Were they charged and found guilty in a court of law or were they simply just accused by the board and that's enough to be blacklisted?
It's a disciplinary action by the Division of Real Estate & Professional Licensing. As mentioned in the article:
The relevant Ohio code: [...] The commission shall decide whether to impose disciplinary sanctions upon a party for a violation of section 4735.02 of the Revised Code. If the commission finds that a violation has occurred, the commission may assess a civil penalty, in an amount it determines, not to exceed one thousand dollars per violation. Each day a violation occurs or continues is a separate violation. [...]
Same thing that would happen if you practiced law without a license, cut hair without a license, etc. @James Wise isn't making the rules, he's just telling what the rules are and what may happen if you violate them. Obviously, there's lots of wholesaling that goes on in Ohio. However, if you get on the wrong side of someone who knows how to report it....
Disclaimer: I am not a lawyer and nothing in this should be construed as legal advice.
- Real Estate Investor · San Francisco, CA · Member since 2013 · 47 posts · 11 votes12y
@James Wise any way to learn more about exactly what these people did? Was it wholesaling? Was it lease option assignments? Was it something else?
And how did they violate the statute? Was it their marketing that was problematic? Or something else?
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed
this is not something that is brand new... Virtually every state has the same laws.. you cannot sell a property you don't own and you can't skirt the laws by couching it as contract law etc etc. This is what created the Niche of transactional lending... One of my bigger TK guys back in the day got nailed in Mississippi for selling without a license.. IE never taking title just flipping and making HIS FEE However you want to put it on the HUD.. Consulting fee Marketing fee. rehab fee whatever..He got a complaint filed against him at the The RE department, they turned it over to the AG who gave him a fine and a cease and desist. So what happened was I would not only do the hard money loan to the end buyer but I did transactional funding for him to come into title so he was compliant with the law.. He tried all the arguments with MS I have an option I have a contract I have an equitable right etc etc.
As K Marie pointed out last year this is all well and good as long as you don't get caught and the state wants to take you to task.. they are paid for this stuff you have to PAY to defend and its bloody expensive if the state wants to make a point.. And you may or may not win.. To win this point in court would probably be 100k or more in legal bills.
So to be legal the new crop of bird doggers wholesalers etc who do not have enough money to buy the properties they want to flip.. Need to seek out very short term hard money lenders who will lend to them. so they can come into title then go about marketing the property.. I know I know there is not enough room in most of these deals to allow for this.
Whats going to happen is if you read the RE bulletin the RE AGENT themselves can be disciplined or fined for knowingly doing business with an unlicensed wholesaler flipper.. And you will have the RE agents themselves filing complaints against flippers and wholesalers or as is the case when this thread started refusing to work with flippers or wholesalers as they don't want to lose their license's...
So looks like to me the business opportunity in OHIO is for a modified transactional lending type Niche. Were your doing instead of same day flipping one day loans. ( this still does not help the flipper because they are not legally allowed to market the property until they own it.) In Ohio you need 30 to 60 day lenders... And or buck up and raise some friends and family capital and buy these things. I mean really so many of these properties are so cheap if you can't scrap 30 to 50k together maybe this is not the thing to be doing.
What Ohio flippers that are not licensed need to look out for is there is going to be some heavy hitters that will see this as an opportunity to knock out the competition by just hiring someone to respond to craigslist adds and turn those folks in.. Same with any sales agents posting any OHIO properties on their websites that are marketed nationally those folks need licenses as well.
Its the reason Auction companies need to partner with a RE broker when they do business in each state.. they do it legally they are auctioning off properties they don't own.
This is a good thing in my mind it cleans up the industry brings some professionalism to it and at the end of the day the public will be in a better position vis a vi shady and funky deals by those that should not be in the business in the first place.
Thanks and yes I understand all of that to an extent. I am just curious as to what specifically violations they were committing.
I guess the core of what I am trying to say is that it is completely legal to sell your rights to an assignable contract in Ohio unless the contract specifically states otherwise. Lease Options and other dealings may be more of a grey area.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
@Jay Hinrichs Agreed!
- Real Estate Investor · San Francisco, CA · Member since 2013 · 47 posts · 11 votes12y
I'm on the same page as @Jonny S. - I want to know exactly what they did and what specific violations were committed. Knowing the details will be very instructive to everyone.
It seems to me it is legal to sell your contract rights in Ohio. Both for a purchase contract or an option contract. Provided you market it correctly and are compliant with the law in other aspects. The problems occur when people have a contract and instead of advertising the contract for sale they advertise the property for sale.
At least that's my understanding of it. That's why if anyone can provide more details on the violations being discussed it would shed more light on this.
@Andy Argonaut yes, we are on the same page. Those are my thoughts/questions as well...
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes12y
@James Wise All the fines and counts in the excerpt you posted appear to be for renting, leasing and property management violations. Do you know of any fines generated from marketing or selling property you don't own, as is the concern with wholesaling?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
Originally posted by Kristine Marie Poe:
@James Wise All the fines and counts in the excerpt you posted appear to be for renting, leasing and property management violations. Do you know of any fines generated from marketing or selling property you don't own, as is the concern with wholesaling?November 14, 2010 through on or about May 31, 2013, 930 violations of 4735.02 by renting,
leasing or negotiating the rental or lease of the subject property; offering, attempting or
agreeing to negotiate the rental or leasing of the subject property; managing or offering, or
attempting to operate or manage the subject property; and/or holding himself out as engaging in
the selling, exchanging, purchasing, renting, or leasing of real estate for another, for a fee,
commission, or other valuable compensation or the expectation of a fee, commission, or other
compensation.
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed
read on in the citations it also says purchasing and selling its a catch all to include all real estate acts. If you read the OHIO RE bulletin its pretty clear that the state is going to crack down on this unlicensed activity.
- Real Estate Investor · San Francisco, CA · Member since 2013 · 47 posts · 11 votes12y
@Account Closed
It's the selling, exchanging, purchasing for another that could be what the marketing ends up violating perhaps?
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Having owned 3 Real state brokerage houses over the last 40 years.. Upon reading that bulletin I would sit down with my compliance manager and issue an edict NO working with suspected wholesalers or flippers.. I predict you will have RE agents turning in these folks left and right..
WE who have been in the business for any number of years know the call... "Hey I am an investor I want to buy 10 houses a month blah blah blah."
Adios to those guys..
I mean Lets look at this logically If anyone could sell properties they don't own to others for a fee.. Why would there be a need for a real estate industry at all... You would need closing companies attorneys title co.s etc. but you would not need C 21 or REmax or anything else. The guys and gals that are good at selling would just sell and make money on their. own.
Licensure creates a medium for proper disclosures and above all Ethics and fiduciaries to the buyer seller. Where as in wholesale and flipping you may have some ethics but you certainly do not have any Fiduciary relationships establish is caveat Emptor all the way...
- Rental Property Investor · Columbus, OH · Member since 2013 · 117 posts · 16 votes12y
So does just getting a license allow you to "wholesale" according to the DOC?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes12y
Individuals not licensed to sell Real Estate in Ohio doing this, that is the problem.
Originally posted by (removed bp member name & contact info)
I am wholesaling a home on the West side of Columbus, Ohio . The address is 883 Maurine Dr. Columbus, Ohio 43228. It is located in the Holly Hill subdivision. It is a 3br./2ba. w/ over 1,100 sq. ft., and a 2-car attached garage. It has a finished basement with two additional bedrooms, that would make it a total of five bedrooms, they just need closets to be added to each room. Has a laundry room. Hardwood floors. Stainless steel appliances stay with house. Needs tlc, but mainly cosmetic work. I am asking 50k cash. Homes in the area are selling between 105-115k. This home is assessed for 105k. I am sorry, but I don't have any pics of the property right now, but if you'd like to see the home I can schedule you an appointment. Please let me know asap.
Originally posted by (removed bp member name & contact info)
I have 20 properties in Toledo Ohio. Some of these properties can be bought on contract or subject 2. I'm suggesting the following..Acquire several properties for $5,000.00 to $10,000.00 down.
-->Low monthly payment where the property will be a CASH COW.
-->No monthly payment for the first 2 months..
The exit strategy is to buy subject 2 or on contract then sell the properties on contract. All the properties are free and clear and are being sold at a deep discount.
Let me know.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes12y
Originally posted by @Andy Argonaut:
@Account Closed he also included "holding herself out as engaged in the selling, exchanging, purchasing, renting, or leasing of real estate for another, for a fee, commission, or other valuable compensation or the expectation of a fee, commission, or other compensation."
It's the selling, exchanging, purchasing for another that could be what the marketing ends up violating perhaps?
I can read the counts. Nowhere does it say anyone actually did any selling, but rather "selling" is one of the words included in one of the count descriptions. The description includes a ton of things one might or might not have done. Given that all of the counts start with renting and prop. mgmt violations, they don't suggest a typical wholesale deals me. They suggest lease options or some other deal strategy in which unlicensed people are involved in advertising or renting properties.
I'm not attached to the issue. I'm not in OH. I close on almost everything before marketing and reselling, and always act as a principal. I wouldn't advertise a property I didn't own for sale. I stay pretty far away from anything that could be perceived as licensed activity.
But if OH is fining people for wholesaling activities, let's find out the specific details.
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