Bird dogging is illegal in this state!

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Bird dogging is illegal in this state!

Randy Thomason
Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes

Just a PSA opinion to people on here that may be newer or just getting started in Arkansas.  I am constantly hearing from people after they have gone to one of these weekend seminars from the Drive Thur Guru's who pitch how to quit your job in 60 days by learning to wholesale.  They tell you to go out and get bird dogs to help you find vacant houses and deals and then you pay them a finder fee for $250 or $500 if you get the deal.  In Arkansas, and most states I imagine, it is illegal.  It is a class D Felony.  In February, I interviewed the Real Estate Commission here about this topic and many others centered around wholesaling.  The bottom line is that you cannot pay anybody a contingency fees, meaning if you pay based upon getting a deal then you are acting as a realtor because only realtors can pay or get paid on transactions based on the deal closing.  

When these seminars come thru town and get you hyped up that you can make tens of thousand of dollars and they "help" you swipe your credit cards for 5, 10 or $30,000 to learn how to do it- RUN!  (Some of them)-They often tell you to do things illegally.  If you get caught it is you who pays the price. Not them.  They have disclaimers about information only and it is on you to know the laws of your state. They are not doing the actual illegal things.

Don't fall for the lines that it is a marketing fee and not a commission. The RE Commission has made it very clear.  You can pay a marketing fee for marketing services If the fee is paid on "every lead." It is not a fee if it is based on "if you get the deal (a contingency)."  And if you pay more than $600 you better be doing a w-9/ 1099 at tax time. 

It seems that some of these traveling money vacuum companies from the Utah areas are the one's pushing the Bird dog teaching the most.  My words of warning to you is, If they tell you one thing that is illegal, what else might they be teaching you that is wrong or could get you into trouble?   

Just my opinions from a person who is a full time investor, runs the largest REIA in the state, former President of the State Landlord's Association, Worked with the Legislature on crafting Bills, formerly a licensed RE agent. But what do I know?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y

You may be missing one thing here.  The wholesaler, if doing it correctly, isn't "referring" and getting paid.  They are selling an agreement to buy...and they are also not selling real estate.  Selling a contract to buy real estate isn't the same thing.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    Utah based fulfillment companies are probably a billion dollar industry.. you got that right. 

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    You may be missing one thing here.  The wholesaler, if doing it correctly, isn't "referring" and getting paid.  They are selling an agreement to buy...and they are also not selling real estate.  Selling a contract to buy real estate isn't the same thing.

    3Reply
  • Randy Thomason
    OP
    Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes
    7y

    That was not the topic of the message. The topic was bird dogging.  Paying mailmen, or UPS drivers, or anybody to tell you about houses they see and then paying them if you get a deal.  

    You are talking about assigning contracts.  That can be legal, but also may be illegal, depending on what and how you are doing it.  If your business is to always assign contracts, never to close, then you are circumventing licensing laws, which is a Felony in this state, and realistically violates the law in almost every state.  I personally interviewed the full RE Commission and an Assistant Attorney General here about it.  Their view and what they prosecute people for is that you cannot be in the business of assigning contracts without a license.  Yes, You can assign contacts. They agree that is legal.  But not as your business model.  You are relying on the "Equitable Interest" you think you have by signing a contract. 

    But to have Equitable Interest you to have a "Valid" contract and to have a valid contract you have to "Capacity and Intent" to close.  

    Capacity meaning, that you have the money available- a bank loan, a private lender, your money, or a true JV partner. If you don't, then you do not have a valid contract, therefore, you do not have equitable interest.

    Intent to close, meaning your true plan when you sign the contract to buy, is to pay for and close title into your name or in an entity you own.  If your plan is to assign it, then you have no intent to close, and again you do not have a valid contract.

    Now, I realize that nobody can read your mind as to your intent on every deal.  And we change our minds often of how to dispose of a property. So how could they make this argument?  It's easy most of the time because a "Wholesaler" usually only assigns contracts.  Therefore, their intention is shown never to buy and close.

    The Commission here would not state what percentage of deals should be closed vs. assigned, but they did state that your business model needs to be an investor model, that sometimes assigns some deals but closes the majority of the deals.  If you assign the majority of the deals they will view you as acting as a realtor, and thus you will get a Cease and Desist order and the fines are up to $5,000 per occurrence.  The statute also has a penalty of up to 1 year in jail, but I have never seen that happen. If you were a repeat offender who ignores the law, I could see that happening to make an example of someone.   

    Again,Bird dogging and wholesaling are two different topics even though they interrelated. 

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  • Account Closed
    Rental Property Investor · Tampa FL 33610 · Member since 2011 · 254 posts · 56 votes
    7y

    Thank you @Joe Villeneuve .  @randythomason It sounds like you are upset about wholesalers and assigning contracts. 

    I have put in EMD with a contract to buy. This is intentional to buy. I put my money in and the owner is clear on my intentions and objectives from the minute I say hello. There is a need for wholesalers. I do this correct and pay taxes on every deal. Two deals I got from BP! Cool !!!

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @Account Closed That’s all well and good.....that’s pretty much what all wholesalers do......it’s the Marketing of those contracts that run afoul of Fl law. 

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  • Account Closed
    Rental Property Investor · Tampa FL 33610 · Member since 2011 · 254 posts · 56 votes
    7y

    @Wayne Brooks yes true. I am very tight about my business and how I operate  :)  

    Some others don't know what the heck they are doing and there lies the problem. 

    Soon I hope to rehab later this year. Not sure yet. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Randy Thomason:

    That was not the topic of the message. The topic was bird dogging.  Paying mailmen, or UPS drivers, or anybody to tell you about houses they see and then paying them if you get a deal.  

    You are talking about assigning contracts.  That can be legal, but also may be illegal, depending on what and how you are doing it.  If your business is to always assign contracts, never to close, then you are circumventing licensing laws, which is a Felony in this state, and realistically violates the law in almost every state.  I personally interviewed the full RE Commission and an Assistant Attorney General here about it.  Their view and what they prosecute people for is that you cannot be in the business of assigning contracts without a license.  Yes, You can assign contacts. They agree that is legal.  But not as your business model.  You are relying on the "Equitable Interest" you think you have by signing a contract. 

    But to have Equitable Interest you to have a "Valid" contract and to have a valid contract you have to "Capacity and Intent" to close.  

    Capacity meaning, that you have the money available- a bank loan, a private lender, your money, or a true JV partner. If you don't, then you do not have a valid contract, therefore, you do not have equitable interest.

    Intent to close, meaning your true plan when you sign the contract to buy, is to pay for and close title into your name or in an entity you own.  If your plan is to assign it, then you have no intent to close, and again you do not have a valid contract.

    Now, I realize that nobody can read your mind as to your intent on every deal.  And we change our minds often of how to dispose of a property. So how could they make this argument?  It's easy most of the time because a "Wholesaler" usually only assigns contracts.  Therefore, their intention is shown never to buy and close.

    The Commission here would not state what percentage of deals should be closed vs. assigned, but they did state that your business model needs to be an investor model, that sometimes assigns some deals but closes the majority of the deals.  If you assign the majority of the deals they will view you as acting as a realtor, and thus you will get a Cease and Desist order and the fines are up to $5,000 per occurrence.  The statute also has a penalty of up to 1 year in jail, but I have never seen that happen. If you were a repeat offender who ignores the law, I could see that happening to make an example of someone.   

    Again,Bird dogging and wholesaling are two different topics even though they interrelated. 

    Thank you and while we are on the subject see what our state has to say about  assigning and never closing. 

    Hello Jay,

    Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

    The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

    Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

    Best regards,

    Frances Hlawatsch | Financial Investigator

    State of Oregon - Real Estate Agency

    while I did not interview the regulators I simply sent them a flyer I got via e mail form a known wholesaler who never closes and is not licensed..  He is now licensed..  After he went through the investigation process cease and desist etc.. kind of like getting a DUI. in the way of costs.

    First time they do it that way.. but you continue and your right its a felony..  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Joe Villeneuve:

    You may be missing one thing here.  The wholesaler, if doing it correctly, isn't "referring" and getting paid.  They are selling an agreement to buy...and they are also not selling real estate.  Selling a contract to buy real estate isn't the same thing.

    Ya Oregon does not agree with this see below.. at least the way folks getting started do it.. they have to have buyers lists any e mail sent to a buyer on a property you do not own is marketing.. and a clear violation .. equitable rights theory is just that a theory and not valid in this situation.. equitable rights is like this.

    real case.. I put up 40k in cash to bring a property out of tax sale and gave seller another 10k cash.. they refuse to close.. on the date of closing I put into escrow another 100k plus in cash.. as my contract called for ( just like all wholesalers) a cash closing.. that gave me equitable interest.. a small deposit does not.  I then sued and one for specific performance.. that cost another 20k and took over 2 years .. then still had to evict the seller.. LOL..  I mean she was not going to sign.. even though the Judge ruled she must.. I had to then amend his order and the title company gave me title insurance based on his order.. the first time I bought property without having it deeded to me with some sort of deed.. so as you can see the wholesaler with 50 bucks EM is not the same.  all this puffing and bluffing about specific performance on this site is just by rookies or those who just know enough to be dangerous they have no clue about reality.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Joe Villeneuve  its also very market specific I realize in your market.. were there were literally 40,000 vacant houses in the Detroit MSA and many selling for 500 to 5k dollars I can see the regulators turning a blind eye to trying to chase down unlicensed activity.. 

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  • Randy Thomason
    OP
    Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes
    7y

    @Jay Hinrichs is right and has many years experience so taking advice from him is a great decision for your business.  And yes, every state is different, but not by much. The Regulators hate "Wholesalers" because the majority of them do it illegally. So the few that do it right do not get noticed.  

    I know that this topic is the biggest topic of discussion at the semiannual ORRELO meetings with all the state RE commissioners, investigators, and attorney generals.  They are comparing notes and strategizing how to stop of prosecute violators.

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  • Cory Cox
    Rental Property Investor · Conway, AR · Member since 2017 · 63 posts · 32 votes
    7y

    @Randy Thomason - As far as AR is concerned, what if someone points you toward a deal that isn't licensed.  Does the illegal part take effect once I pay them toward that knowledge or is the actual illegal part done when they show the deal and another person closes on it?

    Just curious on if someone new found something, presented it to someone that could close on it and the buyer showed them the process of closing on an investment.  That technique is preached all over BP.  Just wanting to do things correctly, of course, and not give people bad advice moving forward.

    Thanks

    1Reply
  • Randy Thomason
    OP
    Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes
    7y

    Hi Cory,

    First I am not a lawyer so I am not giving legal advice, only my educated opinions based on years of being in this business and lots of experience and dealing with lawyers and Commissions.

    So, your questions was a little confusing to me.  You state " if someone found a property and gave the info to a buyer with funds. The buyer showed the finder(Bird dog) how to close,paperwork and everything.  Is your question that the finder closed the deal and and then sold it?  Or is the buyer giving the finder all the paperwork to put it under contract and then the finder assigns the contract to the buyer for the assignment fee?  Or is the buyer closing the deal and paying the finder a fee and showing the finder how to do it the next time?  

    So as one of my attorney's says, "if it quack and looks like a duck, the commission will call it a duck."

    In the scenario I think you might be saying - the finder finds the property, then finds a buyer, then the buyer shows the finder how to put under contract to assign or to JV, then the finder gets paid. In essence it appears the scenario would be a version of "Reverse Wholesaling. Finding a buyer before you put the property under contract so you know how much you can sell it for before you contract the buy side. If so, that would be considered brokering without a license in this state. IMO.

    Does this happen?  Absolutely. Sometimes innocently too. Such as - you have a deal you are negotiating for. Your are pretty sure you are getting it and you tell a couple of people you think you have a deal coming in. One of the people tells you if you get it they would be a strong buyer in xx range.  Call them first.  It happens all the time when you get good relationships with buyers or investors.   

    Is any of the scenarios above I mentioned easy to prove you are doing something wrong? Not easy by any standards.  

    In Arkansas the RE Commission only has 3 investigators for the whole state. They police about 15,000 licensed realtors plus the public for any wrong doing.  Hard for them to chase people on their own.  How people get caught is:

    1- a realtor turning you in when the see you do something that takes money out of their pocket

    2- a seller who thinks they have their house sold and at the last minute the wholesaler cancels the deal. This puts the seller in a bad situation often. Then have already moved and now have two mtg's  the new place and now this empty place.  

    3- a competitor who does things right and see the bad actors out there and turns them in

    By law the Commission MUST investigate EVERY complaint filed. and they do.

    I will tell you that almost on a daily basis I get people calling me with deals and are doing things illegally. I try and teach them what they are doing wrong and why, how to change their methods. Some listen, some don't because their GURU in another state has told them everything is legal in all 50 states. LOL

    I have no problem turning someone in that repeatedly continues to do things illegally after being told otherwise. They give us all a bad name and that is why states are cracking down and writing legislation to tighten the screws on wholesalers.  I think NC just passed a new, very tight law that pretty much prevents wholesaling by assignments. Haven't read it yet but that is the jist of what i have seen.

    Hope this helps. Feel free to give me a call if you want. or PM me. I run the REIA in Arkansas, coach, mentor and do JV deals. Maybe we strike up a relationship and make money together somehow in the future?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Randy Thomason  for me I just got tired of the argument and wanted to hear from the state what their position was folks can argue this back and forth all day long.. but end of the day its up to the real estate commission in each state.  

    And like with all consumer protection laws..  they get tighter as innocent owners of real property get harmed in some manner.

    1. having wholesaler look them in the eye and tell them their 100k property is only worth 30k.. and an unconscionable profit has been taken by someone leaving the owner who no doubt this real estate was their number one financial holding.  Guru's tell people your fine as long as your not licensed this Is not true at all. 

    2. AS you state simply tying up properties with very small deposits and if you cant flip it walk.. without full disclosure to the seller..  this leads to the double mortgage scenario as you stated but on my end when I used to chase pre foreclosures ( before laws were passed that heavily regulated that activity)  I can tell you that many who ended up losing their houses or forced into a fire sale did so because the wholesaler promised the moon and did not deliver and would not pick up the phone leaving seller with no options .. were as a realtor could have gotten better price and help with the bank.

    3. And then why have a real estate license industry at all if no one needs them.. there is a reason there are licensed agents. in every state the law is the same..  it reads for the expectation of compensation the act of bringing two parties together a license is required.. it comes down to business practices.. 

    But like my state said to me above.. they don't chase it but they do follow up on complaints..  One of my Vendors got in a real bruhaha with them.. he had a house under contract and before he closed he put a for sale sign in the yard.. neighbor who had coveted the home.. got peeved he knew my guy did not own it.. so he turned him in..  after a year of the state going through all his deals.. I am now his funding source we  close everything before we market  :)  I had another one in Mississippi get in major trouble. putting home he did not own on his website.. I created a funding mechanism that put him in title so he became legal..

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  • Clint ShelleyPro Member
    Surveyor · Dothan, AL · Member since 2014 · 425 posts · 391 votes
    7y

    Great discussion. I don't understand why they won't just get the damn license. If you're good at finding and negotiating deals, why would you want to constantly look over your shoulder? It's so silly.

    Clint

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  • Randy Thomason
    OP
    Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes
    7y

    No, @Barbee T., I am not upset or peeved about legal wholesalers.  Unfortunately most do not do it legally though.  I do some myself.  I sell my contracts occasionally.  I double close more often when I wholesale though.  I do probably 85 -90 buy and hold, so as my state Commission said I am an investor who occasionally assigns a contract.  They said they have no problem at all with what I do bc I am truly an investor who puts my money and company at risk. 

    A couple of the red flags they have are:

    1- is your inspection period the length of the contract period or do you have a time frame to waive your contingency?  This is probably the biggest thing that gets under their collar.

    2- Can you unilaterally extend the contract and if so is it done without a fee extension?  They hate this.

    3-EM Deposits or lack there of.  This is a funny one that I think I pissed them off when I interviewed them.  They commented that no EM on contracts shows lack of commitment and no consideration which is required for a valid contract,  But Our Realtors contract that is copywrited and required to be used by our realtors in this state, and was written the Realtors Assn here and approved by the Commission, now has no EM written as standard language into their contract..  I asked the Commission, therefore, how could any contract written by any realtor be a valid contract to a seller since they have no EM. Crickets!!!!!!  Next question.  lol

    2Reply
  • Sofia Ruano
    Ventura, CA · Member since 2018 · 46 posts · 10 votes
    7y

    I've used a Coordination Service Agreement to get paid referral fees from buyers on properties I find for them. This was in Arizona.

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  • Randy Thomason
    OP
    Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes
    7y

    Interesting, but unless you have a license here that would not work.  No referral fees of any type without a license.  Quack, walk and feathers.  The commission would say it is a duck, just disguised to look like anything but a duck.

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