Is this "buyers rep" acting illegally?

Question

I responded to a C-list ad and the poster said he's representing the owner of a property that is scheduled for foreclosure next month.

He said he doesn't own the property. The website that lists my county's sherrif's sales info has the sale listed as "cancelled."

The owner owes 65k to the bank. This "buyers rep" says that the bank will take "around 40k" and he needs a 5k finders fee---which is ridiculous. He claims he's "helping" the buyer and that he needs the 5k in cash outside of a financed purchase of the property.

We've been in the house and the owner's stuff is everywhere but no utilities are on.

My partner called his lawyer and the lawyer confirmed what we thought, which is that this "buyers rep" is acting illegally. Now we are thinking that we'll try to contact the bank directly.

So what should we do now? Is this "buyers rep" conducting a legit short sale or is this illegal since he doesn't own it? Any suggestions would be appreciated. Thanks.

Mark H. · Answer

I'd tell him to pound sand. The first is going to foreclose soon and you can buy it from the bank directly - no need to pay this tool guy anything. As to whether what he is doing is legal, I'll go out on a limb and say 99% chance he's breaking the law. A legitimate RE agent is going to sign an agreement with the current owner, list the property on the MLS, present offers to the bank, and get paid BY THE BANK out of the proceeds when you close. In every situation I'm aware of, it's perfectly legal to sell real estate that you own. RE agency law requires a license when you "represent" someone else in a RE transaction. It's not a very high bar - a few hours in class, and a multiple-guess test, but its at least SOMETHING to show the world your not a hack. RUN!, please RUN, and take your checkbook with you.

Jon Holdman · Answer

As long as he has some type of contract on the property, wholesaling is fine. Simplest would be a purchase contract. Options are also used. If he just has some sort of agreement to find a buyer, but doesn't have a contract on the property, then he's acting as a broker. That requires a license.

Joel NA · Answer

OK, wholesaler may be the answer, then. I haven't considered wholesaling for my own real estate strategy so I haven't read up on it on BP. I'll do some research tonight on the site. Jon, I think he does have an agreement with the owner. He has mentioned the term "short sale" in his emails but not "wholesale." Jesse, I've read enough on BP to know that you don't have to be a realtor to wholesale. So to wholesale you need to have a contract or be a licensed broker/agent, but not both, right? I still think we can buy right with this guy in the picture assuming he's willing to lower his fee a bit. Any advice for BUYING wholesale would be appreciated. I'm off to search the wholesaling forum. Jon and Jesse thanks so much.

Joel NA · Answer

Jon thanks for helping me flesh this out... So by "contract" we mean contract to purchase the property (purchase agreement), not simply an "agreement" with the owner? I think he's got an agreement with the owner, thus acting as a broker without a license. I suppose the next logical step is to ask him directly what type of agreement he has with the owner?

Jon Holdman · Answer

Sounds like he's a wholesaler. Does he have it under contract?

Jesse Ramirez · Answer

Joel if the property is under contract by the "rep" then there is nothing illegal about it. He most likely has the property under contract and is planning to assign it to you for the 5k fee. As long as this is the case and the fee is disclosed in the contract,\ then I don't believe there is much you can do about it. On the other hand, if this individual is trying to push this property and doesn't have the property under contact or isn't a licensed agent/broker of this deal, then it looks like you have yourself a case. If this is the situation I'd just scare him a bit and then put an offer on the property myself.

Jesse Ramirez · Answer

To wholesale the property legally you have to have equitable interest in the property. If you're the agent representing the property then it doesn't matter either way because your fee will be in the commision or whatever your arrangement is with the seller. A wholesaler is an investor who owns or markets properties they have "equitable interest" in. They market and sell these at great discounts. If they have the property under contract then they have this right. Although, I find wholesalers marketing properties illegally all the time.

Joel NA · Answer

Jesse thanks....so marketing illegally would be marketing without a purchase agreement or similar doc in place. Having a signed contract with the owner that says "I'll help you out and collect a fee from the buyer" doesn't cut it. A purchase agreement constitutes equitable interest. That sound right? Thanks for the patience!