Wholesaling- Legal in Oregon?

[Kenneth Huddleston]

http://www.oregonlaws.org/ors/696.020

http://www.oregonlaws.org/ors/696.010

I was talking to a realtor recently as i am looking to break into the wholesaling game and probably will be soon, and he was worried that these two state laws in Oregon prevent the reassigning of contracts for profit? I have heard of these arguments before and am pretty confident i know the basic legalities but if any of you can clarify i would much appreciate it. Basically the laws are supposed to ban the making of money through i real estate transaction for ANYONE but the realtor and the seller, obviously, and i just wanted to be clear on this matter. Thanks for the help.

[Jeff S.]

Funny thing just talking with an investigator/auditor from the Real Estate Agency and he reaffirmed that if you don't actually buy the property that you can't reassign the contract as is typical in wholesaling. You must close on the property or you are breaking the law now.

We originally were talking about the buying of redemption rights and about a lot of fraud that is taking place in that space. They (DOJ) and the agency are contemplating making the sale of redemption rights legal only after the foreclosure sale. That would be good IMO.

Just call the Oregon Real Estate Agency and talk with one of their lawyers and they will let you know if what you are doing falls under their jurisdiction. It is in Salem so long distance for land-line guys like me.

[Will Barnard]

I would consult with your attorney there, but in reading these links, I don't see how it applies specifically to assigning a contract. Any contract, unless otherwise expressly prohibited, is assignable and you as a wholesaler are not acting "on behalf of" any other party but for yourself. Certainly any homeowner in OR can for sale by owner there property without an agent.

[Kenneth Huddleston]

I am inclined to agree with Will. It seems to me hard to fathom that wholesaling could be killed off like that, especially when i am sure there are plenty of wholesalers out there still doing deals. Also, it is a long used method of real estate, not just investing, to pay people to walk away from contracts. For instance, if you want a house that was recently contracted you can pay them to walk away from their contract. This is wholesaling in a nutshell. I find it hard to believe that its just been killed off for Oregon. I am definitely going to get ahold of a real estate attorney, but i would still like to hear all your thoughts.

[Kenneth Huddleston]

I was just studying the two sections in more detail and i also cannot see where it bans wholesaling. According to section 696.020 the means of receiving compensation for performing the duties of a real estate agent is banned, i understand that part. But when i looked up the definition of Professional Real Estate activity it never mentioned anything to do with the reassigning a contract. The thing is when you are wholesaling you are not working for any party but yourself. Because you are not working for the buyer or the seller you are not negotiating a sale. You yourself are just independently contracting the property to buy, then an independent buyer comes in and decided that he wants to offer you money to leave your contract so he can buy the property. To put it in a more roundabout method, let's say i was looking to buy a home and and contracted it for 120k. But then another party comes along and decides they are willing to pay 140k to get the property, they can offer me the other 20k so that i release the contract and assign it to them. This is a roundabout method, but because i am not working for the buyer or seller, i am not negotiating a deal and i am in no ways advertising it, so i am not acting within the grounds of a real estate agent. Am i understanding this correctly?

[Ned Carey]

I did not read everything and I am not an attorney however this seems key and is typical in most states.

Note the phrase "When engaged in for another." Generally in most states you can do business for yourself. You cannot do business for others for compensation. None of this applies to assigning a contract that you are a party to.

However keep in mind even if the law is clear, Oregon is a liberal state which means a liberal judge can interpret the law to put you in jail becuase they don't like what you are doing.

[Cody Cox]

Ned has the correct citation to the ORS. The key phrase is "when engaged in for another". Since a wholesaler actually has signed a sales contract and has a relative obligation to perform, they are engaging in the activity for themselves, not for another. A Realtor does not have the same obligation; they are contractually obligated to market the home for the seller, or are engaged in for another, thus the rules cited in the original post are pertinent only towards licensing.

At NWREIA, we teach our members the right way to wholesale. Generally, since you can't really market to the open public a house that you do not own or are in title (there is a of variety of opinions on the term "equitable interest" and whether having the property under contract satisfies that level), we teach that you should always open escrow with a small earnest money ($100.00) and complete a home inspection. This demonstrates intent that you would close on the property yourself. Then, you should keep your wholesale buyers to a circle of previously contacted "buyers" and not stray outside of that circle.

Cody Cox - President

Northwest REIA, Portland, OR

[Theodore Perryman]

Hey thanks guys I learned so much from the discussion. I think that also found the missing link from Cody Cox. I was stuck with what to do after getting a property under contract. I've heard people say to take it to escrow at title company ( which is supposed to be like $1000.) Then find a buyer, do an assignment, get an earnest deposit, go back to title, then wait for closing date. I was stuck with why do we have to pay $1000 if it's no money- no credit type of deal. I would consider 100 little to no money but not a grand that a bit much for me. Then I heard that if you did not have the grand to just use the Earnest money from the real buyer. I know it must be more simpler than that. Someone please simplify. Thanks!
.

[Account Closed]

@Cody Cox has it right 100%. Be careful of realtors that want to get a piece of the action telling you that wholesaling is illegal. It's not.

Just like a friend that is a lender was told by a loan originator that he has to use his services (and pay a large fee) in order for him to lend his money out. Wrong - this originator was looking for a quick way to make a point or two of this lender's transactions.

There will always be folks out there trying to make money off our hard work in real estate investing. Be wary and stick with BP!

[Jeff S.]

@Cody Cox the last time I asked Richard Uffleman (the attorney that gives the monthly lecture at Baja Fresh) speaker at NWREIA he said wholesaling, if you don't close, is practicing real estate sales and requires a license.

I understand that if you do this with friends and you don't get caught it is something you can do but...if something goes sideways, which can happen when you make representations, you are in a world of hurt especially if you are accused of doing RE w/o a license.

[Ryan Dossey]

Honestly if you are that worried about you could always double close. Yes you will have closing costs but you wouldn't have any issues/worries. You would just have to find an investor friendly title company that will you pay the a -b transaction with c's cash. 

[Cody Cox]

At John Sheldon's most recent meeting, attorney Gary Kahn was a special speaker that was presenting on wholesaling in Oregon. Gary's perspective is that wholesaling is very legal in Oregon. He has defended investors at the Real Estate Agency on several occasions and won every time.

I've heard Mr. Uffleman say wholesaling is illegal. I've heard Mr. Kahn say it is not. Depends on the attorney.

Cody

[Jay Hinrichs]

@Jeff S. 

  any follow up on buying redemention rights prior to the sale I know there is a lot of talk about some of the bigger players here getting some unwanted attention.

Having dealt personally with Oregon regulators @Ned Carey 

  Ned is very correct their interpretation and yours or your attorneys  can be vastly different just depends on the situation.  I have gotten legal opinions from attronies in this state that were roundly shot down by the state.. WE could have duked it out in front of an administrative law judge for 100k plus... but who is going to do that.

Just like at the REIA's a few years back here in PDX when some were telling private lenders "Just write for commercial purposes on the Note and your fine" well a few found that to be poor advice..

[Jeff S.]

@Jay Hinrichs buying redemption rights prior to sale is alive and well. Know DOJ has been looking at this and groups under investigation (one I was involved in) are still operating. In fact just bought some from a smart operator-he is making a killing off these-plus he buys houses where he owns the rights too. Hard to bid against.

[Karl Krentzel]

Maybe I am missing the point.  But "wholesaling" as I understand it is simply buying low, and selling high.  

What everyone is questioning is the method of accomplishing that task.

While there may be a question of legality in Oregon as to the legitimacy of "assignment of contract", there is zero question as to the legitimacy of double closing.

Use transactional funding... double close.  

Problem solved right?

[Jay Hinrichs]

@Jeff S. 

  Well it is America right and if its legal then the smart hard working guys will get to it.

I thought of doing this when sales first changed from TD to judicial however my reading of the statue was that to buy redemption rights one needed to be a licensed foreclosure consultant in Oregon.. But then like most things in Oregon you can't get a clear definition of what one of those are past RE broker MLO or attorney.   So I did not pursue it.

I did have a good friend who would not sell his redemption rights and was from what we know the only one in Mult to actually pull off a redemption. the buyer at the steps got his money back right before the 6 months was up.

[Jeff S.]

@Cody Cox and why were these investors having to be defended against the RE agency? Does that tell you something?

I will admit though that the last time I talked with the RE Agency they were mum on the subject.

Seems legal to me but I would not do it unless I closed.

IMO flakes need to be removed from this space. The best way is to eliminate wholesaling if you are not financially capable. 

The problem stems from the fact most wholesalers misrepresent their intentions. If the sellers really understood what is happening they would not go through with it.

If you are capable of buying and sign an EM and decide to pass that along to someone via assignment that is a little different too.

[Cody Cox]

The reason Mr. Kahn had to defend just a small handful of folks was primarily due to complaints by realtors. Once a complaint is file, the Agency is required to follow up. 

I agree with you that many wholesalers don't know what they are doing. Trying to buy of the RMLS or other realtor-related sites is just plain dumb, IMHO. With so many national guru-type educators swarming the Portland, OR area with very poor education (this coming weekend I think there are 3 or 4 national guru's in town), that to be a educated wholesaler one really needs to find a local REIA and get educated there.

As the former President of Northwest REIA (www.Northwestreia.com), I am partial. They have an excellent speaker this THursday that knows what he is talking about with wholesaling.

Cody

[Mike Nuss]

@Jeff S. 

 The only problem with regulating the system as you're suggesting is that it hurts the good guys as well. Closing costs are expensive. There are many legitimate investors who wholesale deals. Why close on a property if it is not necessary? This can be done completely above board with the seller and for a fair assignment fee with the buyer. The only one benefiting from a double close is the title companies and we all know the title companies have enough resources. I for one would rather see those fees stay in the pocket of the seller, wholesaler or end buyer. 

Wholesaling is the easiest and least expensive way for a newbie to get into the investing arena and so saying the "flakes" need to be removed from this isn't really fair. Some are flakes and should be removed. After all there is a reason investors get a bad name in the marketplace. However, I am fully against creating legislation that hurts the good just to weed out the bad.

Heck, if I had to double close everything in 2009 and 2010 as I got started full time, I may not be where I'm at right now. I can honestly say there are many investors in the Portland market (some right here on BP) who have benefited and continue to benefit from the experiences I share both as an appraiser and as RE entrepreneur. I, just like many others, had to start with wholesaling. 

All wholesalers are not flaky. Some need to get that experience in order to become good solid investors that help improve the reputation in our market. The type of legislation you're discussing potentially keeps good people from being part of this industry and that should not happen in my opinion. 

[Morris Lucas]

Jay Henrichs;

Curious, are you referring to buying redemption rights to a seller's property that was sold at tax sale OR normal bank foreclosure? If the latter, i didn't realize normal bank foreclosures had redemption periods, at least not in GA...

[Jeff S.]

@Mike Nuss I don't disagree with what you are saying. Lord know we don't need more legislation.

How do you weed out the disreputable? You can't. There have been "bad flakes" for a long time and they will continue to be with us. 

It is the misrepresentation that has been getting the DOJ and RE Agencies attention both in wholesaling and in the purchase of redemption rights. 

I will leave it up to the legal heads what happens but I will say IMO there is considerable risk for new RE investors when learning through wholesaling.

[Sean Moen]

Figured I'd throw this out there and see what response I get.

Spoke with an Attorney out of Portland yesterday (I was looking for advice on an Option to Purchase contract in OR) and explained these primary points within the contract:

- Agreed upon purchase price is stated by the contract

- Reasonable Earnest money deposit exchanges hands

- A deadline that, if not optioned by that date, would be utterly null & void with no-recourse available.

He said this is completely normal, if you don't record, expect to get swooped in on.

We progressed our converstion into Licensing in OR for REI. The distinction - in his eyes & understanding - between broker and investor under this Options Contract had to do marketing. If I was actively marketing on the public market - Craigslist, Zillow, eBay, etc - then that would require a brokers license. If I were cold-calling individuals (and I'll extended this to emailing our buyers list) then that would be considered Investor activity. The assignment part didn't matter in this scenario - the way you marketed the property did.

[Jeremy Gonzales]

Just throwing my 2 cents in here and giving you another way to look at wholesaling. When you wholesale, you're not selling a property you are merely selling your rights to purchase the property at a later date. You're selling a contract. 

I'm not familiar with Oregon real estate, but I've been doing this for 3 yrs here in Texas as a licensed agent for a brokerage that specializes in wholesale deals. With that being said I would read the state's promulgated real estate contract. If it doesn't say anything about the contract not being assignable then there should be no issues.

*I'm not an attorney of any kind and not giving any legal advice blah blah blah...

[Casey Carroll]

I just stumbled upon this thread and wanted to put in my $0.02. 

An assignment of contract is not illegal in the state of Oregon. I can speak on this personally because I've actually been investigated by the state of Oregon for unlicensed broker activity (and didn't face any legal repercussions). I know @Cody Cox very well, and also moderate the "Deal Analysis and Discussion" meeting for the NWREIA that Cody used to be the president of.

The most imperative words that @Ned Carey mentioned was "for another, or on behalf of another." 

These words are crucial, because the entire legality of wholesaling (aka assignment of contract) hinges upon these words if you are unlicensed (like myself).

Assignments in general fall more under contract law than real estate law, because a wholesaler does not sell real estate. I technically don't sell contracts either. An assignment is a completely different story, because a willing buyer is willing to pay me a fee for the right to take my place as a buyer. I didn't sell my contract to them - they paid me (the buyer) a fee to take over my place as the buyer. There is no commission involved at all, so remove that language from your vocabulary. 

Time and time again people say "Wholesaling is illegal," or they say "wholesaling is legal." After surviving investigations for unlicensed broker activity in the states of Oregon, Washington, and Colorado, I can say definitively that an assignment of contract is not illegal. I can't comment on double closings as a viable solution either because I have no experience with the investigative process on that specifically - my experience is only per the assignment of a contract.

Your paperwork is very important. You must clearly stipulate in your contracts that you are not a licensed realtor and do not represent anyone but yourself. I am a principle in every single transaction that I do, and when I assign my position as a buyer, I'm doing it for me. Every single ounce of marketing that I do to find a buyer is for me - not for another or on behalf of another.

If you talk to 10 attorneys they will have 10 different opinions. They can argue any side of the fence if they'd like to, because that's what they're paid to do (I know this well because my dad is an attorney and he can argue any side of an argument if he wants to).

WITH THAT SAID, no matter how legal an assignment of contract is, at any point you can become investigated for it, and you have to go through that process again. It's time consuming and there is a massive "pucker factor." Flat out, it sucks. Also at any point you can be sued by anyone for any reason, and even if you're innocent you'll have to defend yourself. You will prevail, but it will come at an enormous emotional and time toll. So is it worth it? You be the judge. If becoming licensed makes you feel more comfortable, then do so - but if you assign a contract while you're licensed, you're still not representing anyone but yourself so it's the same thing, just with a license to back you (and that license would halt any investigation immediately, so the peace of mind is almost worth it). The choice is yours.

[Max Brunke]

@Casey Carroll, you mentioned being investigated but that you didn't face legal consequences. Can you tell me what happened either here in this thread or offline? I wonder what "facts" they found and which conclusions they reached when applying their statutory mandate to the facts of your situation. I'd be interested in seeing any documents/opinions they issued if you would be willing to share them. Cheers.