We Are Gonna Find Out if Wholesaling Is Legal in MN...

[Chris Seveney]

Many people are familiar with a certain federal indictment recently in MN. What has not been as publicized is the civil case in which the end buyer has filed a claim against this individual for wholesaling them a property. Here is an excerpt from Pacer that if the party prevails, it will be interesting to see how this impacts other states which have very similar laws and if wholesalers could become sued in a transaction. What are your thoughts? (names changed below)

Beyond Mr X false promises, on this sale, MR X took an illegal fee for himself of over $1.5 Million. MR X is not a licensed real estate broker—and only licensed real estate brokers are allowed to collect fees on the sale of real estate. To achieve this, MR X attempted to use a workaround of this law euphemistically referred to as “wholesaling.”

COUNT I Avoidance of Illegal Contract BUYER Assets against MR X LLCs Management and MR X 

 61. Courts may determine rights, status, and other legal relations of parties to a contract. Minn. Stat. § 555.01 et seq. 

62. A contract to pay for services is void when the service provider lacked a statutorily required license to perform the services. 

63. A real estate broker is any person who, for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts to negotiate a sale, option, exchange, purchase or rental of an interest or estate in real estate, or advertises or holds out as engaged in these activities. 

64. A real estate broker is also any person who for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of any business opportunity or business, or its good will, inventory, or fixtures, or any interest therein. CASE 0:22-cv-01293-PJS-DTS Doc. 26 Filed 10/12/22 Page 14 of 23 15 

65. No person shall act as a real estate broker unless appropriately licensed by the Minnesota Department of Commerce. 

66. MR X and MR X LLCs acted as a real estate broker in connection with BUYER Assets’ purchase of the ABC. Property. 

67. Specifically, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold an interest in real estate to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

68. Additionally, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold a business opportunity to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

69. Neither MR X nor MR X LLCs are, or were at the time of the transaction, a licensed real estate broker. 

70. Consequently, the agreement between BUYER Assets and MR X or MR X LLCs is void. 

71. MR X LLCs and MR X therefore illegally took the $1,550,000 fee from BUYER Assets. 

72. As a result, MR X LLCs and MR X are liable to BUYER $1,550,000

[Russell Brazil]

Quote from @Chris Seveney:

Many people are familiar with a certain federal indictment recently in MN. What has not been as publicized is the civil case in which the end buyer has filed a claim against this individual for wholesaling them a property. Here is an excerpt from Pacer that if the party prevails, it will be interesting to see how this impacts other states which have very similar laws and if wholesalers could become sued in a transaction. What are your thoughts? (names changed below)

Beyond Mr X false promises, on this sale, MR X took an illegal fee for himself of over $1.5 Million. MR X is not a licensed real estate broker—and only licensed real estate brokers are allowed to collect fees on the sale of real estate. To achieve this, MR X attempted to use a workaround of this law euphemistically referred to as “wholesaling.”

COUNT I Avoidance of Illegal Contract BUYER Assets against MR X LLCs Management and MR X 

 61. Courts may determine rights, status, and other legal relations of parties to a contract. Minn. Stat. § 555.01 et seq. 

62. A contract to pay for services is void when the service provider lacked a statutorily required license to perform the services. 

63. A real estate broker is any person who, for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts to negotiate a sale, option, exchange, purchase or rental of an interest or estate in real estate, or advertises or holds out as engaged in these activities. 

64. A real estate broker is also any person who for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of any business opportunity or business, or its good will, inventory, or fixtures, or any interest therein. CASE 0:22-cv-01293-PJS-DTS Doc. 26 Filed 10/12/22 Page 14 of 23 15 

65. No person shall act as a real estate broker unless appropriately licensed by the Minnesota Department of Commerce. 

66. MR X and MR X LLCs acted as a real estate broker in connection with BUYER Assets’ purchase of the ABC. Property. 

67. Specifically, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold an interest in real estate to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

68. Additionally, by the actions set forth above, MR X negotiated the sale and/or directly or indirectly sold a business opportunity to BUYER Assets for a fee, commission or other valuable consideration in the amount of $1,550,000. 

69. Neither MR X nor MR X LLCs are, or were at the time of the transaction, a licensed real estate broker. 

70. Consequently, the agreement between BUYER Assets and MR X or MR X LLCs is void. 

71. MR X LLCs and MR X therefore illegally took the $1,550,000 fee from BUYER Assets. 

72. As a result, MR X LLCs and MR X are liable to BUYER $1,550,000

 Going to be finding out in a lot more jurisdictions soon as well. Maryland AG's office opinion is that it is not legal in MD, and currently is investigating the issue. DC had legislation that was due to be brought up for debate this month, but the council member who was working on it was voted out.....but there is a new council member taking up the issue. Ohio, Indiana, Philadelphia have all clamped down recently.