New law makes wholesaling illegal is SC

[John Underwood]

The new law the SC Governor just signed makes wholesaling illegal.

It has 3 parts.

1. It defines wholesaling

2. It says you must have a license to wholesale.

3. It says a licensed realtor can't wholesale.

No attorney is going to risk anything that might be deemed wholesaling. 

You can't do a double closing because you can't market the property or contract prior to owning it.

You can buy the property then market it.

You could also get owner financing for 60 to 90 days and then market the property for sale.

[Tom Gimer]

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

[Chris Seveney]

@Tom Gimer

Seeing conflicting posts on this - not a wholesaler but curious about laws as we invest in most states.

Seeing both sides saying its still legal and others where it is not

Also with most wholesalers, while technically legal most states do not allow you to advertise property you do not own without a license and that is where most do not follow the law

[Jesse LeBlanc]

It's also NOT required to market a property in order to wholesale it, and thus wholesaling is still legal.  If you already have your buyer lined up before signing a contract with the seller and already know who you're selling it to, then you're not marketing a property you have UC.  

TOO MANY PEOPLE ignore this and always assume every wholesaler (likely most, I agree) is marketing a property they have under contract without a buyer already lined up.

[John Underwood]

The thing is if you are doing any type of wholesale deals and the closing attorney gets a wiff of it,  they are not going to close a deal for you and risk their law license.

[John Underwood]

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

[Tom Gimer]

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

[Patrick Roberts]

Quote from @Tom Gimer:

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

 I've kinda been thinking the same thing. Contract assignments are very common across many industries, including real estate. I've read through the bill and watched/read a few commentaries on it. There's an interview between Jerry Norton and Gary Pickren on youtube that I feel is particularly insightful. Pickren is an attorney in SC with a ton of experience and also sits on the RE Board for SC. It was clear from the video that this new law attempts to prevent wholesaling entirely, and Pickren feels that the interpretation of the law is sufficiently wide enough that any marketing for the assignment of a contract will fall of under the definition of this law. 

I'm not so sure I entirely agree with this. As you said, codified laws are very specific and have specific meanings - this is why there are definitions in near every statute and law. The average person should be able to read a law/code/statute and understand what actions are illegal for him/her to perform. They can't be vague and are specifically designed not to be left open to the subjective interpretation of a fact finder. 

It seems to me that the legislature is actually targeting equity stripping by wholesalers with this bill. I think they don't like the idea of Johnny the wholesaler convincing grandma to sell her house for $150K (when it's really worth $300k), and then turning around and selling the contract for it to make an obscene amount of money relative to the work performed, all at grandma's expense. They feel that a licensed agent shouldve sold grandma's house on the open market and gotten her the full amount. 

They attempted to prevent this by asserting that wholesaling is an activity that requires licensing, because licensed agents are much easier to regulate. It's very difficult to create blanket laws stopping people from entering into voluntary transactions, even the transaction is largely disadvantageous to one party. But when one of the parties is licensed by a governmental board of some sort, the board can subject the licensed individual to higher standards behavior, and they can do this largely at will and without the higher thresholds of most criminal laws. This can be seen throughout the licensing of RE agents, mortgage lenders, financial advisors, etc. I think this is why they wanted to attach the licensing requirement to these kinds of deals - to give them the broad leeway they want in saying what people can or cant do without having to write 4,000 laws.

I don't know that this law as it's currently written will withstand the suits that are sure to come from investors asserting that the marketing of a contractual position to buy a property is not captured by the wholesaling definition (and I don't think that it is). But, I think that wholesaling is probably dead for while because the fearmongering and fistbanging from the SC board will likely deter most closing attorneys from working these deals. I think the message being sent to attorneys is, "you can try it if you want, but if we win, we're going to hammer you to make an example," and my guess is very few attorneys are going to risk that. Time will tell, though.

[Joe S.]

Quote from @Tom Gimer:

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

Good catch. A lot of what people consider wholesaling is contract assignment for a fee anyways. 

[John Underwood]

Quote from @Joe S.:

Quote from @Tom Gimer:

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

Good catch. A lot of what people consider wholesaling is contract assignment for a fee anyways. 

True.
You just can't advertise a property that you don't own as it is now highly illegal is SC and no attorney is going to close these deals anymore. You will have to buy it out right or be buying.it under an installment contract. This is what the attornies are saying. 

[Tom Gimer]

From elsewhere in the new law:

The advertising and marketing of real property is to be distinguished from the advertising and marketing of a contractual position in a sales agreement to purchase real estate. An advertisement that markets a contractual position to acquire real property from a person with either equitable or legal title and does not imply, suggest, or purport to sell, advertise, or market the underlying real property is permissible under this section.

People need to read closer.

[David Ramirez]

Quote from @John Underwood:

Quote from @Joe S.:

Quote from @Tom Gimer:

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

Good catch. A lot of what people consider wholesaling is contract assignment for a fee anyways. 

True.
You just can't advertise a property that you don't own as it is now highly illegal is SC and no attorney is going to close these deals anymore. You will have to buy it out right or be buying.it under an installment contract. This is what the attornies are saying. 

 Now, flipping margins are going to be nice since there isn't going to be much demand on the direct-to-seller marketing side

[John Underwood]

Quote from @David Ramirez:

Quote from @John Underwood:

Quote from @Joe S.:

Quote from @Tom Gimer:

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

Good catch. A lot of what people consider wholesaling is contract assignment for a fee anyways. 

True.
You just can't advertise a property that you don't own as it is now highly illegal is SC and no attorney is going to close these deals anymore. You will have to buy it out right or be buying.it under an installment contract. This is what the attornies are saying. 

 Now, flipping margins are going to be nice since there isn't going to be much demand on the direct-to-seller marketing side

 It will certainly weed out the boys from the men.

[Joe S.]

Quote from @Tom Gimer:

From elsewhere in the new law:

The advertising and marketing of real property is to be distinguished from the advertising and marketing of a contractual position in a sales agreement to purchase real estate. An advertisement that markets a contractual position to acquire real property from a person with either equitable or legal title and does not imply, suggest, or purport to sell, advertise, or market the underlying real property is permissible under this section.

People need to read closer.

 Another good catch Tom. 
So all the Wholesaler needs to do is disclose that they are selling their interest in their contract and that they do not own the property.
Did I read that right? 

Example.
XYZ Main Street

Little town south Carolina

Three bedroom two bath.
Asking $3 million 

This will be a contract assignment and we do not own the property simply assigning our interest in our option to purchase contract.

For more information, please call  870-613-xxxx.

( PS I am just guessing and I’m nobody’s legal counsel and don’t wholesale in South Carolina.)

[Troy Gandee]

A lot of wholesalers are trying to pick apart the description of "wholesaling" and making assumptions on the "marketing" aspect of the new bill. There's a line that says the assignment of contract bit is not illegal, but that's meant as a contractual tool. Not as a business practice.

Essentially what this boils down to is a ban on the practice of "wholesaling" as a business. They're trying to funnel investors into taking the title or employing an agent. I know a lot of folks think agents are silly, but the reason they're doing this to protect the public. In their view, to be a licensed agent, you must learn the laws, pass tests, comply with a supervising broker and pass a background test. You don't have to do any of those things to wholesale a property.

You can still actively market the sale of any property you own yourself without an agent. This legislation is meant to stop unlicensed individuals from being compensated by any means associated with buying and selling real estate for others. In their view, that's no different than acting as a real estate salesperson without licensure.

You can assign contracts all you want, but you can't market them to prospective buyers or receive any compensation from doing so. And double closings will not work because you're still typically marketing the property for sale prior to taking ownership.

Just line up bridge debt and take title to the property. We've been doing this for 4 years in preparation for this. I've also been warning wholesalers about this for about 2 years. The REC released a bulletin warning this was eventual last summer.

[Troy Gandee]

@Patrick Roberts I agree with your understanding of this. The majority of our state representatives are attorneys. They're not stupid. They know how to write these bills. 

The implication is they want to effectively terminate wholesaling as a business practice. 

[Scott Trench]

@Dave Meyer - I am getting conflicting perspectives on this new law. 

Perhaps @Tom Gimer representing the side of "wholesaling will be alive and well under the new law in SC" and one of the folks who is adamant that it this new law is the death of wholesaling as we know it in the state could get on and duke it out on the BP Podcast? 

[Nehemiah Thorn]

Hi, can you explain how an installment contract would work in regards to the SC anti-wholesaling law? Thanks a bunch! :)

[Chris Seveney]

@Tom Gimer

The way I read this is if little old Jane and John are the seller and I get a property under agreement and then want to buy it in xyz llc that I am creating, that is ok to assign to my LLC.

But if I take that property and then want to sell it 3rd party and make $50k on it as a fee - that is not allowed.

Am I understanding this correctly?

[John Underwood]

Quote from @Joe S.:

Quote from @Tom Gimer:

From elsewhere in the new law:

The advertising and marketing of real property is to be distinguished from the advertising and marketing of a contractual position in a sales agreement to purchase real estate. An advertisement that markets a contractual position to acquire real property from a person with either equitable or legal title and does not imply, suggest, or purport to sell, advertise, or market the underlying real property is permissible under this section.

People need to read closer.

 Another good catch Tom. 
So all the Wholesaler needs to do is disclose that they are selling their interest in their contract and that they do not own the property.
Did I read that right? 

Example.
XYZ Main Street

Little town south Carolina

Three bedroom two bath.
Asking $3 million 

This will be a contract assignment and we do not own the property simply assigning our interest in our option to purchase contract.

For more information, please call  870-613-xxxx.

( PS I am just guessing and I’m nobody’s legal counsel and don’t wholesale in South Carolina.)

 No attorney is going to risk closing an assignment in SC.

[Patrick Roberts]

Quote from @Nehemiah Thorn:

Hi, can you explain how an installment contract would work in regards to the SC anti-wholesaling law? Thanks a bunch! :)

 The buyer enters into an agreement to purchase the property by making payments with some amount due in the first payment and then a schedule of the remaining balance paid in installments. Meanwhile, the deed is placed in escrow. This give the buyer equitable interest in the property, making them an owner in the eyes of the law. Also makes them put skin in the game. That's how I understood the argument.

[Patrick Roberts]

Quote from @Chris Seveney:

@Tom Gimer

The way I read this is if little old Jane and John are the seller and I get a property under agreement and then want to buy it in xyz llc that I am creating, that is ok to assign to my LLC.

But if I take that property and then want to sell it 3rd party and make $50k on it as a fee - that is not allowed.

Am I understanding this correctly?

 That's the gist of the intent of it. The state specifically targeted the marketing of the property with this bill, and theyre saying that marketing the contract for assignment is effectively marketing the property and therefore illegal. Assigning to related/interested parties is fine, but if you market your position in the contract in order to assign it for a fee, that's a no-no. 

[John Underwood]

Quote from @John Underwood:

Quote from @Joe S.:

Quote from @Tom Gimer:

Quote from @John Underwood:

Quote from @Tom Gimer:

@John Underwood  I read what I believe to be the new SC legislation. Please provide the full new definition of “wholesaling” and reconcile the conclusion of your post with the last sentence in the definition.

  No need. After listening to several Attorneys, they are not going to risk closing these deals goin forward as they have been done in the past.

OK then I will. The definition of wholesaling (a new term under SC brokerage laws) reads as follows:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

Since every word of a statute has to be given meaning, the last sentence is a clear carve out for investors who assign contracts and offer that interest to the end buyer. Sounds like more business is coming for local attorneys who understand the new law.

Good catch. A lot of what people consider wholesaling is contract assignment for a fee anyways. 

True.
You just can't advertise a property that you don't own as it is now highly illegal is SC and no attorney is going to close these deals anymore. You will have to buy it out right or be buying.it under an installment contract. This is what the attornies are saying. 

[Tom Gimer]

Quote from @John Underwood:

Quote from @Joe S.:

Quote from @Tom Gimer:

From elsewhere in the new law:

The advertising and marketing of real property is to be distinguished from the advertising and marketing of a contractual position in a sales agreement to purchase real estate. An advertisement that markets a contractual position to acquire real property from a person with either equitable or legal title and does not imply, suggest, or purport to sell, advertise, or market the underlying real property is permissible under this section.

People need to read closer.

 Another good catch Tom. 
So all the Wholesaler needs to do is disclose that they are selling their interest in their contract and that they do not own the property.
Did I read that right? 

Example.
XYZ Main Street

Little town south Carolina

Three bedroom two bath.
Asking $3 million 

This will be a contract assignment and we do not own the property simply assigning our interest in our option to purchase contract.

For more information, please call  870-613-xxxx.

( PS I am just guessing and I’m nobody’s legal counsel and don’t wholesale in South Carolina.)

 No attorney is going to risk closing an assignment in SC.

Wrong.

I confirmed this today with our SC counsel. 

PM me if interested. 

[Tom Gimer]

Quote from @Scott Trench:

@Dave Meyer - I am getting conflicting perspectives on this new law. 

Perhaps @Tom Gimer representing the side of "wholesaling will be alive and well under the new law in SC" and one of the folks who is adamant that it this new law is the death of wholesaling as we know it in the state could get on and duke it out on the BP Podcast? 

I'm not licensed to practice law in SC so I'm probably not the best candidate to duke it out on this topic... but I am very surprised at the knee-jerk reaction of some attorneys. I mean read the damn statute before killing deals in your pipeline.

If they were trying to ban wholesaling they did a terrible job, IMO. It actually sounds like they were trying to address how a recent wave of inexperienced investors are trying to do novations.

[Adam Bartomeo]

I am in Florida but at least one part sounds really wrong. Real estate agents are licensed through their broker to broker real estate. Wholesaling is a form of brokering. I really don't see a way that they can make it illegal for an agent to broker real estate without some MAJOR changes to their real estate brokering laws. Sounds really strange...