My lawyer says wholesaling is illegal. Quote Below

Delaware City, DE · Member since 2016 · 25 posts · 13 votes

"Irwin,

I've spent some time thinking about your proposed business model and, also, doing some research and, taking a conservative approach, have concluded that you would be selling real estate and therefore would be subject to real estate sales licensing laws. When you sign a contract to purchase property, you acquire an equitable interest in the property and it is that equitable interest, that is, the right to compel conveyance of the legal [or record] title that you are selling, even if you state you are just assigning a contract right. Under the real estate brokers' law, Title 24, Chapter 29 of the Delaware Code, a person who provides real estate services must be licensed. The statute provides that "real estate services shall also include the marketing and advertising of properties for sale". That is how you are going to find your buyers.

I know this is not the answer you were looking for but you did indicate you want to stay out of trouble."

Now how do I proceed? Do I need a brokers license or a real estate agent license? What are your thoughts?

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

To wholesale in just about every state, you need to either A - get licensed, B - purchase the property by closing the escrow with title transferring to you and then selling (double closing), or C - form an entity, vest your purchase contract in the name of that entity, then bring your all cash wholesale buyer in as your "partner" where he buys you out for your fee at closing or day after closing. A simple operating agreement would suffice for this.

The moment you publicaly advertise the property you have under contract for sale to someone else, you have now engaged in real estate activities without a license which is illegal in most states.

Podcast Guest on Show #130

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Judy Graff
Studio City, CA · Member since 2017 · 33 posts · 8 votes
9y
This is a great question and your attorney is certainly thorough. If you sell within the state where you live, he may have a point. But. There are no laws (at least here in CA) that say that you can't sell your own property. If there were, the term "FSBO" wouldn't exist.
Having said this, if Delaware is anything like California, a real estate license is very easy to get.
2 Reply
Dylan VargasPro Member
Rental Property Investor · Chico, CA · Member since 2016 · 625 posts · 336 votes
9y
@Irwin Haddox Get the cash, buy the house then resell to another buyer.
7 Reply
Irwin Haddox
OP
Delaware City, DE · Member since 2016 · 25 posts · 13 votes
9y
Its not my property though. Wholesaling not flipping.
2 Reply
Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Originally posted by @Irwin Haddox:
Its not my property though. Wholesaling not flipping.
So what? You want to stay out of trouble, but don't want to get your RE License? Only market real estate that you own!
There's a whole financial industry that charges usury to (broke) wholesalers. It's called: "Transactional Lending". Cheers...
3 Reply
Jennifer H.
Investor · San Antonio, TX · Member since 2017 · 15 posts · 14 votes
9y
*Disclaimer- Not an expert with wholesaling and this is not legal advice! @Irwin Haddox, From my understanding, putting a property under contract with the intent of assigning it to someone else, is illegal. However, having the intent to follow through with the purchase, it is totally fine to assign the contract to somebody if for some reason your circumstances change... which means if you are going to put a property under contract, you should have the means and desire to close on that property. There are also issues with advertising a property when you don't own it, like posting it on Craigslist with pictures and the address ect. some states may consider that "brokering" and if you don't have a license, is of course not good. With that said, to elaborate on what @Dylan Vargas said, if you double close on a property then you actually bought and own the property when you sell it. So there is no issues there. The downside to that is you will have to finance the deal, and pay closing costs. You could avoid all of those issues by getting a real estate license. As bradon turner said in an article - No one can accuse you of brokering without a license if you have a your license. Like I said, I'm not an expert, so anyone can feel free to correct me! It will help me to learn also!
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Dustin Verley
Wholesaler · Newark, DE · Member since 2015 · 303 posts · 80 votes
9y
Irwin, I am no attorney and do not portray to be one, however, I found a certain part of the code that the attorney pointed out that I read myself, and in my opinion, it sounds to be a gray area. Here is the section, word for word: (a) No person shall engage in the practice of providing real estate services or hold himself or herself out to the public in this State as being qualified to practice the same; or use in connection with that person's name, or otherwise assume or use, any title or description conveying or tending to convey the impression that the person is qualified to practice real estate services, unless such person has been duly licensed under this chapter. Maybe it ultimately comes down to interpretation, BUT, in the assumption that you're clarifying you are NOT a licensed realtor, would this not rebut the guideline "No person shall engage in the practice of providing real estate services or hold himself or herself out to the public in this State as BEING QUALIFIED TO PRACTICE THE SAME" Maybe something to clarify with the attorney. Side note: I didn't read the entire code, however, so this may be worth looking into and speaking with your attorney again.
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Bob Razler
Rental Property Investor · Boca Raton, FL · Member since 2017 · 329 posts · 237 votes
9y
Hello @Irwin Haddox .
Go back to your attorney and re-ask the question this way:
"I am acquiring the rights to buy a property. My intent is to sell the rights I have acquired to another person. Am I allowed to sell such rights as the owner without the use of a licensed agent?"
This is the same scenario as if you had acquired an easement on the property, mineral rights, timber rights, etc.
You are NOT selling or marketing the property. You are selling the right to buy the property through your assignment of those rights.
Now, given the law in DE, you may, under the posture I set out above, not be able to close then re-sell the home. You may need to assign.
I am confident your attorney can find a way unless there is DE case law on it.
Bob
6 Reply
Karen O.
NYC, NY · Member since 2016 · 617 posts · 456 votes
9y
If you search on BP for Delaware wholesaler, you'll find people from DE. Did you ask the question to a few of them? How are they pursuing RE in the state? Maybe they'll connect you with a lawyer that has a different perspective.
0 Reply
Eric Armstrong
Investor · Wilmington, DE · Member since 2013 · 394 posts · 123 votes
9y
Hell @Irwin Haddox. Your attorney is correct that you can't advertise or market a property for sale without a license. I'd like to make 2 points that may help. 1. It is safer for you, or you wont look as bad, if you have the financial means to purchase the property. It will give you a solid leg to stand on if someone to was to decide to bring a lawsuit against you. 2. You are "assigning", not "wholesaling", a contract, not a property and you should word it that way. Make sure your real estate purchase agreement states that it is assignable. This is one reason you should have a buyers list so you don't have to put your contract on a public forum like Craigslist so everyone that has nothing better to do can accuse you of wrong doing.
There are plenty of contracts being assigned here in New Castle County so if you need to find an attorney that is comfortable doing it, it wont be a problem. Message me if you want recommendations.
1 Reply
Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
9y
personally there are so many 100% legal ways to make good money in real estate which all Attys say are legal
I am not going to risk doing something which could get me in trouble
Just not worth it to me
2 Reply
Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
9y
My general rule of thumb is to listen to the legal advice of the lawyer I am going to have represent me.
My personal thoughts are that if you are going to be advertising a 3 bed, 2 bath, 1800 sq foot etc, then have a license. If you send an email, post a craigslist ad, make a flyer and there is a picture of a house and house descriptions good luck explaining that it is just your "interest" in the property and not the property. All it takes is one person to end up on your buyers list or see your ad (which is the point of marketing right) to take it to the real estate board. If you just want to sell a contract then your ads should say "Selling a 3 page contract on white letter paper with Ariel font and signed by 2 parties".
Besides lets be honest getting a license is not rocket science or even really time consuming. Usually some computer online hours and a 25 question test. It's much harder to get a license to cut hair I assure you.
Good Luck!
7 Reply
Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
9y
To the OP by any chance is this from one of the FB gurus who tell their followers to do it this way and tell the owners one of their partners will be looking at the property
And then the property owner has a parade of 'partners' show up various days and times to look at the place.
0 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
I don't think wholesalers generally get a real estate licence. If you have a license and are representing the seller, you will have a legal responsibility to represent their best interests. That kind of gets in the way of wholesaling.
Wholesalers try to get around this with the idea they are contracting to purchase, then just reassigning the contract. In other words, they are just "for sale by owner". The problem is typically the wholesalers have no intent to purchase and plan to walk away if they cannot reassign the contract. Plus they market the property before they own it.
If you actually close on the property and resell, that would be legal.
Your lawyer gave good advice.
5 Reply
Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Originally posted by @Bob Razler:
Hello @Irwin Haddox .
Go back to your attorney and re-ask the question this way:
"I am acquiring the rights to buy a property. My intent is to sell the rights I have acquired to another person. Am I allowed to sell such rights as the owner without the use of a licensed agent?"
This is the same scenario as if you had acquired an easement on the property, mineral rights, timber rights, etc.
You are NOT selling or marketing the property. You are selling the right to buy the property through your assignment of those rights.
Now, given the law in DE, you may, under the posture I set out above, not be able to close then re-sell the home. You may need to assign.
I am confident your attorney can find a way unless there is DE case law on it.
Bob
..."you may, under the posture I set out above, not be able to close then re-sell the home. You may need to assign"?
Say what now? Buying the right to assign a contract DISALLOWS you from then closing on the property to own it?
Is DE for real? If that's correct, that should dissuade "wholesalers", who may WANT the option to BUY said properties...
0 Reply
Bob Razler
Rental Property Investor · Boca Raton, FL · Member since 2017 · 329 posts · 237 votes
9y
Hello Brent:
My apologies if I was not clear. I said it "MAY" depending on the law in DE (which I don't know).
What I mean by my comments is this - if in order to legally wholesale in DE you must not be selling the HOME itself, but the RIGHTS to buy the home, then maybe you can't wholesale there is you are actually owning the home. You may only be able to assign otherwise you might run afoul of the law.
Sorry for the confusion.
Bob
0 Reply
Dustin Verley
Wholesaler · Newark, DE · Member since 2015 · 303 posts · 80 votes
9y
In the context of this conversation, I agree with @Eric Armstrong - BUT, if you want to maintain legality without a license, you could always make use of transactional lending. Or you could invest in properties on terms and, possibly, assign the agreement between you and the seller to another investor for a slight profit.
Again, I am NOT disagreeing with your lawyer, but as some have said before, contract assignments (to the best of my knowledge) aren't illegal - and when you're wholesaling a property, you are transferring ownership of the contract itself and the rights to purchase, not the real estate property (or at least this is my perception on the topic.)
Hopefully this helps:
http://www.nolo.com/legal-encyclopedia/assignment-of-contract-basics-32643.html
**Please NOTE these are just my opinions and are in no way, shape, or form, any legal advise. As I've mentioned a few times, heed the advise of an experienced, license legal professional.
1 Reply
Matt Weaver
Investor · Richmond, VA · Member since 2015 · 52 posts · 105 votes
9y
The only question I would ask is does your attorney specialize in real estate, if so and you trust him, which I would assume is a given since he is your attorney, then you should listen to his advice or at least understand the risk your taking. If he doesn't specialize in real estate I would ask him to refer you to another attorney who did, wholesaling laws vary drastically from state to state as do the penalties.
3 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
To wholesale in just about every state, you need to either A - get licensed, B - purchase the property by closing the escrow with title transferring to you and then selling (double closing), or C - form an entity, vest your purchase contract in the name of that entity, then bring your all cash wholesale buyer in as your "partner" where he buys you out for your fee at closing or day after closing. A simple operating agreement would suffice for this.
The moment you publicaly advertise the property you have under contract for sale to someone else, you have now engaged in real estate activities without a license which is illegal in most states.
Podcast Guest on Show #130
11 Reply
Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
9y
Each state is different. Post not directed at anyone.
In NC, the 'standard' , created by the NC Bar jointly with NCREC, has a "Seller Representation" section. Specifically, the form has an "Ownership" disclosure section as seen below:
Just something to ponder when you are on your third beer talking to your broker. Hey Bubba, why do it have a box on that there form that say 'does not yet own the Property'?
2 Reply
Jeff Filali
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
Every state has its own laws, and there are many out there who skirt those grey areas. Also, in some states its such a grey area that you may have two different attorneys tell you different opinions. Those who are marketing the "contract" and say they aren't marketing a property are probably in a very grey area, and could get shut down for sure. I guess most of them think they have no assets, so don't worry about it, but they could face fines also.
Most states you must have the ability and intent to close on the property to enter into a purchase agreement. Now that ability doesn't have to necessarily be your own cash or bank approval, it could be transactional lender, private lenders, hard money, etc.
In some states, you cannot market a property until actual transfer of title, in others you are allowed to market the property prior to closing, as long as you have "intent and ability to purchase", those states consider ownership to take place at time of purchase agreement is signed.
I did my research because even though I almost always close on every property I buy, I didn't want to have to wait until closing to start marketing them, if its an easy flip or wholesale, without major rehab, because it adds an additional 15-30+ days to the process. I like to have a list of interested buyers before I even close. Here's the info for Oklahoma for example from a real estate attorney, who's also an investor:
Just be sure to check the laws in any state where you are marketing. You may find that you have to close on properties in your area prior to being able to state marketing them.
It would be great if someone did the research and put together a national state by state breakdown of the actual laws.
3 Reply
Chris Carson
Real Estate Agent · Jacksonville, FL · Member since 2015 · 102 posts · 65 votes
9y
There is some very good info on this thread and I personally know nothing of the laws in Delaware. That said, let me give my 2 cents as an attorney who has defended quite a few folks charged with violating real estate laws here in Florida.
I think that many people hold a binary view of the law and see acts as being either completely legal or completely illegal. I personally feel that reality is much different. As others have alluded in this thread, some laws are very open to interpretation and there are massive gray areas that result. It sounds like you understand this to a degree in that you consulted with an attorney. The practical problem is this: If you consult with a lawyer (I'm assuming he's competent) and his opinion is that assigning a contract constitutes a real estate service, there is an argument that you are committing an illegal act. If there is any reasonable argument that your actions are a crime, there is a possibility that a zealous prosecutor, law enforcement officer, state regulatory board, etc. could establish a case against you. Even if you are ultimately vindicated, that path can be a very, very rough one. I once defended a small fish (1 of 17 defendants) in a $20 million dollar mortgage fraud trial. We ended up with a Judgement of Acquittal after the federal prosecutor rested her case. (Essentially when a Judge rules that there is not sufficient evidence for the jury to even consider it.) My client walked out of the courthouse a free man and you know what he had to show for it? Huge legal bills, a sullied name, and lots of sleepless nights over the course of the case. In the end, the judge agreed that my man did nothing wrong but he still paid a massive price.
When it comes to potential criminal or civil liability, my experience is that most people benefit from erring on the side of caution. I tend to be risk averse and find that when push comes to shove, most of my clients are as well. If you trust the attorney that gave you that opinion, I would strongly encourage you to follow his advice. Again, I am not licensed in Delaware and only glanced at the statute. I'm just hoping to help frame out how I believe you should analyze the situation.
@Irwin Haddox
8 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
9y
Originally posted by @Chris Martin:

Each state is different. Post not directed at anyone.
In NC, the 'standard' , created by the NC Bar jointly with NCREC, has a "Seller Representation" section. Specifically, the form has an "Ownership" disclosure section as seen below:
Just something to ponder when you are on your third beer talking to your broker. Hey Bubba, why do it have a box on that there form that say 'does not yet own the Property'?
That's very interesting - in NC :)
In Ohio, we can't sign the listing agreement with anyone but the owner. We have to verify with the tax info and if someone has power of attorney to represent the owner, it has to be specific to that piece of real estate, not general power of attorney, for example.
In Ohio, wholesale is illegal without the license - as it's a practice of real estate, not assigning contract etc. It's $10K for the first offense and $25K or so for the next time. The Division of RE is always working on that and people do get caught ....nevertheless, it exists. All these gurus teach how to do it and people do it, thinking that's legal.
Until they have to pay.....
1 Reply
Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
9y
Originally posted by @Irina Belkofer:

Originally posted by @Chris Martin:
Each state is different. Post not directed at anyone.
In NC, the 'standard' , created by the NC Bar jointly with NCREC, has a "Seller Representation" section. Specifically, the form has an "Ownership" disclosure section as seen below:
Just something to ponder when you are on your third beer talking to your broker. Hey Bubba, why do it have a box on that there form that say 'does not yet own the Property'?
That's very interesting - in NC :)
In Ohio, we can't sign the listing agreement with anyone but the owner. We have to verify with the tax info and if someone has power of attorney to represent the owner, it has to be specific to that piece of real estate, not general power of attorney, for example.
In Ohio, wholesale is illegal without the license - as it's a practice of real estate, not assigning contract etc. It's $10K for the first offense and $25K or so for the next time. The Division of RE is always working on that and people do get caught ....nevertheless, it exists. All these gurus teach how to do it and people do it, thinking that's legal.
Until they have to pay.....
Each state is different. And the state laws are in play until they aren't.
Ohio 'wholesaling' is discussed here on BP in topics at great length, and I have posted on some of them (, and , for example). Some states recognize that a "finder" is not a broker and that neither are "wholesalers" as I pointed out . I contend "finders" are not illegal in Ohio. Separate debate for another topic another day. In NC, the word 'wholesale' is regulated by , entitled "Unfair and deceptive trade names; use of term "wholesale" in advertising, etc." I contend outside of BP and some real estate centric circles, the general public doesn't know what 'wholesaling real estate' even means. And I'd bet that 99% of REI wanna be people here on BP don't know that using the term "real estate wholesaler" as used on this site would be considered an unfair trade practice in NC per NCGS 75-29. Marijuana is legal in many states but carries the death penalty in NC (just kidding). Anyway... carry on.

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Jeff Filali
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
Question for those in Ohio. What if you OWN the property? To say Wholesaling is illegal is a very broad statement, its still considered Wholesaling if you purchase and close on a property, then flip it to another investor without doing anything to the property. Is that illegal? I doubt it, if so no one would ever by any property there.
Are people only calling it Wholesaling if someone never owns the property, or intends to purchase it? Those just looking to flip it or walk away? I agree those people can give legitimate investors, who also wholesale some of our properties, a bad rep.
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Originally posted by @Jeff Filali:
Question for those in Ohio. What if you OWN the property? To say Wholesaling is illegal is a very broad statement, its still considered Wholesaling if you purchase and close on a property, then flip it to another investor without doing anything to the property. Is that illegal? I doubt it, if so no one would ever by any property there.
Are people only calling it Wholesaling if someone never owns the property, or intends to purchase it? Those just looking to flip it or walk away? I agree those people can give legitimate investors, who also wholesale some of our properties, a bad rep.
Seriously? I reckon it's been OBVIOUS that those saying it's illegal are talking about the taboo practice (in Ohio) of MARKETING properties for sale BEFORE owning them (even if they're going to own them before double-closing to someone else), unless having an RE License to do so. Cheers...
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