WHOLESALING TIPS WITH TIC, TAC, TOE

Well, the forums on Biggerpockets are still red hot with wholesaling questions and all kinds of opinions still flying through the keyboards. Here is a method that allows you to take title, an ownership position in order to stay safe and profit from a different angle. Tenants in Common! It is a form of ownership that allows different owners to carry out varied interests and goals to accomplish anything you might want to do. 

Here is an excerpt from the TIC, TAC, TOE course that touches on wholesaling: 

"The wholesaler is simply a middle man, a “straw-man” in business terms. You find a property, obtain a good price, contract giving you the right to sell that contract. The idea is that you sell the contract, you don't sell the property. Many industries utilize this concept in business transactions, food, clothing, vehicles, even airplanes can be wholesaled, but note that all of these industries are dealing with personal property.

Wholesaling today, as it is generally taught, is built on flawed concepts. So much so that doing wholesaling as most know it is illegal from several angles. The concept is built on a legal and ethical opportunity in contract law to be able to assign certain types of contracts without the consent of another party. Assigning a purchase contract or an option to purchase is generally permissible unless the contract specifically states otherwise.

Where the clouds of the storm move in, acting as an individual in one transaction is much different from a legal standpoint than building a business model that does nothing but assign contracts. Being “in the business” of doing something will require licensing to be legal conducting any business, your local jurisdiction most likely requires a business license as well.

This also goes to the intent of someone entering into a contract where contract law requires a “meeting of the minds” for a valid and enforceable contract. Agreeing to purchase without the intent to purchase is simply fraudulent.

As we also know from our Basics Course is that option contracts do not tie up a property, they are an encumbrance, not a lien nor do they convey interest in the property, the interest obtained is in the option contract. From that we also know a purchase contract conveys an equitable interest in the property when the contract is executed, but legal title is in a state of limbo holding legal title in suspense.

It is much safer, not necessarily better to assign options rather than a purchase contract, but the other legal issues of being in the business of assignments still applies. Dealing in options to facilitate sales generally requires a real estate license.

The wholesaler also has potential legal issues with arbitrary pricing in selling a contract. The wholesaler is nothing more than a facilitator when they assign rights to purchase. This is a service performed by a wholesaler being in the business, let's set aside the intentions in contracting and the license requirements and look to federal law.

The Fair Trading Act governs real estate dealings, anyone along the way in a real estate transaction must not mislead or deceive, intentionally or even unintentionally in what they say, agree to or act upon. The relevant Sections of the Act are 9 and 14 (1) (b).

Section 9, is rather simple, “No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Section 14; “(1.) No person shall, in trade, in connection with the sale or grant or possible sale or grant of an interest in land or with the promotion by any means of the sale or grant of an interest in land, -

1. Make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put, or the existence or availability of facilities associated with the land.”

• Do not attempt to read this Act with a narrow interpretation as the Commission interprets the Act very broadly.

The Fair Trade Amendment Act in 2013 brings a more global view in line with technology and to more of the consumer point of view. Real estate auctions are changing their rules, Realtors (and others) must be more careful in representations, advertising, use of pro-forma accounting claims (like showing low cost estimates and high income).

Fines have increased for Fair Trade violations, from $60,000 to $200,000 for individuals and from $200,000 to $600,000 for businesses. Unfair contract terms became effective on 17 March, 2015 and the Commission has new interview powers to require oral evidence from individuals. The Commission also has “Management Banning Orders” that can bar an individual from participating in the management of a company, how would that look on a resume when you're ousted from real estate?

A good wholesaler needs to have the ability to obtain the interests in title they contract for. The TIC, TAC, TOE method allows the wholesaler to obtain title interests that avoids the pitfalls mentioned and without any real money being required. The TIC, TAC, TOE approach doesn't matter if you have a day job or not and your personal credit score really isn't an issue with a distressed seller. You do not ever need a real estate license to utilize the TIC, TAC, TOE approach, because you are an owner!

By agreement, the wholesaler can take control and accomplish any real estate strategy, contract for construction, repairs, leases, option contracts even sales to other investors or “wholetailing” selling directly to a consumer.

The best part of using the TIC, TAC, TOE method is that, as an owner, you're not constrained with establishing fees for your services like a real estate broker. You take on an equity and legal interest in the property and your profits a derived from the value of the real estate not the value of a contract.

This means that the astute wholesaler can accomplish the same goals, simply without having to dodge real estate authorities or trying to find that closing agent willing to “work with you”. Settlement agents close transactions with more than one seller everyday, there is nothing special about the closing with TIC." 

End of excerpt:

You won't find attorneys running away from you as a wholesaler so long as you take a title interest. It's not what you're doing as much as how you're doing things as a wholesaler. 

Also, it's important for investors to look beyond state real estate laws and to other federal laws to orchestrate their business. The FTC is another player investors need to look to, so is the CFPB with TILA as it's been modified and Dodd-Frank, then look to ALTA as they have modified closing requirements. Least we forget the IRS if you're dealing with options and the tax effects of an installment sale.    

My opinion is, that if the poor practices employed by wholesalers continues at this epidemic rate, things may go the same way as seller financing did under Dodd Frank, it's not beyond the possibilities. Don't think that regulators don't know and aren't acting, they just haven't acted in concert yet. Learn real estate and stay compliant. 

Happy holidays! :)