All Forum Posts by: Christian Carson

Not under the current statutory regime. It's impossible to escape the conclusion that you are, in fact, facilitating a real estate transaction with respect to real property you do not own, with the intent of receiving a commission or fee. The conclusion would be different if you actually owned the property in question, but a prospective ownership interest contingent on your performance (an unperformed purchase contract) is not the same as a present ownership interest. An unrecorded deed or a fully performed real estate contract would serve the purpose as well, but good luck getting any one of those from your seller.

If these examples are not enough to satisfy you, that is your business, of course. I'm not here to pass judgment on the ethics of anyone's business practice. It is my job to make an honest assessment risk for my clients, free of emotion, and I believe there is enough information here to indicate significant risk with respect to Ohio.

These debates often tend to confuse the normative ("wholesaling should be legal") with the positive ("there is some evidence to indicate that the tribunal will rule against you"). Failure to separate these two elements can cause the discussion to look more like a debate about the existence of God than one about legal and practical principles. Our information will always be imperfect when examining the law. 

So what evidence do we have? We have an article written by the Superintendent of the Real Estate Licensing Division indicating that wholesaling in its many forms is illegal, combined with several instances of fines issued for selling and listing real estate without a license. Does this leave us with an absolute, positive, 100% view that this is settled law? Absolutely not. But should we pay attention when the Superintendent speaks? You bet she knows how the Real Estate Commission is going to treat her fact pattern. The Commission, whose sole purpose is to enforce the licensing statute, will be determining whether a wholesaler's activity is subject to the licensing statute. On the other hand, we have zero evidence that the Commission has approved this practice.

I've seen vague citations to unspecified principles of common law before in this debate, and frankly it puzzles me. In Ohio, and I presume Virginia as well, the state has plenary power to legislate, and statutes always and forever abrogate the common law unless they violate the state or federal constitution. Unless Virginia went back to the Lochner era when I wasn't looking, the real estate licensing statute abrogates any common law freedom of contract.

And further, the statue is the law of the land until such time as an appeals court finds it unconstitutional. It's very risky to advise a client to pursue a defense based on a notion that the statute is probably unconstitutional.

That's my only point here. I'm not here to debate what the Ohio Supreme Court might say about this. The reason we don't have more case law is simply because most wholesalers can't afford to litigate.

Let me be more specific. The practice of wholesaling, and the industry usage of contract assignment, is beyond the purview of the unskilled consumer seller. As a wholesaler, it's highly unlikely that your seller is going to be a sophisticated operator. "Consumer" is a term of art for the purpose of interpreting consumer protection acts, which are on the books of all fifty states. Although consumer protection acts don't typically apply to real estate transactions, I could foresee a savvy plaintiff using your "this is not a real estate transaction" argument against you--allowing recovery of statutory damages, punitive damages, and attorney fees. At least that's what I would do as plaintiff's attorney. And let me tell you this: the amount of common sense or special knowledge attributed to such a person by a judge is going to be embarrassingly minimal. 

Before I provide citations, let me explain the nature of these rules and how they are enforced. In Ohio, the Real Estate Commission is an administrative entity that has special power to administratively enforce the real estate licensing statute as well as other regulations promulgated by the Department of Commerce.

The Real Estate Commission practices what we call administrative law, or "kangaroo court" in layman's terms. It is similar to a hearing before the Social Security Administration or the state worker's compensation board. Rules of procedure and evidence don't really apply, and appeals are limited. Neither is there a requirement to publicize these hearings (at least without a FOIA request). It's unlikely that most states' commissions even produce published opinions or transcripts.

In any case, even most trial court cases are decided without a judicial opinion. It is only at the appeals court level that we have access to published opinions interpreting the law. Trial court judges are notorious for arbitrary legal conclusions relying entirely on legal reasoning in briefs submitted by one of the parties.

So here's the upshot - if you are willing to roll the dice and you have the money to defend an admin hearing and prepare at least one appeal, by all means carry through with the attitude that "the law is on your side." By all means I support your right to wholesale personally and will zealously defend any wholesaler who retains me as counsel. Anyone who's on the other side of my desk is going to get the same advice, though -- it's probably cheaper just to pay the fine and promise not to do it again than to launch a protracted campaign to fight the state.

Here is some reading material evidencing prosecution for wholesaling in Ohio.

First, what we call an "official interpretation" of the law, straight from the state governing board's 2014 newsletter:

Second, I earlier detailed the disciplinary actions here: http://lawcarson.com/2014/08/more-fines-for-unlicensed-activity-in-ohio/

If I had a nickel for every time someone "firmly believed" that the law permits a certain activity, I wouldn't need real estate...

Read the forums, then read some law review articles if you dare. There is one, and only one, certainty when it comes to wholesaling: there are no certainties. Furthermore, there are very few certainties when it comes to the practice of law in general -- ever heard a lawyer tell you, "it depends?" 

It all boils down to how convincing your argument is when you're standing in a courtroom. Wholesaling looks an awful like fraud and deception to a layperson, so you're already digging yourself out of a fairly deep hole by the time you get caught. If you can find a way to wholesale without concealing information or leaving your seller feeling that you appropriated value that belongs to him, more power to you. You're less likely to be prosecuted if you don't do things that upset people. But don't be surprised when you get a letter from the state proposing a fine for fraudulent activity. As I've said in previous threads, if it quacks like a duck, judges will assume it's a duck. They're not all that diligent and they've got a 3 o'clock tee time.

@Ryan Arth, let me know when the next meeting will be and I will put it on my calendar!

Let me know when you are planning the next one and I'll put it on my calendar.

Drat, guys, sorry I missed it. I need to put an alert on this thread!

If you seek conventional residential financing, the bank will require your personal name on title. As far as I recall, if you both are occupants, you can appear on title together. This will create difficulties in the event of a bad breakup, as one of you will be able to block the sale requiring a partition action in court. 

One idea that popped into my mind is to divide the property into condominiums. I have seen this done often in old duplexes in Cleveland, although of course I am not familiar with the requirements or cost of this in California. Here, one can effect the division at closing (of course, buyer pays for paperwork)  or afterward. This has an added advantage of the two of you being able to dispose of your interests independently, and probably a higher combined resale value.

 Hal,

Typically it is illegal under city ordinances for a seller or escrow agent to transfer a property without first complying with the city POS regulations. Most cities allow two methods of compliance:

1. 1. Fix the violations;
2. 2. Deposit funds into escrow at the direction of the city as security for repairs.

I very much doubt you'll be able to find an escrow/title agent in town who will do a double closing in a POS city because these ordinances often attach criminal penalties to noncompliance. An assignment closing will be a different scenario as the ordinance doesn't typically contemplate contracts for purchase (although I know at least one city that I believe requires you to at least get the initial POS inspection before entering into a contract to purchase).

Most POS ordinances in Cuyahoga County criminalize the act of transferring title without complying fully with the POS statute. Escrow agents and sellers are generally regulated here, not purchasers. Did you receive a title insurance policy? 

In any case, if you must incur expenses due to the title agent's negligence, you may have a civil claim against that title agent for damages. I would not go as far as to say that it constitutes a title defect moreso than a simple property sale in a municipality that requires it. Of course, you can't resell the property without compliance unless you find another green title agent who doesn't know about the POS ordinance.