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Wholesaling in Michigan – Are you licensed?

Some states specifically address wholesaling within their statutes; however, Michigan does not. Instead, Michigan relies on the definition of a real estate broker and what type of activity requires a broker’s license.

Let’s take a look at what Michigan licensure law says about when “owners” of real estate must be licensed:

Licensure as a real estate broker is required of an owner of real estate who engages in the sale of real estate as a principal vocation, unless the owner engages the services of a real estate broker. Acts constituting a principal vocation include any of the following:

(a) Engaging in more than 5 real estate sales in any 12-month period.

(b) Holding one’s self out to the public as being principally engaged in the sale of real estate.

(c) Devoting over 50% of one’s working time, or more than 15 hours per week in any 6-month period, to the sale of real estate.

Wholesalers often say: I don’t take title to the property, so I’m not an owner. Correct. As a wholesaler, they are not an “owner of real estate” per se under the licensing statute, but they do own an interest in real estate by way of the purchase agreement which the wholesaler offers for sale or assignment.

If we read the licensing rule in conjunction with the definition of “real estate broker” under Michigan’s occupational code, we find a very broad definition capturing any individual or entity that:

…who with intent to collect or receive a fee, compensation, or valuable consideration, sells or offers for sale, buys or offers to buy, provides or offers to provide market analyses, lists or offers or attempts to list, or negotiates the purchase or sale or exchange or mortgage of real estate, or negotiates for the construction of a building on real estate; who leases or offers or rents or offers for rent real estate or the improvements on the real estate for others, as a whole or partial vocation; who engages in property management as a whole or partial vocation; who sells or offers for sale, buys or offers to buy, leases or offers to lease, or negotiates the purchase or sale or exchange of a business, business opportunity, or the goodwill of an existing business for others; or who, as owner or otherwise, engages in the sale of real estate as a principal vocation.

One frequent and notable misconception is that if a person only conducts the sale of real estate on their own behalf, as most wholesalers do, they are exempt from licensing. Some states do provide such an exemption, but Michigan--as you can see from the statutes--requires that a person carry a real estate license, even if they do not “represent” third parties, if they meet the prescribed licensing threshold.

As can be seen, Michigan’s licensing statute and definition of “real estate broker” do not directly address wholesaling; however, if you engage in the sale of real estate (or interests in real estate), the State of Michigan could find licensing is required.

Although enforcement action against those only selling their own real estate or wholesalers is not prevalent, if you actively engage in the sale of real estate as your principal vocation--whether as a wholesale or otherwise--you should consider seeking a license.

Final thought: If you are considering wholesaling in another state, keep in mind that each state has slightly different licensing rules for real estate professionals. Be cautious about seeking or taking advice from others not familiar with the real estate statutes in the state in which you will be conducting real estate activity.

Great group if you're from the area!

If they gave you the keys (or left them for you), you can clean it out.  OR

You check and see if there are any valuables left--something more than junk and trash.  And, make sure the following are also gone:  clothing, toiletries, food, beds--anything that someone might use to live with.  And, check to see if the utilities have been shut off.  If you have any inclination that someone might still be there, you're only choice is to start the eviction process.

If they didn't pay the rent when they left, you can use a Demand for Possession, Non-Payment of Rent (7 day notice, plus 2 for mailing).  If there is no rent due, you'll need to use a Notice to Quit, Termination of Tenancy (30 day notice, plus 2 for mailing).  (You could ask for an immediate writ to avoid the delayed time given for the tenants to move.)

Note:  Most apartment communities/property management companies will go the eviction route to avoid any backlash.

Last:  I'm not an attorney and this isn't legal advice--just sharing : )

Happy to help...that is what I do : )

A relationship with a licensed agent that knows the market is a great way to go.  Otherwise...

Michigan law regarding real estate professionals addresses this question in the Michigan Administrative Rules for Real Estate Brokers and Salespersons. Generally speaking, the Rules state that “licensure as a real estate broker is required of an owner of real estate who engages in the sale of real estate as a principal vocation, unless the owner engages the services of a real estate broker.”

Within the Rules there are three (3) “questions” that an investor can ask to test whether or not they are participating in real estate as a “principal vocation.” If you answer “yes” to any of the following questions, you should be licensed, unless you are exempt under some other area of the law.

Have you or will you engage in more than five (5) real estate sales in any 12-month period? For example, if today is December 15, 2009 and you have sold more than five properties since December 16, 2008, you would need a license. If you’re a busy “rehab and flip” investor, you will most likely need a real estate license.

Have you or will you hold yourself out to the public as being principally engaged in the sale of real estate? If you’ve placed one of those signs on your car or truck that states, “we buy and sell houses”, you may very well have to answer this question, yes. Whether you are principally engaged in the sale of real estate is somewhat of a fuzzy area. For instance, if you have a published cell phone number that is on 12 hours each day where potential buyers can call you would most likely be considered principally engaged in the business.

Have you or will you devote over 50% of your working time, or more than 15 hours per week in any 6-month period, to the sale of real estate? If you have an office where you actively sell (or at least attempt to sell) real estate four days a week, you definitely would have a hard time arguing that you’re not principally engaged in the business.

You don’t necessarily have to be a real estate broker to engage in the sale of real estate, but, if you’re not, you’ll have to be licensed as a real estate salesperson and work under a real estate broker or be licensed in some other occupation that does not require an additional license to sell real estate, e.g. a licensed attorney or builder. Of course, working under someone else usually means that they will have their nose in your business and want a cut of the proceeds. For those reasons, most investors that plan on working the business as their principal vocation will go the extra effort to obtain a broker’s license.

If you're using seller financing, Dodd-Frank regulations will come into play and limit the number you do without a mortgage loan originator as well.

Have fun!

Clay

Agree with all the above.  As for the security deposit, you cannot use that until they have moved out.  If you're using a good lease, it will note that all payments made to the landlord are applied in a particular order, e.g. 1st damages, 2nd past due utilities, 3rd rent...

Suggestions Regarding Criminals & Tenant Screening

Last Updated: 10 months ago in Property Management - Various TopicsTags: criminal, criminal and fair housing, fair housing tenant screening

This year HUD issued guidelines dictating to landlords that they must not use a blanket "no criminals" screening criteria. Since then, the RPOA has been discussing the new policy with the Fair Housing Center of West Michigan and our attorneys. We've also received various suggestions from other sources such as CBC, AmRent and the National Association of REALTORS.

Based upon these discussions and communications, the RPOA offers the following suggestions for its members. Members should note, however, that none of these suggestions have been approved by HUD or tested in a court of law. HUD has provided very little information on what crimes it deems "severe" or how long a person should be out of prison before being considered a low-risk tenant. Time and court cases will only prove what the new guidelines really mean.

Establish written criterion that follows the HUD guidelines and does not discriminate against protected classes.

Do not screen out prospective tenants based solely upon their arrest record.

Do not screen out prospective tenants based solely upon a conviction of drug possession.

Establish screening criteria that take into account the severity of the crime and how long the person has been out of incarceration. For example, strict screening criteria that excludes a 58-year-old male that was convicted and served time for selling cocaine when he was a teenager, might be deemed out of compliance with the guidelines. However, criterion that excludes anyone convicted of terrorism may be permissible.

Use criterion that protect your business interest. Was the person convicted of a crime that could jeopardize your rental property or financial interest, such as check fraud, arson, malicious destruction of property, etc.?

Use criteria that protect the health, safety and welfare of yourself, your tenants and the neighbors where your property is located. In other words, consider the nature of the crime. Was it a crime such as embezzlement or tax evasion that did not endanger a person? Or, was it a violent crime such as rape and kidnapping?

Do not use a criterion that discriminates against a protected class.

Use your written criterion consistently.

Use tenant history first when screening. Was the prospective tenant evicted recently? Did the previous landlord(s) give them a good reference or a poor one?

Use credit history, income verification and amount of income before applying criminal screening. Does the prospective tenant have the ability to pay the rent? What is their history of making payments on rent, mortgages and other debt?

To make things simple, the RPOA recommends members use the RPOA AmRent Decision Report which has been reviewed by Fair Housing. Or at the very least, use similar criteria as that used for Decision Reports.

The RPOA still opposes the new guidelines. For more on why the RPOA opposes the guidelines, go here.

For more information, the RPOA offers a course throughout the year on “Marketing & Screening for Paying Tenants”. Check out our calendar to see when this class is being offered again to get the full scoop on best screening practices and to ensure your screening practices are in compliance with fair housing rules and regulations. Register here.

Disclosure: This Knowledge Base article is accurate as of the last update. Laws and policies are subject to change. 

Clay Powell

Make sure you invest in an area that will allow them...many Northern Michigan communities are enacting laws to suppress or not allow AirBnB's or other "homeaway" type rentals.  This seems counter-intuitive for vacation destinations but local neighbors and hotels are putting the pressure on to eliminate them.  Or, at the very least, make sure you buy something that has a good exit strategy.

Check with an accountant that specializes or is at least very experienced in real estate.

Crimereports.com is a fairly good way of determining if an area has issues.  The map generated for the Grand Rapids, Michigan area is pretty spot on, i.e. avoid the areas where there is a heavy cluster of crime icons.  However, if you're asking, is it a good or bad area to invest, that is a completely different question.  There are many fringe areas near these neighborhoods in GR that are on the cusp of redevelopment and have huge potential for increased value, etc.  Get with a local real estate broker that also invests.  I can refer you to someone that is excellent if you touch base with me via email.