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.
