Or are they gambling that the understaffed SEC won't prosecute? 

Since the Department of Revenue relies heavily on recorded documents to collect realty transfer taxes, many wholesalers are able to avoid prosecution.

However, Jon Goodman, a respected local real estate attorney, has written in his blog "This author knows of no situation where, absent harm to a consumer, a person encountered litigation or criminal prosecution for the unauthorized practice of brokerage."

I fully support prosecuting anyone involved in this type of illegal activity.

They elected not to prosecute for his first offense.

Who's name is on the mortgage.If you pay cash, where did the cash come from....who's account, who's income.Some people think these deals are anonymous....maybe they are...I've never heard of anyone getting busted...but people do watch...you never know who else is bidding....losers can get pissed off, figure it out and turn you in.To me it's not worth rolling the dice on....you're probably not getting much of a discount and you're trying to skirt the rules...you're messing with the federal government.... every now and then someone comes along and wants to prove a point, some new assistant prosecutor....maybe they are the ones that lost the deal or another similar deal....and then think....hmmm....I could solve this problem of non-owner occupants bidding during the exclusive period.....it would cost you way way way more money in legal fees defending prosecution or paying fines than to me trying to save a few bucks on rent money would be worth.  

Consequently the property owner has spent more than the initial rent payment made by this tenant three years ago prosecuting the case in court and she is still going to incur many more unexpected and unnecessary cost on the case because the case has not been concluded.

I know I saw a posting from Philadelphia officially prosecuting and aggressively going after landlords that advertise "no section 8" on craigslist , they do have a number to contact the city to report and are fining, so given the costs stated if you lose is it worth the risk, and as far as rent amount, they compute 3x the rent from the tenants contribution, since most section 8 only pay 30% or less they would always qualify, some zero income actually are 100% cover so based on contribution would qualify for any, and section 8 cant have major criminal background or evictions during time covered by section 8 they would pass that screening, so perhaps best way is to crunch the numbers or credit, to see the tenants priority on debts, some although that have higher income would rather spend money on toys and diner out, a voucher takes so long to get they may not want to lose it, and if some has lots of undocumentable income or less stable say make $30 hr but only keep that job for 2 months till they get in... have to look at each scenario , maybe if their current address is local just drive by it, may be questionable but peace of mind...

The fact that improper procedures can lead to prosecution is enough.

Either way, it's mortgage fraud, which is a felony and a conviction comes with up to 5 years in prison.The reality is that they don't prosecute this frequently, but they do prosecute it frequently enough that I wouldn't do it."