LandInvestors.com Forums **Ask A Question** Wholesaling Legal Issues

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    Chuck Stagliano
    Participant
    Post count: 5

    Greetings all. I ran into an issue with a property I have under contract in Tennessee. After the seller and I ratified the deal with a signed contract, she contacted her broker. He stated to me that my contract is illegal in Tennessee, subject to a $1000 fine. He stated that he had consulted an attorney and that she confirms that there has been legislation about this, saying that wholesaling is acting as a broker without a license. I had opened escrow and the title company was OK with it, knowing there would be a double close. I took this as a warning sign about trouble with this seller, and cancelled the contract. But I’d like to know if this is a real problem in Tennessee. Thanks

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  • Kyle Bryant
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    Post count: 48
    Pro

    Chuck,
    I don’t want to paint with a broad brush, but brokers pull this stunt a lot. If you think about it, it makes sense the brokers would want wholesaling to be illegal…it eats into their business.

    Don’t let them scare you off. I would ask for the specific legislation in question (i.e. a citation to the Tennessee civil statutes) that makes “wholesaling” illegal.

    I’ve seen it where someone says that wholesaling is illegal, when what they mean is assignment contracts will get you in trouble with the Broker’s lobby, but doing a double-close is ok because *technically* you own the property.

    Either way, don’t let real estate brokers, who have a vested interest in you not wholesaling, tool you around. I would look for the actual laws. My guess is that doing a double-close deal is completely legal in all 50 states. And yes, I am an attorney, but not yours.

    Joe Schmitt
    Participant
    Post count: 126
    Pro

    Pretty much every broker I’ve ever talked to says “Wholesaling is illegal”. Whatever. Real estate agents know how to stage homes and collect their crappy fees.

    My contracts always include the work “or Assigns” after my name.
    It says that I intend to market the contract and make a profit.

    joe@hyhproperties.com

    Kevin Farrell
    Moderator
    Post count: 1319
    ProAdvanced

    Like Joe – all my contracts say “and or assigns”. I have no trouble doing assignment deals on land.

    Kevin

    Shawn Swisher
    Participant
    Post count: 26
    Pro

    Here is a Q&A from the Tennessee Real Estate Commission’s newsletter that gets sent out to all agents. They have a Q&A section in each newsletter to help agents with legal/ethical questions. This was approximately a year or so ago but I saved it for future reference. It’s possible that some legislation has been introduced since then that might have changed things but I’m not aware of any.

    Q: I have a buyer interested in making an offer on a property, and I would like a brief explanation of the assignment clause.

    A: All contracts for the sale of real property are assignable in Tennessee unless otherwise agreed to in the contract. The Tennessee REALTORS® contracts are assignable unless something is mentioned in the special stipulations to the contrary. If the assignee does not close, the buyer is still responsible to close.

    Based on that info from TREC, your contract isn’t illegal simply because it contains an assignment clause. I bet the broker that told you it was illegal couldn’t cite what law you supposedly broke. For what it’s worth, I’m currently a licensed agent in TN and I will say there is only a small minority of agents who understand anything in the investing world. Most agents don’t know anything about it because it’s barely touched on in their pre-licensing education. Once they get their license, most agents think they know more about real estate than everyone else so when they encounter something they aren’t aware of or don’t understand, their first response is to say it must be illegal. Unless they take it upon themselves to learn more about real estate investing, they just end up being a roadblock to getting deals done.

    Based on my research of the actual brokerage rules and legislation in TN, wholesaling is in a gray area (like many states). In TN, the assignment part is currently legal. It’s the advertising part that is questionable. You aren’t allowed to advertise a property for sale unless you own it. Wholesalers would say they have ownership due to the “equitable interest” they have in the contract. Others say ownership requires your name to be recorded on the deed. To my knowledge, the current legislation doesn’t distinguish what qualifies or disqualifies you as an owner. It just lists property owners as an exception to the brokerage rules. That’s what creates the gray area. As wholesaling becomes more popular, that will probably have to be settled with additional legislation at some point in the future.

    My advice… if you’re trying to do assignments and the property is listed with an agent, it’s probably better for your sanity to just move on to the next deal.

    I hate to hear you had to cancel your deal. Sometimes my peers in this profession make me ashamed to be a Realtor. Good luck on the next one!

    Disclosure: I’m not an attorney so ignore everything I just said if you’re looking for legal advice. 🙂

    Living vicariously through myself...

    Marcus
    Participant
    Post count: 238
    Pro

    I bought a property from an attorney in TN, he didn’t have any issue w/assignment language in the contract.

    Kevin Farrell
    Moderator
    Post count: 1319
    ProAdvanced

    Shawn – Thanks for that information from TN.

    Kevin

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