Legal Question About Assignment

No. Not at all. You are not acting as a realtor. You own an interest in a contract on a house. You are basically selling your interest in the contract for $$$$. Assigning contracts is totally legal and is done thousands of times everyday across the USA.

Real estate brokers have a seller come to them and for a fee find someone to buy the house, and they walk away with a profit after giving some to the realtor responsible for the sale. In the example in the book as far as I can understand, the college student had no interest in the property. Or did he? What constitutes interest?

The reason I believe this is "acting as a real estate broker" is some research that I came across:

The Texas Real Estate License Act was formerly called Vernon's Texas Civil
Statutes, Article 6573a, and is now known as Chapter 1101 of the Texas
Occupations Code.
Sec 1101.002 Definitions
In this chapter:
(1) “Broker”:
(A) means a person who, in exchange for a commission or other valuable
consideration or with the expectation of receiving a commission or other valuable
consideration, performs for another person one of the following acts:
(i) sell, exchanges, purchases, or leases real estate;
(ii) offers to sell, exchange, purchase, or lease real estate;
(iii) negotiates or attempts to negotiate the listing, sale, exchange,
purchase, or lease of real estate;
(iv) lists or offers, attempts, or agrees to list real estate for sale,
lease, or exchange;
(v) appraises or offers, attempts, or agrees to appraise real estate;
(vi) auctions or offers, attempts, or agrees to auction real estate;
(vii) deals in options on real estate, including buying, selling, or
offering to buy or sell options on real estate;
(viii) aids or offers or attempts to aid in locating or obtaining real
estate for purchase or lease;
(ix) procures or assists in procuring a prospect to effect the sale,
exchange, or lease of real estate; or
(x) procures or assists in procuring property to effect the sale,
exchange, or lease of real estate; and
(B) includes a person who:
(i) is employed by or for an owner of real estate to sell any portion
of the real estate; or
(ii) engages in the business of charging an advance fee or
contracting to collect a fee under a contract that requires the
person primarily to promote the sale of real estate by:
(a) listing the real estate in a publication primarily used for listing real estate; or
(b) referring information about the real estate to brokers.

SEC. 1101.004 ACTING AS BROKER OR SALESPERSON
A person acts as a broker or salesperson under this chapter if the person, with
the expectation of receiving valuable consideration, directly or indirectly performs
or offers, attempts, or agrees to perform for another person any act described by
Section 1101.002(1), as a part of a transaction or as an entire transaction.

Section 1101.702 goes on to state that one "acting as a broker without a license" can be charged with a $1,000 per incident. If I did this in my state I'd like to have myself protected from fines which would eat up a portion of my profit, even before taxes. Using again the example in the book, according to the statutes it seems like he's acting as a broker since the person goes to the homeowner and gets an agreement, then contacts an investor to get in touch with the homeowner for a sale and wants 2.5% as a finder's fee. Hope I'm not going above anyone's head on this.

I think Mr. Bronchick can explain it best. He is an attorney and he teaches assigning, flipping, land trusts etc... and is the CEO of Legalwhiz.
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Do You Need a License to Flip Real Estate?
by Bill Bronchick

You buy a property, you flip it, you profit. Does this require a real estate license? In most cases, the answer is "no". Real estate brokerage is an activity regulated by states on their own terms, thus each state defines which activities require a license. There is a lot of vagueness and ambiguity in some of the state licensing codes, as well as "gray areas", which complicate the matter. Furthermore, if you vary the techniques and your business practices beyond the scope of what I teach in my course, it is not always clear how the state authorities might view your practices. Therefore, this discussion is limited to the simple activity of buying and flipping as follows:

1. Sign a contract with a seller, assign it to a third party

2. Sign a contract with a seller, sign another one with a third party, then double close

The large majority of states use the "for another" language in their state licensing statutes. The "for another" language means the law provides a laundry list of activities that require a license if you do it "for another."

A good example is the Ohio Statute:

§ 4735.01 Definitions. As used in this chapter:

(A) "Real estate broker" includes any person, partnership, association, limited liability company, limited liability partnership, or corporation, foreign or domestic, who for another, whether pursuant to a power of attorney or otherwise, and who for a fee, commission, or other valuable consideration, or with the intention, or in the expectation, or upon the promise of receiving or collecting a fee, commission, or other valuable consideration does any of the following:

The code then goes on to list all types of activity, such as buying, selling, offerings, leasing, negotiating, etc. This type of statute would clearly exempt you from doing any of the listed activity so long as you were doing it on your own behalf. The following court case clearly delineates the difference between acting on your own behalf and acting as a broker.

In Xarin Real Estate v. Gamboa, 715 S.W. 80 (TX 1986), an investor named Xarin entered into a purchase contract with the owner, Gamboa, then assigned his purchase contract to a third party, Baker. When the deal blew up, Baker sued Xarin claiming, among other things, that Xarin was illegally acting as a real estate broker without a license.

The court ruled that, “No evidence exists to show that Xarin was acting for anyone but itself when it sold its interest to Baker. Xarin was shown on the sales contract to be only the purchaser and was not shown in any agency capacity… There is also no evidence that Xarin acted for Baker when Xarin acquired its interest in the property from the Gamboa's. Generally, to establish that one person has acted for another in an normal agency relationship, there must be an agreement between two persons and one must exercise some control over the other.”

Two important points are worth noting here. First, the court acknowledged that Xarin had “an interest in the property” when it signed a purchase contract with Gamboa. As we will discuss later, having “an interest” in real estate allows you to sell your interest, which is specifically exempt from many state licensing laws. Second, the court made an important point that that the Xarin did not have a deal with Baker in place when it made the deal with the owner of the property. This is important because the reverse can also be true; if you make a deal with a buyer first, then find him a property, a good argument can be made that activity is brokering on behalf of the buyer.

Other states that do not use the "for another" language clearly identify specific exemptions in their licensing statutes. A good example is the South Carolina statute, which reads:

"This chapter does not apply to:

The sale, lease, or rental of real estate by an unlicensed owner of real estate who owns any interest in the real estate if the interest being sold, leased, or rented is identical to the owner's legal interest"

However, you must have an interest in the property before you sell it. In general, a contract to purchase property gives the buyer an equitable interest in the land. 27A Am. Jur. 2d Equitable Conversion § 10. Thus, if you have an interest in the property, you are basically exempt from the licensing regulations in these states.

A few states limit the real estate activity of any persons, even if you are acting on your own behalf. SD, MN, WI, MI, MD & MN all have limitations on the number and frequency of real estate transactions you can do before you will need a real estate license. For example, Michigan law limits you to 4 transactions per year, although it is not clear whether using multiple corporate entities will be a workaround.

There's few, if any, reported cases of people being prosecuted anywhere in the country for not having a real estate license. The issue of licensing is more relevant in the enforcement of your profit. For example, if you assign your contract prior to closing and expect the buyer to pay you at closing, he may stiff you and argue "you don't have a license".

The bottom line is that if you don't act like a real estate broker, the state agencies that license brokers will leave you alone. If you use the licensing exemptions to skirt the licensing laws, you will likely hear from the state licensing agencies. It is important that you make it very clear to all parties in the transaction that you are not a broker and are acting on your own behalf.

Bill Bronchick
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who's Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.

This sounds like it came from a magazine article. Is it available online or should I look up the site Legalwiz.com? Also could you clarify something else?

What constitutes interest is when 2 mutually agreeing people go to contract and each understanding that a Option To Purchase has been signed by both. The contract states that the seller (A) agrees to the buyer's (B) terms, price and amount of time agreed upon in the contract. Wheather it be that the (B) has 30, 60 or 90 days to buy or sell his/her option/assignment of the contract. And it is stated in my contract (prepared by my attorney) that I am going to sell for a profit and how many day I have to do so.

http://www.legalwiz.com/

You will find a lot here written by Mr. Bronchick

I am attempting to wholesale a house in Ohio. I have the house under contract and was attempting to sell it on the free posting sites such as craigslist and postlets and vflyer. I also posted it on my facebook page as I have seen other house ads appear there and there was this convenient little link on postlets that allowed me to do so. I had a realtor that saw my postlets flyer call and get all hot and bothered stating I was doing this illegally acting as a real estate agent without a license. I quoted the text above about the Ohio case by Mr. Bronchick and he promptly sent a reply that he contacted the Ohio commerce department and they wanted him to file a report with the enforcement division.

I don't know what I should do next. He seemed pretty animated that I was going to face up to a $20,000 fine and what not. I am not sure if he was just blowing smoke or if he really turned me in.

Do I need to pack my bags and head for Mexico??? LOL!!!

Any suggestions?

Hello,
I believe when you have the right,Being an contract of many aspects you should be fine as long as everybody knows your position as (referral) not an LIC. REA or REB.But beside that...Get it under contract,And do what you want!
Start off small and work your way UP...But remember referral and have LIC. agents ready if you are not LOCKING-UP.

Randall

First, you can tell the realtor to mind his or her own business! As long as you have a purchase contract stating that it is assignable then you are okay and you are NOT breaking any laws! You are selling the rights to your contract. FYI... Ohio has some of the biggest real estate investing gurus who teach wholesaling. They have HUGE organizations that wholesale. One of the gurus is the president of the local Ohio REI club and wholesaling is all she teaches. Tell the realtor that they can go ahead and report you because you are doing nothing wrong. Then I would remind the realtor that when the Ohio commerce department finds out that you are not breaking any laws then you will have to file a defamation of character lawsuit against the realtor! Next time I wouldn't even converse with a realtor like that. Perhaps if the realtor put that kind of energy in his business he wouldn't have so much time making unwarranted threats!

KimmyJ
Press on...

KimmyJ,Thanks for the info on Locking.What is the Assignment of contract? Could it be...When using this contract,It protects your interests...Above and beyond!!!

If I did not ask.Then I should not be here!

Randall

Assignment of contract is another term for wholesaling. The assignment of contract is the contract you will use to assign the deal to your end buyer. When you sign the purchase agreement with your FSBO, you write and/or assigns after your name. By doing this it makes your purchase agreement assignable to another investor. All you are doing is assigning your rights to another investor. The other investor will close on the property. Obviously, you don't want to give your option to purchase the property away, so that is where the end buyer pays you for your rights to purchase. Very legal.

KimmyJ
Press on...

I really appreciate the positive comments from the DG family. This guy has really gotten under my skin. I have the contract locked up and both of the sellers have signed the disclosure agreement.

I know I am not in the wrong here but I can not afford any legal trouble since I am just getting started.