brokering without a license, north carolina, Lease options, options etc

General Real Estate Investing
1

Hey everyone,
Just wanted to get some facts about wether you need a license to practice these deals: for example, I get an option, then market the home with owner financing, lease option, contract for deed, etc. I do not have a license.

I know most investors will say, you are a principal in the transaction, therefore you do not need a license. I live in north carolina. I did some research and one of our administrators John “cash” locke spoke with the NORTH CAROLINA REAL ESTATE COMMISSION, from what they said, if you don’t record your contracts in public records, it is pretty convincing that you are acting as broker without a license. what do you think? I typically do not put in public records if it is short term option.

here is the conversation below

B. M. Brogden, Jr.
Chief Deputy Legal Counsel
NC Real Estate Commission"

I emailed Mr. Brogden and requested his phone number so that we could discuss Subject To investing in North Carolina. He graciously responded with his phone number.

I called Mr. Brogden in the afternoon of August 24, 2004.

Here is a synopsis of our conversation and was reviewed by Mr. Brogden:

North Carolina has no problem with Subject To investing as long as the following guidelines are adhered to:

The problem with the use of a “Land Trust” as a means of concealing a violation of the “due-on-sale” (DOS) clause is that even where the designated trustee is a real person or entity, the identity of the actual beneficiary is concealed or obscured.

This can constitute a deceptive, misleading or unfair trade practice in violation of Chapter 75, N.C.G.S, and, in the opinion of the Commission legal staff, is a circumstance tending to show the person actually controlling the trust is attempting to act as a real estate broker without a license.

[b]Much the same is true for agreements, such as installment land sale contracts or lease/option or lease/purchase arrangements that are not properly recorded in a timely manner in the chain of title. No reasonable person or prudent investor would fail to immediately and properly record a document transferring an interest in title due to the risk of loss associated with the failure to timely and properly record.

A person or firm truly dealing on their own account would typically obtain a deed, option or contract, properly notarized and recorded, in order to protect their investment. Failure to do so is very convincing evidence that there is no real investment and that such person or firm is no more than an agent without a license.[/b]

2

Good to meet you

I am am not seeing the issue… if you follow what is indicated… A person or firm truly dealing on their own account would typically obtain a deed, option or contract, properly notarized and recorded, in order to protect their investment.

Out here in California one can sell contracts up to 8 times without needing a license… Check you state… There may be something like that there… Either way as long a you create constructive notice I am not seeing the issue… Don’t confuse a transfer of title and a memorandum of a contract as the same…You should think seriously about always utilizing a Memorandum of contract… Its smart business.

Here is a sample of the one I use… www.REIMentor.Us/MEMORANDUM_OF_CONTRACT_FOR_SALE_AND_PURCHASE_OF_PROPERTY.doc

Always make certain it works both in your state and your County… The easiest way and maybe the least expensive is to take it to your title comapnay and ask them… They will know…

Good luck

PS to undo a MOC record a Quick Claim Deed

3

thanks for your response michael.

I mainly do cooperative assignments of lease options. I normally just get a simple option contract up front, then market it for 30-60 days. So I typically never record the contract because it is such a short period of time. Most of the time the seller just faxes me the contract back and I start marketing right away. Now if the deal is longer or I am staying in the deal then I definitely record everything. But short term stuff I normally do not. So am still brokering without a license?

4

In California you are… In my opinion…

5

No, you’re not. You’re a principal in the deal, assigning your interest to a third party. That is not brokering real estate.

6

Just so my fellow California Investors understand … You should have your attorney define this code…

10131.1. (a) A real estate broker within the meaning of this part
is also a person who engages as a principal in the business of making
loans or buying from, selling to, or exchanging with the public,
real property sales contracts or promissory notes secured directly or
collaterally by liens on real property, or who makes agreements with
the public for the collection of payments or for the performance of
services in connection with real property sales contracts or
promissory notes secured directly or collaterally by liens on real
property.
(b) As used in this section:
(1) “In the business” means any of the following:
(A) The acquisition for resale to the public, and not as an
investment, of eight or more real property sales contracts or
promissory notes secured directly or collaterally by liens on real
property during a calendar year.
(B) The sale to or exchange with the public of eight or more real
property sales contracts or promissory notes secured directly or
collaterally by liens on real property during a calendar year.
However, no transaction negotiated through a real estate licensee
shall be considered in determining whether a person is a real estate
broker within the meaning of this section.
(C) The making of eight or more loans in a calendar year from the
person’s own funds to the public when those loans are held or resold
and are secured directly or collaterally by a lien on residential
real property consisting of a single dwelling unit in a condominium
or cooperative or on any parcel containing only residential buildings
if the total number of units on the parcel is four or less. However,
no transaction negotiated through a real estate broker who meets the
criteria of subdivision (a) or (b) of Section 10232 shall be
considered in determining whether a person is a real estate broker
within the meaning of this section.
(2) “Sale,” “resale,” and “exchange” include every disposition of
any interest in a real property sales contract or promissory note
secured directly or collaterally by a lien on real property, except
the original issuance of a promissory note by a borrower or a real
property sales contract by a vendor, either of which is to be secured
directly by a lien on real property owned by the borrower or vendor.
(3) “Own funds” means either of the following:
(A) Cash, corporate capital, or warehouse credit lines at
commercial banks, savings banks, savings and loan associations,
industrial loan companies, or other sources that are liability items
on the person’s financial statements, whether secured or unsecured.
(B) Cash, corporate capital, or warehouse credit lines at
commercial banks, savings banks, savings and loan associations,
industrial loan companies, or other sources that are liability items
on the financial statement of an affiliate of the person, whether
secured or unsecured.
(4) “Own funds” does not include funds provided by a third party
to fund a loan on condition that the third party will subsequently
purchase or accept an assignment of the loan.

7

timmym22,

Glad to meet you.

Here is what happens. The seller files a complaint with the NC Attorney General’s office. The AG’s office investigates the complaint, albeit just some seller who feels something is not right, maybe taken advantage of or what ever.

The AG investigator will look to see who the owner of the property is at the recorders office.

[b]"Much the same is true for agreements, such as installment land sale contracts or lease/option or lease/purchase arrangements that are not properly recorded in a timely manner in the chain of title. No reasonable person or prudent investor would fail to immediately and properly record a document transferring an interest in title due to the risk of loss associated with the failure to timely and properly record.

A person or firm truly dealing on their own account would typically obtain a deed, option or contract, properly notarized and recorded, in order to protect their investment. Failure to do so is very convincing evidence that there is no real investment and that such person or firm is no more than an agent without a license."[/b]

If you feel it is worth the risk to not record, then be prepared to undergo the scrutiny of the AG’s office as they have made it very clear what needs to be done. However, I do not think you would want to find out the hard way from someone advising you who does not have to pay the fines or face the consequences.

Mr. Brogden related to me many stories about investors who wanted to try and circumvent the laws in the state of North Carolina.

John $Cash$ Locke

8

Cash is the man in this area, timmym22, so I’d trust him here.

The absolute best course of action here is to consult a local attorney on the subject. One that is experienced in real estate and contract law.

I think you’d be viewed as brokering without a license because you are clearly doing more than assigning an option contract. If all you were doing is assigning the deal, then you’d when you get a buyer, you’d assign and then the seller and buyer would hash out the deal WITHOUT you in middle.

That doesn’t appear to be the case, from your post.

You said that you also advertise ‘owner financing’ etc. This is another big red flag. Why? You are NOT the owner of the property. You are the owner of an option to purchase. In NC, that is ALL you can legally advertise. Once you start advertising ‘owner financing’ you are working for the owner in an attempt to sell his house (ie, a broker).

Just my opinion.

Raj

9

Hey Guys,

I just came across this thread but it’s of interest as im in NC and a newb, so don’t fully understand all this.

I am in the process of finalizing my first deal, can you tell me if you feel this is legal or not, as im not 100% sure now, after reading the above.

I currently have a condo under contract for $100k and an agreement to pay $900 rent with the seller (also with this contract notarized and a copy of the contract and earnest money with my attorney).
I then advertised the property for $125k Rent-to-own option and found a buyer. The buyer has agreed on a purchase price of $125 and to pay me $1000 month rent. It states in the contract between me and the buyer that the selling price is $100k with an assignment fee of $25k.

Is this OK? I understood it to be but am a little confused now, after reading the above.

How would it need to work to be legal vs. illegal? Should the buyer be paying the rent directly to the seller or is it OK to go via me? e.g. Buyer sends me a check for $1000, I then send the seller a check for $900?

Please advice, I don’t want to do anything illegal unknowingly.

10

Churchill,

If you’re wanting good, solid, legal advice, it can only come from an attorney that specializes in what you’re needing. Not sure where you are in the state, but let me know if you need to get in touch with one and I can point you in the right direction.

Without knowing the details of the contract(s), I couldn’t give you a detailed answer either way, but it sounds like what you’re attempting is a sandwich lease option.

I’ve never been a fan of the sandwich lease option, and in the current RE market, even less so.

11

Hey Roger,

Thanks for the reply.

I’m in North Raleigh (Crabtree Mall Area) and would most definitely like to take you up on your offer.

Honestly, I have absolutely no idea what the proper term for what I’m doing is called. I’m on a mentoring course and I’m just doing as my tutor tells me, although admittedly he isn’t from NC so won’t know the intricacies of NC law. And I most certainly don’t as I’m originally from UK and have only been a student of Investing 4 months!

Where are you in NC?

Any help, advice or contacts would be greatly appreciated.

12

Hickory, NC. About 3 hrs or so from you.

Click on my link below and shoot me an email with your info and I’ll get up with you on an attorney or two.