help me please
I dont know if there are any actual lawers on this site but I need some help. It seems based on the laws in minnesota that bird dogging is illegal with out a license. I know it has been covered many times before but the law seems to say it illeagal. Could someone please help me understand. Here is the law in my state.
Minn. Stat. §82.19, subd. 1. License required. No person shall act as a real estate broker, salesperson, or real estate closing agent unless licensed as herein provided.
Minn. Stat. §82.17, subd. 5. Real estate salesperson. "Real estate salesperson" means one who acts on behalf of a real estate broker in performing any act authorized by this chapter to be performed by the broker.
Minn. Stat. §82.17, subd. 4. Real estate broker; broker. "Real estate broker" or "broker" means any person who:
(a) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts to negotiate a sale, option, exchange, purchase or rental of an interest or estate in real estate, or advertises or holds out as engaged in these activities;
(b) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly negotiates or offers or attempts to negotiate a loan, secured or to be secured by a mortgage or other encumbrance on real estate, which is not a residential mortgage loan as defined by section 58.02, subdivision 18;
(c) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of any business opportunity or business, or its good will, inventory, or fixtures, or any interest therein;
(d) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly offers, sells or attempts to negotiate the sale of property that is subject to the registration requirements of chapter 83, concerning subdivided land;
(e) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same, promotes the sale of real estate by advertising it in a publication issued primarily for this purpose, if the person:
(1) negotiates on behalf of any party to a transaction;
(2) disseminates any information regarding the property to any party or potential party to a transaction subsequent to the publication of the advertisement, except that in response to an initial inquiry from a potential purchaser, the person may forward additional written information regarding the property which has been prepared prior to the publication by the seller or broker or a representative of either;
(3) counsels, advises, or offers suggestions to the seller or a representative of the seller with regard to the marketing, offer, sale, or lease of the real estate, whether prior to or subsequent to the publication of the advertisement;
(4) counsels, advises, or offers suggestions to a potential buyer or a representative of the seller with regard to the purchase or rental of any advertised real estate; or
(5) engages in any other activity otherwise subject to licensure under this chapter;
(f) engages wholly or in part in the business of selling real estate to the extent that a pattern of real estate sales is established, whether or not the real estate is owned by the person. A person shall be presumed to be engaged in the business of selling real estate if the person engages as principal in five or more transactions during any 12-month period, unless the person is represented by a licensed real estate broker or salesperson.
This part particularly seems to discurage birddogging
4) counsels, advises, or offers suggestions to a potential buyer or a representative of the seller with regard to the purchase or rental of any advertised real estate
[ Edited by sanderso1019 on Date 02/27/2003 ]
sanderso1019,
Glad to meet you.
I am only looking at this through layman's eyes but this is how I see it.
4) counsels, advises, or offers suggestions to a potential buyer or a representative of the seller with regard to the purchase or rental of any advertised real estate
You are not dealing with a representative of the seller so this would be excluded.
I am thinking if you and I are friends and we went to look at a house you were interested in buying, you ask me what I think and I suggest to you I think it is a good deal, does this mean I need a license, I do not think so.
If the property is not advertised then this property would be excluded automatically. As it states 'any advertised real estate'.
I always suggest that in any course or book that is written by anyone including myself you always have a professional review your paperwork, because State Statutes differ from State to State.
The clause you are concerned with does not seem to stop you from Bird Dogging if the property is not advertised.
To take it one step further if you are a principal in any real estate transaction then you do not fall under licensing (period), meaning you could be a principal with your investor then when he buys you out (Bird Dog Fee) he is the sole principal in the transaction. This is legal in any State.
This is why we call it creative real estate investing.
John $Cash$ Locke
You raise a valid concern:
to let the first person off the hook.
Minnesota is very tough on their laws regarding flipping (i.e., birddogging). Well John's comments are well intentioned, they don't go far enough to meet Minnesota law. I have represented a couple of different persons on these issues in Minnesota (yes, I am a MN licensed attorney, but practice mainly tax law, although part of my practice deals with businesses and real estate).
What you can do is ensure that you are an investor in the transaction, rather than representing the investor. Simply signing a contract and assigning it to an investor may get you in trouble, as it will likely be viewed by MN Department of Commerce ("MNDOC" who is the policing authority for licensing activity) as flipping or activity which requires licensing.
What I suggest you do is talk with a knowledgeable real estate attorney about this and ask for ways to structure your activities to avoid these potential problems. Some people take the position that if you have signed the contract as a principal and assigned it over to an investor, you are representing yourself and are required to be licensed. That may be difficult to claim with a straight face if they find out you have done a lot of deals (10-20?) like that in one year. Some argue that even if you assign a contract, you still have liability on it because if under general contract law if the investor does not purchase the property, the seller can seek damages or specific performance against either the investor (primarily liable) or the assignee (secondarily liable) because the seller did not sign a release (called a "novation"
The safest way is to get licensed. Short of that, you might want to team up with a licensed person and set up a LLC in which you are an employee of the LLC and the LLC gets an entity broker's license. There are other ways to deal with this issue using options on the contract, etc. however, I would rather not go into them here. Send me your email address and I can make some suggestions.
And, as my lawyer caveat ... the information above is not meant as legal advice nor in anyway should be construed as establishing an attorney-client relationship from this post.
Sorry I could not be of more help, but your question is not an easy one to answer under Minnesota law because it really does depend on the specific facts of the way you operate and whether your activities constitute a business.
Taxjunkie
taxjunkie,
Glad to meet you.
I am glad to see a creative real estate thinking Attorney on the board.
There are ways to Bird Dog within the confines of the State Statutes of any State, this is why I recommend anyone doing any kind of real estate investing consult a professional.
I have never run into any State that requires licensing if you are a principal in a Real Estate Transaction, however I can always learn. My thinking was if the Bird Dog and the Investor where joint principals in the transaction and one person bought the other out, meaning the investor bought the Bird Dog out.
I have dealt with the Complaint and Compliance departments in many States and once I presented that I was a principal or those investors that I helped, that was the end of the story.
Welcome on board this board, your expertise is certainly welcome here.
John $Cash$ Locke
John:
I agree that there are ways to deal with the issue, but entering into the deal as a principal with the investor will not work if the investor is not willing to keep the birddog on throughout the purchase, but merely attempts to "buy him out of his contract rights." The regulatory agency investigators do not analyze these situations in a vacuum. They will start inquiring about the number of deals that the birddog has done and whether they have assigned all of their contract rights in the past (thus almost never going on title or having a continuing equity interest). What I have done with some of my birddogs is to form an LLC and give the birddog a preferred equity interest in the LLC, which may have put or call options at specified times in the future. While the birddog does not get his $$$ right away, I usually make it a sweeter deal by giving them an equity kicker if the deal turns out better than we anticipated, especially if the property is being rehabbed and then resold.
MN is a unique state in this area. I have invested in other states and the laws are not quite so tight on the birddogging. I can tell you MN's DOC is very tough on flipping situations.
The last thing a birddog wants to have happen is to go through an investigation process with the regulatory agency. It usually scares the #@%& out of them, especially if they have never dealt with the process. In my experience, explaining to the investigator that you are a principal is usually not enough. The investigators think like cops and believe anything you tell them is probably a lie. In any case, they can't dismiss the investigation without a complete investigation. That takes time and causes anxiety to the birddog. In any case, I would not take the issue lightly because in some states the violation is a criminal act (albeit usually a misdemeanor).
Usually most good birddogs are doing it to gain experience and money until they can build up enough cash to do most of the deals themselves (i.e., more profit for them).
With some of my birddogs I have entered into "spotting agreements" whereby they point out the property and I negotiate the purchase. If I secure the property, I then pay the fee. This is usually not a problem with the licensing law because the birddog is not negotiating the deal or representing anyone in a legal sense. However, the spotting deal requires some comfort level between the birddog and the investor. I personally like to negotiate my own deals since I have found very few birddogs have sufficient legal protections written into their contracts to deal with the "what ifs" in the future, especially after the deal has closed (yes, contract provisions can survive a closing and do not merge into title if drafted correctly). In the long run a investor that is interested in finding great deals will be fair to the birddog and pay them generously so that the birddog keeps spotting great value properties. It is similar to hunting grouse in the woods. If you have a good hunting dog, the dog does not run off ahead of the hunter, but rather remains close to the hunter so that the two, as a team, can bag more grouse.
Anyway, that's my 2 cents worth (and some may say its not even worth that much!!!)
Regards,
Taxjunkie
Thanks for the replies. It helped out alot. I guess I need to do a little more research before I get started. I dont know how open investors are going to be to starting an LLC just so I can lead them to a good deal on a house. It costs money to start LLC's and if I never send them any good deals, they are out that money. Maybe I will just look at other ways to invest. Unfortanantly, most seem to require at least a couple of thousand dollars to start and I dont even have a couple of hundred. It seems I cant do flips either based on your reply. Oh well, I will find something. Thanks again.
Quote:
On 2003-02-28 01:54, sanderso1019 wrote:
Thanks for the replies. It helped out alot. I guess I need to do a little more research before I get started. I dont know how open investors are going to be to starting an LLC just so I can lead them to a good deal on a house. It costs money to start LLC's and if I never send them any good deals, they are out that money. Maybe I will just look at other ways to invest. Unfortanantly, most seem to require at least a couple of thousand dollars to start and I dont even have a couple of hundred. It seems I cant do flips either based on your reply. Oh well, I will find something. Thanks again. <IMG SRC="images/forum/smilies/icon_smile.gif">
A spotting agreement might be cheapest and best way for you to proceed. The agreement can even be verbal. I would not worry about the flipping problem at the beginning, because if you read the statute, they set a threshold of properties before it says you should be licensed. Find a couple of good deals, tie them up and then assign them over to an investor. When you haven't done very many assignments like that, I don't think you have a flipping problem. After you have done more than the statutory threshold amount (5), look at a spotting agreement or LLC. Heck, in my case, if I know I have a good birddog that has found me great deals in a few properties and assigned them over for a fee to the birddog, I would easily foot the cost of forming an LLC for future ventures, besides paying a good referral fee. Since I made a good profit, I will also invest in my birddogs because that is the best use of my time and money.
The point is if you are a good birddog, the investor needs you more than you need them. Most REI first starting out think money is the major hurdle to doing deals. Not so. You find a great deal and I will guarantee that the money will find you. I personally know many people that can quickly evaluate whether a deal is good and will have the cash to close the deal put up with the title company in a day or two.
Don't let a few hurdles slow you down. The statute says nothing about investigating properties on your own. The statute will only become an issue after you have done a few birddog deals. But by that time you have made some $$$$ and modify your methods to legally avoid the licensing problems.
Hope that helps,
Taxjunkie