Need Help Concerning Basic Creative RE Principle

Okay, guys and gals, I've done my part to help others here, so now I'm hoping to get some assistance myself. I'm helping a colleague to learn the sandwich leasing concept, and his wife is an attorney. They live in NC. She says that she looked up the law pertaining to real estate agents in NC, and that there are a few exceptions to licensing and selling property (being the owner, bankruptcy court, etc.), but the law does not specifically list as an exception having a Contract or Option on the property; therefore, flipping (and sandwich lease options) would be illegal. I doubt that any state licensing board will specifically list this as an exception to licensing. Now, we all know that if you have a Contract or Option to BUY a property, it also conveys the right to SELL it, because you would be a party in the transaction. She also called the licensing board, and they said only licensed agents can sell real estate (except for the exceptions listed). Any idea as to how to best respond to her?

Comments(16)

  • mykle28th August, 2004

    I'm not a real creative type investor, so this isn't coming from a ton of creative experience, just what I see as logic, and based on stock trading.

    If you never take ownership of the property you aren't actually selling the property. What you are selling is the contract, or the option.

    Lets say it's illegal to sell stock unless you own it, (before anyone says that it is illegal remember shorting)... I could buy and sell options endlessly and never have bought or sold a single share of stock. There doesn't need to be an exception to the "can't sell stock" rule because what I'm doing is a totally seperate activity not affected at all by the rules for stock selling.

  • Cashoncash228th August, 2004

    Just a idea I live in VErmont and the laws are pritty much the same. Is there any way you could do the closings so that you own it even if its only for a min. The other thing is that It may be a case of the laywer reading to much in to the law after all it is all Samantics. In vermont you are required a license if you are seeing muti property at the same time. You can sell one at a time and its leagal. The other option is the law probable dose not say who much of the property you need to own. I have a friend that is going this route. He gets people to give him a persentage of the property 1% while he is selling it.
    Just a couple of things you could check. The secratery of state should be able to give you there interpatation on your Real Estate laws. John

  • commercialking28th August, 2004

    Well, from one King to another:

    I am not an expert in NC law and they do seem to be attempting to expand the definition of what constitutes a transaction requiring a license down that way.

    However, having the option to buy makes you a principal in the transaction. A principal has the right to buy, sell, rent or otherwise dispose of his property. Whether that property is real estate or personal property (the contract) is irrelevant. The legal concept is Equitable Title. Any Contract to Purchase or Option to Purchase gives you an Equitable interest in the title and makes you an owner or principal. So the exception to the NC licensing law on which you are relying is the ownership exception not some exception related to the type of transaction. As an eqitable owner of the property you may dispose of or otherwise manage your property in any way you see fit within the general confines of the law. You may not, for example grow marijauna or dump toxic waste.

    An easier example of the division between Equitable and Legal title is a Land Trust. In a LT legal title (i.e. is the owner of record at the county Recorder of Deeds office) rests with the Trustee. But the beneficiary of the trust holds Equitable title, . If equitable title did not convey the same rights of ownership as legal title then every person who holds title to a property in a land trust would be required to have a real estate license in order to manage or sell their own property.

    By contrast the Licensing laws have always been about regulating those who collect fees or commissions for assisting in the sale of real property which belongs to others. They are not principals, they do not hold eqitable or legal title. In essence, anytime you make money or other consideration for putting buyers and sellers or landlords and tenants together in a transaction in which you are not a principal you need to have a license.

    Now how to respond to "her"? A wife, who is an attny (already a difficult audience) and has a certain amount of prejudice against a business proposal you are making to her husband. I have no suggestions.
    grin [ Edited by commercialking on Date 08/28/2004 ]

  • learntherules28th August, 2004

    Sounds like wifey is going to be a challenge especially if she IS NOT a RE attorney. If they are not on board with your [CommericalKing's] explanation, then help them learn by doing (i.e. shadow you w/one of your deals).

    Well said CommercialKing! You answered alot of questions I had about this type of CREI. Thank you.

    mykle, great analogy! I worked on the NYSE for a bit.

  • LeaseOptionKing28th August, 2004

    Thanks, CK! *bows humbly*

  • rajwarrior28th August, 2004

    To answer her,

    Maybe she should be talking to another attorney, one who is more experienced in RE transactions than she obviously is, instead of the local MLS board.

    Of course the licensing board is going to say it's illegal. EVERYTHING is illegal that takes money out of their pockets (ie, no agent getting involved in the sell).

    I don't think that all the investors that I personally know that are doing contract flips and sandwich L/Os in NC are conducting any illegal activities, especially since many have some of the best real estate attorneys around overseeing their deals.

    My suggestion to her would be to contact the local REIA and speak to them and their attorneys on the matter.

    Don't know where they are, but I'd recommend Larry Goins. He is a channel partner here at TCI and the current president of Metrolina REIA in Charlotte, NC. He has a very active RE business and deals in this on a daily basis. The website is www.metrolina.org

    Roger

  • LeaseOptionKing28th August, 2004

    Thanks, everyone. She also said that a deed of trust requires the lender to be notified if there is a sale and that an attorney who instructs his/her client to breach a contract (sub2) could be disbarred. I tried to explain that, yes, it is a breach of contract and the lender can choose to exercise its lawful right to call the note due, but that it isn't a crime. Heck, in some cases, it might be in the client's best interest to commit a breach. smile

  • rajwarrior30th August, 2004

    Actually, LOK, she is wrong about the deed of trust thing. What I've seen when running my title searches is that several lenders have started recording a separate document along with the deed of trust that basically says that if there is a change in title that the lender must be notified.

    Now, if you run across one of those, the attorney probably would get disbarred for not notifying the lender, IF the deed was changed. But in a L/O transaction it is not. Actually, a L/O contract is one of the very few NC real estate contracts that do not require the use of an attorney (unless you are going to record it).

    Roger

  • AndrewKT30th August, 2004

    Quote:Now, if you run across one of those, the attorney probably would get disbarred for not notifying the lender, IF the deed was changed. But in a L/O transaction it is not. Actually, a L/O contract is one of the very few NC real estate contracts that do not require the use of an attorney (unless you are going to record it).

    Could you list(here or in a new topic) the contracts you've come across that do/don't require the use of an attorney in NC?

  • rajwarrior30th August, 2004

    Andrew,

    Any contract that you use should be drafted, or at the least, approved by a local real estate attorney just to make sure that it is legal within the state, and that it covers you as it should.

    If you need to have something recorded in NC, you need to go through an attorney. At least in the counties that I work in, you personally cannot go to the courthouse and record something. All recorded documents must be submitted by an attorney.

    Roger

  • birddoglasvegas31st August, 2004

    Hi LeaseOptionKing, I'm a new member here but have been reading the forums for some time now and really enjoy your posts...so thank you for all of your great information! I am a full-time corporate paralegal in Las Vegas, NV for companies which own and manage several properties...in my experience, it is not uncommon for attorneys to misconstrue certain laws when they do not specialize in Real Estate law...although we handle much of the RE work in-house, we also have outside RE attorneys as well...commercialking provided an excellent explanation! You definately have a tough customer to convince but knowing me I would be consulting with an experienced RE attorney in my state...and then I would probably share the attorney's contact information with her smile

  • dealfinder1st September, 2004

    KUDOS to CommercialKing for taking of his time to give us all such a great explanation on this topic. It sure helped me with some questions that were going around in my head as I am just about finished with a rehab that I have on an L/O that I intend to sell or L/O.

    This site has some great people that seem always willing to help. CommercialKing is definitely one of the above.

    Just one man's opinion.

    Dave
    [addsig]

  • LeaseOptionKing1st September, 2004

    Thanks, bdlv! smile

  • ibpepper21st September, 2004

    Another newbie here ! But I do have a comment about the "Only Licensed R/E Agents can sell Real Estate. When I first started placing ads in the newspaper I was contacted by the Dept of Real Estate (California) asking me questions. Among them was "Do you Buy or Sell Real Estate for others or for yourself?" The Dept explained that if I buy or sell for myself then I don't need a license, If I take on other peoples property and sell or buy for them, I need a license" When I said I only buy for myself and my LLC, and I only sell to benefit myself or LLC, He said that's fine , I didn't need a license. After which he sent me a letter with the parts of the R/E law that explained this whole line of questioning.
    SO... If you are selling property for the homeowner and charging a fee...you need a license. Contact your Department of Real Estate and ask them to send you a copy of the law.

  • arytkatz1st September, 2004

    LOK:
    Check out this article here on TCI from John Locke regarding NC creative investing:
    http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=623&mode=flat&order=0&thold=0

    Andy

  • LeaseOptionKing1st September, 2004

    I already sent it to him and his wife yesterday. smile By the way, a special thanks to Mr. Locke! You rock, John Locke!

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