Oklahoma Law Review Oklahoma Law Review
Volume 74 Number 2
2022
A Whole Sale or Wholesaling: Regulating the Wild West of Real A Whole Sale or Wholesaling: Regulating the Wild West of Real
Estate Purchase Contract Resale Estate Purchase Contract Resale
Rebecca Braun-Harrison
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Recommended Citation Recommended Citation
Rebecca Braun-Harrison,
A Whole Sale or Wholesaling: Regulating the Wild West of Real Estate Purchase
Contract Resale
, 74 OKLA. L. REV. 147 (2022),
https://digitalcommons.law.ou.edu/olr/vol74/iss2/4
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147
A Whole Sale or Wholesaling: Regulating the Wild West
of Real Estate Purchase Contract Resale
I. Introduction
In recent years, states have confronted how to regulate real estate
wholesaling.
1
Wholesaling occurs when an individual enters into a real
estate purchase contract and subsequently markets and sells an assignment
of that contract.
2
The assignment process has been likened to “tell[ing] your
girlfriend you want to marry her and on the wedding day, she finds out you
got paid to hand her off to some other guy.”
3
Wholesalers earn a profit by
“‘flip[ing]’ the contract [assignment] to [a] buyer for a fee.”
4
A typical
wholesaler assigns the purchase contract before the closing date.
5
Some
wholesalers, however, have full ownership over the properties they resell.
6
Given the difference in wholesaling operation styles, it is unsurprising that
the practice is portrayed as a Jekyll and Hyde situation: a brilliant
investment strategy that grows fortunes versus a predatory practice that
evades licensing standards.
7
The practice of wholesaling has been portrayed as a high-reward but
high-risk practice. Wholesaling is described by some as a “short-term real
estate investment strategy that can be utilized to create quick profits.”
8
Popular investment strategy books tout the benefits of using “contingency
1
. See Jason R. Davis, Is Wholesaling Legal?, DAVIS FIRM, PLLC (Mar. 11, 2019),
https://www.davisfirmpllc.com/post/is-wholesaling-legal.
2
. THAN MERRILL, THE REAL ESTATE WHOLESALING BIBLE: THE FASTEST, EASIEST
WAY TO GET STARTED IN REAL ESTATE INVESTING 9–10 (2014).
3
. Brett Snodgrass, Why Assigning Contracts Is One of the Worst Business Models for
Real Estate Wholesalers, BIGGERPOCKETS (Jan. 26, 2016), https://www.biggerpockets.com/
blog/2016-01-26-assigning-contracts-stupid-business-models-real-estate-wholesalers.
4
. Elizabeth Youngling, “You Are the Architect of Your Own Success”: Selling
Financial Freedom Through Real Estate Investment After the Foreclosure Crisis of 2008, 7
ECON. ANTHROPOLOGY 108, 118 n.11 (2020).
5
. Eddie Roach, Local Agents Reveal Pitfalls of Selling a Home ‘As-Is’ in Online
Seminar, OKLAHOMAN (Mar. 17, 2020, 12:01 AM), https://oklahoman.com/article/5657247/
avoid-pitfalls-of-selling-home-as-is.
6
. See, e.g., About Us, NATURE’S HOMES, LLC, https://natureshomesllc.manage
building.com/Resident/public/custom/22 (last visited Jan. 14, 2021) (listing an investment
company’s wholesale properties on its site) (“Nature’s Homes does not manage or sell 3rd
party properties. We own the properties that are listed and continue to seek more properties
in which to invest.”).
7
. See Youngling, supra note 4, at 117.
8
. MERRILL, supra note 2, at 9.
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148 OKLAHOMA LAW REVIEW [Vol. 74:147
clauses in the contract” and “relatively small deposit[s]” to gain control of a
property assignment that a wholesaler can market for a large profit with
little risk.
9
Wholesaling, often branded as real estate investment, is
described as a simple starting point for new real estate investors.
10
In the
wake of the late 2000s recession and housing crisis, seminars focused on
real estate investment encouraged wholesalers “[w]ith no money of their
own . . . [to] become wholesalers and ‘flip the paper’ rather than the
house.”
11
Seminar leaders failed to disclose the dangers of wholesaling,
such as borrowing at high interest rates and being unable to meet payment
obligations if a buyer cannot be found.
12
The use of high-interest rate loans
is not the only predatory practice pervasive in wholesaling.
The link between wholesaling and the 2000s housing crisis extends
beyond the increasing popularity of the process; wholesaling has been
likened to predatory lending practices because it often takes advantage of
sellers in financial distress.
13
The potential hazards of wholesaling impact
more than the individual seller, since “predatory real estate schemes to
capture home equity . . . destabilize regional real estate markets.”
14
Real
estate professionals caution that the oversimplification of the process and
lack of guidance from industry professionals can leave sellers exposed.
15
The exposure is heightened if the wholesaler does not have the funding at
closing and has not located a buyer to purchase the contract assignment.
16
Further, some wholesale operations are blatant scams aimed at taking
advantage of elderly homeowners.
17
The contrast between the portrayal of
the practice by wholesalers seeking profit and by real estate professionals
seeking to protect their profession begs the question: is wholesaling real
estate harmless in all forms, and if not, how should it be regulated?
9
. E.g., id. at 11.
10
. DC Fawcett, Five Things to Know About Real Estate Wholesaling, FORBES (Mar.
17, 2020, 8:00 AM EDT), https://www.forbes.com/sites/forbesrealestatecouncil/2020/03/17/
five-things-to-know-about-real-estate-wholesaling/#7e18e50270a3.
11
. Youngling, supra note 4, at 115.
12
. See id.
13
. Brian Parkinson, Note, Caveat Venditor: Predatory Purchasing in the Post-Boom
Residential Real Estate Market, 2 NE. U. L.J. 41, 42–43 (2010).
14
. Id. at 47.
15
. Roach, supra note 5.
16
. Id.
17
. Id.
https://digitalcommons.law.ou.edu/olr/vol74/iss2/4
2022] COMMENTS 149
Although wholesaling has been linked to the practices that led to the
housing crises, few states have directly addressed wholesaling.
18
Oklahoma,
however, is attempting to join the ranks of Illinois, Arkansas, and Texas in
addressing real estate wholesaling concerns. This Comment explores the
public interest hazards associated with real estate wholesaling and reviews
the current conditions of Oklahoma, Illinois, Arkansas, and Texas real
estate wholesaling regulation, including legislation, administrative rules,
policy considerations, and political drivers. This Comment suggests a path
forward for future Oklahoma legislation and, in the alternative, explores
reframing licensable activity under the current rules in a way that would
enable regulation of real estate wholesalers without new legislation.
II. Public Interest Concerns of Wholesaling
In recent years the news has been filled with cautionary tales of sellers
harmed by unscrupulous wholesalers.
19
For example, in November 2019, a
Georgia news station covered the story of an “elderly woman [found] on the
side of the road with her belongings while the wholesalers who bought her
home cleared it out.”
20
The wholesalers used tactics, best characterized as
undue influence over the woman, including visiting her house daily and
pestering her to sell the property.
21
The purchase from the elderly woman
was for approximately $145,000 less than the estimated value, and to add
insult to injury, the wholesalers sold the property for a $35,000 profit the
same day.
22
Although Georgia’s Department of Human Services indicates
“deceiving an elder to buy their home at [a] bargain could be a crime,” the
18
. See generally Marcus Maloney, Warning: New Wholesaling Law Enacted in Illinois
(& Why Your State Might Be Next!), BIGGERPOCKETS (Sept. 21, 2019), https://www.bigger
pockets.com/blog/real-estate-wholesaling-new-legislation-illinois (noting that wholesaling
legislation has yet to be enacted on a national level).
19
. See, e.g., Jacob Adelman & Craig R. McCoy, In Gentrifying Philly, Speculators Pay
Heirs Peanuts — Then Flip Their Properties for Massive Gains, PHILA. INQUIRER (Sept. 27,
2019), https://www.inquirer.com/real-estate/housing/philadelphia-real-estate-flippers-gentri
fication-heirs-inheritance-20190927.html (reporting that wholesalers in Philadelphia buy at a
low cost, often from estates, and sell for high profits).
20
. Justin Gray & Terah Boyd, Buyer Beware: Are Wholesalers Taking Advantage of
Elderly Home Sellers?, WSB-TV (Nov. 21, 2019, 7:44 PM), https://www.wsbtv.com/news/
2-investigates/buyer-beware-are-wholesalers-taking-advantage-of-elderly-home-sellers-/101
0860933/.
21
. Id.
22
. Id.
Published by University of Oklahoma College of Law Digital Commons, 2022
150 OKLAHOMA LAW REVIEW [Vol. 74:147
news station pointed out that it “ha[d] not found evidence that the
wholesalers ha[d] committed a crime.”
23
Unscrupulous wholesaling can victimize individuals; moreover, it may
have negative impacts on society. Canadian realtors assert that “money
laundering is a big concern in assignment-flipping deals.”
24
In the United
States, the FBI indicates that money laundering is often accomplished
through real estate purchases, which remove properties from the reach of
authentic buyers.
25
In Oklahoma, federal courts have prosecuted real estate
investors for money laundering and other crimes linked with real estate
activities.
26
Although neither of these federal divisions directly implicate
wholesaling, they both show a direct link between money laundering and
real estate activity that could be further exploited through unlicensed
wholesaling activities.
27
The macro-level and micro-level hazards associated with the practice
illustrate that the regulation of real estate wholesaling is a balance between
protecting the public interest and enacting a workable regulatory scheme.
28
Gaining control of the practice of wholesaling has been a unique challenge
for states—primarily because states are reticent to require a real estate
23
. Id.
24
. Ben Ngai, ‘We’re Not Realtors!’ Former ‘Wholesaler’ Reveals Hidden Dark Side of
Vancouver’s Red-Hot Real Estate Market, NAT’L POST (Mar. 9, 2016), https://nationalpost.
com/news/canada/were-not-realtors-former-wholesaler-reveals-hidden-dark-side-of-vancou
vers-red-hot-real-estate-market.
25
. Statement of Steven M. D’Antuono, Section Chief, Criminal Investigative Division,
FBI, for Hearing Entitled “Combatting Money Laundering and Other Forms of Illicit
Finance: Regulator and Law Enforcement Perspectives on Reform,” U.S. SENATE COMM. ON
BANKING, HOUS. & URB. AFFS. 4–5 (Nov. 29, 2018), https://www.banking.senate.gov/imo/
media/doc/D'Antuono%20Testimony%2011-29-18.pdf (detailing ways real estate
transactions are used to launder money).
26
. Press Release, U.S. Attorney’s Office, W.D. Okla., Jury Finds City Man Guilty of
Conspiracy, Wire Fraud, and Money Laundering in Real Estate Investment Ponzi Scheme
(Apr. 16, 2012), https://archives.fbi.gov/archives/oklahomacity/press-releases/2012/jury-
finds-city-man-guilty-of-conspiracy-wire-fraud-and-money-laundering-in-real-estate-
investment-ponzi-scheme.
27
. See OFF. OF REGUL. ANALYSIS, FIN. CRIMES ENF’T NETWORK, MONEY LAUNDERING
IN THE COMMERCIAL REAL ESTATE INDUSTRY: AN ASSESSMENT BASED UPON SUSPICIOUS
ACTIVITY REPORT FILING ANALYSIS 14 (2006), https://www.fincen.gov/sites/default/files/
shared/commercial_real_estate_assessment_final.pdf.
28
. See, e.g., Jon Broadbooks, Real Estate License Act (RELA) Signed into Law, ILL.
REALTORS
®
(Aug. 12, 2019), https://www.illinoisrealtors.org/blog/rela-signed-into-law/.
https://digitalcommons.law.ou.edu/olr/vol74/iss2/4
2022] COMMENTS 151
license for an owner to sell his or her property.
29
The concerns about
wholesaling parallel the concerns of the 2000s housing crisis, which
ironically spawned the wholesaling movement.
30
The drive to regulate
wholesaling echoes the concerns Senator Chuck Grassley addressed when
discussing the legal changes necessary in the wake of the 2000s housing
crisis.
31
Senator Grassley stated, “Unfortunately, throughout the housing
crisis we’ve seen innocent homeowners who have been victims of . . .
unscrupulous individuals who have used a down market to line their
own pockets at the expense of others. This bill is designed to send
a message . . . .”
32
The housing crisis legislation was reactive; now,
legislators have a chance to take a proactive approach to real estate
wholesaling.
III. Current Wholesaling Regulations in Oklahoma
During the Second Regular Session of the 57th Oklahoma Legislature,
lawmakers introduced the Predatory Real Estate Wholesaler Prohibition Act
(House Bill 3104).
33
The Bill would have altered the ownership exception
for real estate licensing to prohibit unlicensed parties from “publicly
market[ing] for sale an equitable interest in a contract for the purchase of
real property between a property owner and a prospective purchaser.”
34
The
Bill overwhelmingly passed in the Oklahoma House of Representatives,
35
but it failed to be enacted when the legislative session adjourned for the
29
. See, e.g., Doug Emde, Chairman’s Corner, OKLA. REAL EST. COMM’N COMMENT
(Okla. Real Est. Comm'n), May 2019, https://content.govdelivery.com/accounts/OKREC/
bulletins/231b9c4 [hereinafter Emde, Chairman’s Corner].
30
. See Youngling, supra note 4, at 109.
31
. News Release, Sen. Chuck Grassley, Grassley, Leahy Introduce Anti-Fraud
Legislation (Feb. 5, 2009), https://www.grassley.senate.gov/news/news-releases/grassley-
leahy-introduce-anti-fraud-legislation (addressing the need to pass the Fraud Enforcement
and Recovery Act to provide funding to “enforcement agencies to combat mortgage fraud
and predatory lending”).
32
. Id.
33
. H.B. 3104, 57th Leg. (Okla. 2020) (engrossed), http://webserver1.
lsb.state.ok.us/cf_pdf/2019-20%20ENGR/hB/HB3104%20ENGR.PDF [hereinafter H.B.
3104].
34
. Id.
35
. Votes on H.B. 3104, OKLA. STATE LEG., http://webserver1.lsb.state.ok.us/cf/2019-
20%20SUPPORT%20DOCUMENTS/votes/House/HB3104_VOTES.HTM#RCS1196 (last
visited Aug. 21, 2021).
Published by University of Oklahoma College of Law Digital Commons, 2022
152 OKLAHOMA LAW REVIEW [Vol. 74:147
term on May 29, 2020.
36
Thus, the practice of real estate wholesaling
remains unregulated in Oklahoma.
Currently, the Oklahoma Real Estate Commission (“OREC”) does not
classify the practice of wholesaling as a licensable activity.
37
Based on an
over twenty-five-year-old state trial court case, purchase contracts are
treated as an equitable interest in a property, which wholesalers use to
assert an exemption from licensing.
38
Real estate wholesalers in Oklahoma
use this case, paired with OREC’s unwritten policy of not taking
enforcement action against unlicensed wholesaling, to flout the Oklahoma
real estate licensing requirements.
39
Specifically, wholesalers indicate that
OREC “does not have an official policy [on wholesaling with purchase
contracts], but appears to have chosen to follow the reasoning of the 1994
Cleveland County decision: that binding contracts create sufficient
‘ownership’ in the wholesaler to allow them to sell the contract/house
without a real estate license.”
40
Wholesalers’ exemption from licensing
requirements, however, may impede OREC’s core purpose of protecting the
public.
41
Although wholesalers use the advantageous ownership exception
interpretation to avoid the current licensing code, bypassing licensing may
harm the public. The practice of wholesaling would require the wholesaler
36
. Oklahoma House Bill 3104 (Prior Session Legislation), LEGISCAN,
https://legiscan.com/OK/bill/HB3104/2020 (last visited Aug. 21, 2021) [hereinafter
Oklahoma House Bill 3104] (listing the status of House Bill 3104 as “50% progression, died
in committee”); Brad Boles, Column: 57th Legislature Adjourns Sine Die, DUNCAN BANNER
(May 29, 2020), https://www.duncanbanner.com/opinion/column-57th-legislature-adjourns-
sine-die/article_c7db62ae-a1d6-11ea-8276-ff87a04ee45e.html (reporting the date of
adjournment for the 57th Legislature).
37
. See, e.g., Emde, Chairman’s Corner, supra note 29 (indicating that wholesaling
“keeps bringing complaints to the [agency] and [it is] trying to come up with a plan to
address this issue”).
38
. See State ex rel. Okla. Real Est. Comm’n v. Cheshier, No. CJ-94-259 BH, at 3 (Dist.
Ct. Cleveland Cnty. Oct. 14, 1994) (holding that a future purchaser “becomes the ‘owner’ of
the real estate at the time the contract is entered”).
39
. See Casey Gray, Wholesaling Real Estate in Oklahoma (n.d.), reprinted in Matt
Stacy, Comment to Wholesaling in Oklahoma, BIGGERPOCKETS, https://www.biggerpockets.
com/forums/93/topics/394515-wholesaling-in-oklahoma (last visited Sept. 3, 2021).
40
. Id.
41
. See Lodes v. State ex rel. Okla. Real Est. Comm’n, 1992 OK CIV APP 23, ¶ 4, 837
P.2d 925, 926 (“One of the long-recognized purposes of Oklahoma’s real estate licensing
law is the regulation of the business of selling real estate . . . for the protection of those
members of the public who wished to buy real estate . . . .”).
https://digitalcommons.law.ou.edu/olr/vol74/iss2/4
2022] COMMENTS 153
to be a licensed broker or agent in Oklahoma if the ownership exception
was narrowly construed. A real estate license is required in Oklahoma to
“act as a real estate licensee, or hold [oneself] out as such.”
42
To put it
plainly, if you perform the duties of a realtor or real estate broker or pretend
to be one, you need a real estate license.
43
A licensee is “any person who
performs any act, acts or transactions set out in the definition of a broker.”
44
Oklahoma defines a broker as
any person, partnership, association or corporation, foreign or
domestic, who for a fee, commission or other valuable
consideration, or who with the intention or expectation of
receiving or collecting a fee, commission or other valuable
consideration, lists, sells or offers to sell, buys or offers to buy,
exchanges, rents or leases any real estate, or who negotiates or
attempts to negotiate any such activity, or solicits listings of
places for rent or lease, or solicits for prospective tenants,
purchasers or sellers, or who advertises or holds himself out as
engaged in such activities.
45
Under this definition, a wholesaler would be performing licensable
activities.
46
However, Oklahoma provides a list of exceptions to licensing,
including ownership.
47
Wholesalers use the licensing requirements’
ownership exemption to avoid OREC enforcement action.
48
Oklahoma exempts any person or entity that is an “owner, lessor or
lessee of real estate” from licensing when “selling, renting, leasing,
exchanging, or offering to sell, rent, lease or exchange, any real estate so
owned or leased.”
49
Wholesalers claim that executing a contract to purchase
property makes the purchaser an “owner” of the subject property and thus
the assignment of that contract does not require a license.
50
This argument
42
. 59 OKLA. STAT. § 858-301 (West, Westlaw through 1st Reg. 2021 Sess.).
43
. Id.
44
. Id. § 858-102(11).
45
. Id. § 858-102(2).
46
. See id.
47
. Id. § 858-301(1).
48
. See Emde, Chairman’s Corner, supra note 29.
49
. 59 OKLA. STAT. § 858-301(1).
50
. See Gray, supra note 39; see also State ex rel. Okla. Real Est. Comm’n v. Cheshier,
No. CJ-94-259 BH (Dist. Ct. Cleveland Cnty. Oct. 14, 1994) (addressing the employee of a
home builder who sold assignments of contracts to purchase real estate without a real estate
license claiming the contract was an ownership of real estate under the statutory definition).
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154 OKLAHOMA LAW REVIEW [Vol. 74:147
is plausible because the Oklahoma Real Estate License Code defines “real
estate” as “any interest or estate in real property, . . . whether vested,
contingent or future.”
51
Oklahoma expressly articulates that future interests
are encompassed in the definition of real estate.
52
Therefore, according to
this argument, the purchase contract is a “contingent or future” interest in
the property.
53
Standing alone, the definition of real estate would not be
problematic; paired with the ownership exception, however, it is
problematic.
Wholesalers exploit the expansive definition of real estate to assert that a
purchase contract is a future ownership interest in the property, which
allows them to evade real estate licensing requirements.
54
An Oklahoma
trial court adopted this interpretation in 1994.
55
It indicated that failure to
define ownership in the statute, but making “real estate” a defined term,
supports the contention that a future purchaser “becomes the ‘owner’ of the
real estate at the time the contract is entered.”
56
It is unclear, however,
whether a purchase contract with no intention to finalize is a future or
contingent interest in a property.
57
The practice of wholesaling could be
licensable real estate activity in Oklahoma if the definition of ownership
was redefined to remove contingent and future interests or, alternatively, if
the ownership exception was more narrowly construed.
58
Having failed to enact legislative prohibitions
59
and after identifying the
problem as a broadly construed ownership exception,
60
interested parties
may be tempted to resolve the wholesaling problem through administrative
agency action.
61
Altering the ownership exception through administrative
51
. 59 OKLA. STAT. § 858-102(1).
52
. Id.
53
. See id.
54
. See Emde, Chairman’s Corner, supra note 29.
55
. Cheshier, No. CJ-94-259 BH, at 3.
56
. Id. at 2–3.
57
. See infra Part VI.
58
. See infra Part VI.
59
. See Oklahoma House Bill 3104, supra note 36.
60
. See Emde, Chairman’s Corner, supra note 29.
61
. See Okla. Real Est. Comm’n, Regular Business Meeting Agenda (Sept. 9, 2020) (on
file with author) (referencing the Wholesaling Task Force charged with administrative
solutions to real estate wholesaling).
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2022] COMMENTS 155
action, however, faces additional barriers in Oklahoma.
62
The state
currently has a moderately sized regulatory code, which includes 9,286,099
words and a total of 143,962 restrictions.
63
Oklahoma agencies are
constrained by Governor Kevin Stitt’s Executive Order that requires a “1-
in-2-out” rule.
64
This rule prohibits state agencies from adding mandatory
rules without identifying two existing mandatory rules that can be
revoked.
65
This limitation potentially frustrates agency efforts to
promulgate enforcement regulations designed to monitor the practice of real
estate wholesaling.
Barriers in implementing new legislation,
66
enforcing existing
regulations,
67
and promulgating new regulations,
68
however, have not
impaired key stakeholders’ desire to regulate the practice of real estate
wholesaling.
69
In addition to Representatives Mike Osburn and Brian Hill’s
sponsorship of House Bill 3104, the Bill was also sponsored by Senator
Paul Rosino.
70
Senator Rosino’s sponsorship is notable because he is a
licensed realtor and broker in Oklahoma and owns Rosino Realty,
71
which
serves the Oklahoma City metro area.
72
All three congressional members’
sponsorship of the legislation is striking because they are Republican
62
. See Okla. Exec. Order No. 2020-03 (Feb. 3, 2020) (mandating that every new
mandatory administrative regulation implemented correlate with the abrogation of two
regulations within the code).
63
. Mercatus Ctr. at George Mason Univ., State RegData, QUANTGOV,
https://www.quantgov.org/state-regdata (last visited Aug. 21, 2021).
64
. Okla. Exec. Order No. 2020-03 (Feb. 3, 2020). National Executive Order 13,771
similarly directs that “whenever an . . . agency . . . publicly proposes for notice and comment
or otherwise promulgates a new regulation, [the agency] shall identify at least two existing
regulations to be repealed.” Exec. Order No. 13,771, 82 Fed. Reg. 9339 (Feb. 3, 2017).
65
. Okla. Exec. Order No. 2020-03 (Feb. 3, 2020).
66
. See, e.g., Oklahoma House Bill 3104, supra note 36.
67
. See, e.g., State ex rel. Okla. Real Est. Comm’n v. Cheshier, No. CJ-94-259 BH
(Dist. Ct. Cleveland Cnty. Oct. 14, 1994).
68
. See Okla. Exec. Order No. 2020-03 (Feb. 3, 2020).
69
. See Roach, supra note 5 (warning of wholesaling consequences to sellers); see also
Emde, Chairman’s Corner, supra note 29.
70
. H.B. 3104, supra note 33.
71
. Senator Paul Rosino, OKLA. SENATE, https://oksenate.gov/senators/paul-rosino (last
visited Aug. 21, 2021).
72
. Id.; see also About Us, ROSINO REALTY, https://www.rosinorealty.com/about/ (last
visited Aug. 21, 2021) (allowing users to search properties managed by Rosino Realty in
Oklahoma City).
Published by University of Oklahoma College of Law Digital Commons, 2022
156 OKLAHOMA LAW REVIEW [Vol. 74:147
representatives.
73
Traditionally, Republican politicians are reticent to
impose additional regulation because they believe it harms business
interests.
74
Further, attempts to implement new restrictive legislation in
Oklahoma are notable because, based upon a 2018 study, 46% of the state
is classified as Republican or leaning Republican.
75
The break from
traditional political party values may indicate that outside concerns or
pressures are shaping wholesaling regulation attempts in Oklahoma.
Support for wholesaling regulation is not constrained to the Legislature;
other key stakeholders have indicated a desire to regulate the practice.
76
OREC has indicated that the practice “keeps bringing complaints to the
Commission and [it is] trying to come up with a plan to address this issue
without restricting the ability of . . . property owner[s] to sell their property
on their own.”
77
Further, wholesaling is the topic of a special task force for
OREC as it strives to develop a balanced plan.
78
Additionally, Oklahoma
realtors have undertaken a public education campaign to inform consumers
about the dangers they perceive in real estate wholesalers.
79
Realtors warn
consumers that “[w]ithout an advocate and guide to direct the process,
people are often taken advantage of.”
80
With a desire to craft a plan to
address real estate wholesaling, it is appropriate to evaluate other states’
73
. Representative Mike Osburn, OKLA. STATE LEGIS.: HOUSE OF REPRESENTATIVES,
https://okhouse.gov/Members/District.aspx?District=81 (last visited Aug. 21, 2021);
Representative Brian Hill, OKLA. STATE LEGIS.: HOUSE OF REPRESENTATIVES,
https://okhouse.gov/Members/District.aspx?District=47 (last visited Aug. 21, 2021); Senator
Paul Rosino, supra note 71.
74
. See generally The Partisan Divide on Political Values Grows Even Wider: 2.
Government, Regulation and the Social Safety Net, PEW RSCH. CTR. (Oct. 5, 2017),
https://www.pewresearch.org/politics/2017/10/05/2-government-regulation-and-the-social-
safety-net/ [hereinafter The Partisan Divide Grows Even Wider] (“Two-thirds of Democrats
(66%) say government regulation of business is necessary to protect the public interest. . . .
Just 31% of Republicans say government regulation of business is needed; about twice as
many say such regulation ‘usually does more harm than good.’”); Gerhard Peters & John T.
Woolley, Republican Party Platforms: Republican Party Platform of 1980, AM. PRESIDENCY
PROJECT (July 15, 1980), https://www.presidency.ucsb.edu/documents/republican-party-
platform-1980 (discussing the need to limit federal regulation for small business growth).
75
. Jeffrey M. Jones, Democratic States Exceed Republican States by Four in 2018,
GALLUP (Feb. 22, 2019), https://news.gallup.com/poll/247025/democratic-states-exceed-
republican-states-four-2018.aspx.
76
. Emde, Chairman’s Corner, supra note 29; see also Roach, supra note 5.
77
. Emde, Chairman’s Corner, supra note 29.
78
. Id.
79
. See Roach, supra note 5.
80
. See id.
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schemes of real estate licensing and the regulations they have implemented
to address wholesaling.
IV. Multi-state Analysis of Wholesale Regulations
Illinois, Texas, and Arkansas each define licensable activity as any
activity that falls within the scope of a licensee equivalent to a broker.
81
These states each provide an exception to licensable activity that includes
some type of exemption for property owners.
82
However, each state takes a
different approach to regulating the practice of wholesaling. The spectrum
of policies ranges from Illinois effectively prohibiting unlicensed
wholesaling
83
to Texas expressly allowing unlicensed wholesaling if the
wholesaler meets certain conditions.
84
Two driving factors may shape implementing new state laws and
regulations: overall political party leanings of the state
85
and the level of
regulation already enacted in the state.
86
Politics and the size of the
regulatory state, however, cannot account for the unique legislative
approaches taken by states with facially similar metrics in those areas.
Additional factors help shape the unique legislation.
87
Gaining an
understanding of the driving factors behind wholesaling regulation requires
a state-by-state evaluation.
81
. 225 ILL. COMP. STAT. 454/1-10 (2019); see TEX. OCC. CODE ANN. § 1101.002(1)(A)
(West 2016); see ARK. CODE ANN. § 17-42-103(13) (2017).
82
. See 225 ILL. COMP. STAT. 454/1-10 (permitting a person to sell his own property
without a license once per year); TEX. OCC. CODE ANN. § 1101.004 (restricting the definition
of a broker to one who performs services for another); ARK. CODE ANN. § 17-42-
104(a)(1)(A), (10) (defining a broker as one who acts for another person rather than for
himself).
83
. See 225 ILL. COMP. STAT. 454/1-10.
84
. TEX. OCC. CODE ANN. § 1101.0045.
85
. See generally The Partisan Divide Grows Even Wider, supra note 74.
86
. See generally Sheri Berman, Review: Ideas, Norms, and Culture in Political
Analysis, 33 COMPAR. POL. 231, 236 (2001) (“New ideas do not enter an ideological
vacuum. They are inserted into a political space already occupied by historically formed
ideologies.”).
87
. See generally id. at 232 (“Economic development, cultural change and political
change go together in coherent and even, to some extent, predictable patterns.”).
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158 OKLAHOMA LAW REVIEW [Vol. 74:147
A. Illinois
Illinois prohibits unlicensed real estate wholesaling through a
combination of clearly defined licensable activities and limits on the
licensing exception for property owners.
88
1. Regulations
Illinois defines licensable activities as “activities listed in the definition
of ‘broker.’”
89
Illinois provides a broad definition for the term “broker” that
includes typical realtor actions performed “either directly or indirectly,”
such as receiving a commission, listing, advertising, selling, offering to sell,
or negotiating a “purchase, rental, or leasing of real estate.”
90
The act of
holding oneself out as a real estate professional or “procuring . . . leads or
prospects, intended to result in” licensable activities related to real estate
are also encompassed in the Illinois definition of a broker and are thereby
licensable activities.
91
Unfortunately, a detailed definition of licensable
activities is no guarantee against wholesaling.
In an attempt to bring real estate wholesaling under the licensing
requirements of the state, Illinois passed Public Act 101-0357.
92
The Act
updates the Real Estate License Act of 2000, and it alters the definition of a
broker to place a limit on the ownership exception to licensing.
93
The Act
limits the exception to a single transaction per rolling twelve-month
period.
94
As applied, this limitation requires a wholesaler to be licensed if
they perform more than one transaction per year.
95
Additionally, the Act
includes safeguards against shell entities by linking the yearly transaction
88
. 225 ILL. COMP. STAT. 454/1-10 (outlining licensable activities and limits under the
definition of “broker”). See generally Summary of SB 1872: The Real Estate License Act of
2000 (RELA), ILL. REALTORS
®
, https://www.illinoisrealtors.org/wp-content/uploads/2019/
07/IllinoisREALTORS_Summary_SB1872_v1.pdf (last visited Sept. 4, 2021) (referencing
changes to Illinois wholesaling regulations made in 2000).
89
. 225 ILL. COMP. STAT. 454/1-10.
90
. Id.
91
. Id.
92
. See Elizabeth A. Urbance, RELA: 5 Areas of Change to the Real Estate License Act,
ILL. REALTORS
®
(Aug. 12, 2019), https://www.illinoisrealtors.org/blog/sb-1872-rela-or-
real-estate-license-act-explained/.
93
. Pub. Act 101-0357, 2019 Ill. Legis. Serv. P.A. 101-357 (West) (codified at 225 ILL.
COMP. STAT. 454/1-10), https://www.ilga.gov/legislation/publicacts/101/PDF/101-0357.pdf.
94
. Id.
95
. See id.
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limit to interconnected individuals and entities.
96
The Illinois structure is
currently one of the strongest prohibitions against wholesaling without a
real estate license.
97
Under the auspice of providing strong public
protection,
98
Illinois substantially limits the ownership exception to
licensing. As of 2019, Illinois appears to have closed the loophole of an
ownership interest exempting a wholesaler from licensing requirements.
99
2. Policy Consideration and Political Drivers
Two key, sometimes overlapping, drivers shaped the initiative to close
the ownership exemption to licensing: lobbying efforts from regulated real
estate professionals and public interest concerns.
100
The 2019 amendments
to the Real Estate License Act of 2000 were shaped by the “work [of]
Illinois REALTORS® and the state Department of Financial and
Professional Regulation.”
101
The real estate industry, which pushed for the
reforms, articulated that “[a]t the core of the rewrite effort was the guiding
principle that consumers would benefit from additional protections.”
102
Further, the legislation “was initiated by the Illinois Association of
Realtors, which is part of the National Association of Realtors (NAR).”
103
The NAR is an organization that is active on local, state, and federal levels
and controls the REALTORS® Political Action Committee (“RPAC”).
104
In 2019, the NAR spent $41,241,006 on federal lobbying efforts, ranking
third on a list of profiled lobbying organizations.
105
The NAR’s
involvement in the legislation coupled with its “very strong lobbying body”
has led to speculation that additional states will consider and implement
licensing requirements that parallel the Illinois amendments affecting
96
. See id.
97
. See generally How to Wholesale Real Estate in Illinois—Ethically and Legally,
HOMEVESTORS (Sept. 9, 2020), https://homevestorsfranchise.com/blog/midwest/2020/09/
how-to-wholesale-real-estate-in-illinois-ethically-and-legally/.
98
. See Broadbooks, supra note 28.
99
. See How to Wholesale Real Estate in Illinois—Ethically and Legally, supra note 97.
100
. See Broadbooks, supra note 28.
101
. Id.
102
. Id.
103
. Maloney, supra note 18.
104
. Political Advocacy, NAT’L ASS’N REALTORS
®
, https://www.nar.realtor/political-
advocacy (last visited Aug. 21, 2021); see RPAC, NAT’L ASS’N REALTORS
®
, https://www.
nar.realtor/rpac (last visited Aug. 21, 2021).
105
. National Assn of Realtors, OPENSECRETS, https://www.opensecrets.org/orgs/
national-assn-of-realtors/summary?all=2020&id=D000000062 (last visited Aug. 21, 2021).
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160 OKLAHOMA LAW REVIEW [Vol. 74:147
wholesalers.
106
Lobbying efforts were likely more successful in Illinois
because of the political and regulatory composition of the state.
Of the states surveyed in this Comment, Illinois is the most Democratic-
leaning state, with 50% of the state reported as Democrat or leaning
Democrat.
107
Illinois also has the most voluminous regulatory code, which
includes 18,552,669 words and a total of 278,475 restrictions.
108
This
combination of factors indicates that Illinois is more likely to perceive
government regulation of business as necessary,
109
and is more accepting of
regulations because the state has normalized a comprehensive regulatory
code.
110
B. Arkansas
In contrast to the express Illinois prohibition of unlicensed wholesaling,
Arkansas has a more nuanced approach to constraining wholesalers.
Arkansas has attempted to limit unlicensed real estate wholesaling by
defining unlicensed activity and disqualifying wholesalers from utilizing
the ownership exception to licensing.
111
1. Regulations
The Arkansas Legislature directly defines “unlicensed real estate
activity” as “offering or engaging in any practice, act, or operation set forth
in [the definition of principal broker] without a valid active Arkansas
license issued by the commission.”
112
“Principal broker” is defined as “an
individual expecting to act or acting for another for a fee, commission, or
other consideration,” who performs any one activity of a list of twelve
categories of activities common to real estate professionals.
113
Common
activities include selling, negotiating, offering, and listing for “purchase,
106
. Maloney, supra note 18.
107
. Jones, supra note 75.
108
. Mercatus Ctr. at George Mason Univ., supra note 63. The RegCensus Explorer tool
gives access to data after choosing “Sub-national” level from the drop-down list and
searching “Illinois” with the search tool.
109
. See generally The Partisan Divide Grows Even Wider, supra note 74 (indicating
that Democrat politicians are more likely to support government regulation than Republican
politicians).
110
. See supra note 86.
111
. See ARK. CODE ANN. § 17-42-103(13) (2017); see also id. § 17-42-104(c)(1).
112
. Id. § 17-42-103(13).
113
. Id. § 17-42-103(10).
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rent, or lease real estate.”
114
The Arkansas Code articulates an extensive list
of exceptions to licensing requirements, and it includes an exemption for
property owners.
115
Arkansas’s ownership exemption, however, is not
absolute.
116
To qualify for an ownership exception to the licensing requirement, an
individual or entity must intend to own the property.
117
To properly confine
the ownership exception to licensing requirements, Arkansas adopted new
legislation.
118
In 2017, Arkansas added language clarifying that an owner
could not “qualify for an exception” when the owner “[o]btain[ed] an
equitable interest in real estate with knowledge that the interest was
obtained on behalf of a person or entity that intends to gain an interest in
the real estate other than that of ownership.”
119
The statute forbids the use
of the ownership exception when it is utilized “[s]trategically [to]
circumvent[] the requirement for licensure.”
120
The Arkansas exemption
language prevents real estate wholesalers from utilizing the ownership
exemption because wholesalers do not intend to own the property.
121
Further, misuse of the ownership exception comes at the risk of a Class D
felony.
122
The addition of an intent requirement and implementation of
strong penalties indicate that specific concerns may have shaped the
Arkansas legislation.
114
. Id.
115
. Id. § 17-42-104(a)(1) (stating that “owner[s] of an individual freehold or leasehold
interest in real estate” and “individual[s] attempting to acquire for [their] own use a freehold
or leasehold interest in real estate” are exempt from licensing requirements related to their
own properties).
116
. See id. § 17-42-104(c).
117
. See id.
118
. Although House Bill 1163 was withdrawn, nearly identical language appeared in the
final revisions to the statutes. The only change between the proposed language and what was
passed was the addition of clarifying language, “other than that of ownership.” Compare An
Act to Clarify Provisions Concerning Real Estate License Exceptions; and for Other
Purposes, H.B. 1163, 91st Gen. Assemb., Reg. Sess. § 2(c)(1) (Ark. 2017) [hereinafter H.B.
1163] (withdrawn), https://www.arkleg.state.ar.us/Bills/FTPDocument?path=%2FBills%2F
2017R%2FPublic%FHB1163.pdf with ARK. CODE ANN. § 17-42-104(c)(1).
119
. ARK. CODE ANN. § 17-42-104(c)(1).
120
. See id. § 17-42-104(c)(2).
121
. See generally Window to the Law: Real Estate Wholesaling, NAT’L ASS’N
REALTORS
®
(June 4, 2019), https://www.nar.realtor/window-to-the-law/real-estate-
wholesaling (“The wholesaler has no intention of actually purchasing the property and never
takes title to the property.”).
122
. See ARK. CODE ANN. § 17-42-105(d).
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162 OKLAHOMA LAW REVIEW [Vol. 74:147
2. Policy Consideration and Political Drivers
The statutory changes may have been triggered by a failure of
enforcement actions by the Arkansas Real Estate Commission (“AREC”)
against real estate wholesalers, such as in Stassi v. Isom.
123
In Stassi, AREC
attempted to assert that a wholesaler engaged in unlicensed real estate
activity.
124
The Arkansas Court of Appeals, however, held the AREC “did
not address and decide the [ownership] ‘exemption’” argued at the trial
level.
125
The AREC’s prosecution in Stassi, which occurred before the 2017
clarification language was added, indicated a desire to regulate wholesalers.
Wholesalers assert that the limitations placed on the industry under the
revised Arkansas law were influenced by the real estate lobby.
126
In the
wake of the introduction of House Bill 1163, which led to the changes
requiring an examination of intent to own, wholesalers charged, “The
Realtors lobbyist [has] millions of dollars to fund this campaign to stop
your business if you wholesale. . . . Several other state’s realtors
associations have tried this already and it hurt the investors until someone
challenged the law.”
127
Wholesalers’ assertions are supported in part by the
fact that House Bill 1163 was sponsored by Representative Laurie
Rushing,
128
who is a licensed realtor.
129
Although the bill in question was
withdrawn, nearly identical language appeared in the final revisions to the
statute.
130
While regulations may be influenced by lobbying efforts, they are
often impacted by other factors.
123
. 525 S.W.3d 27, 28 (Ark. Ct. App. 2017); see also Mark Rogers, Arkansas Real
Estate Commission Views on Wholesaling in Arkansas, BIGGERPOCKETS, https://www.
biggerpockets.com/forums/547/topics/672453-arkansas-real-estate-commission-views-on-
wholesaling-in-arkansas (last visited Sept. 3, 2021).
124
. Stassi, 525 S.W.3d at 27–28.
125
. Id. at 29.
126
. See Randy T., Warning Notice to Investors in Arkansas, ARK. LANDLORDS MEETUP
MESSAGE BD. (Jan. 21, 2017, 1:23 PM), https://www.meetup.com/Arkansas-Landlords-
Meetup/messages/boards/thread/50537254.
127
. Id.
128
. See H.B. 1163, supra note 118.
129
. Representative Laurie Rushing (R), ARK. STATE LEGIS., https://www.arkleg.state.ar.
us/Legislators/Detail?member=Rushing&ddBienniumSession=2019%2F2020F (last visited
Aug. 23, 2021).
130
. See H.B. 1163, supra note 118 (“(c) A person or entity shall not under any
circumstance qualify for an exemption under this section if the person or entity: (1) Obtains
an equitable interest in real estate with knowledge that the interest was obtained on behalf of
a person or entity that intends to gain an interest in the real estate; or (2) Strategically
https://digitalcommons.law.ou.edu/olr/vol74/iss2/4
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Political make-up, norms surrounding regulations, current events, and
constituents’ desires all impact the process of enacting new statutes and
regulations.
131
Of the states surveyed in this Comment, Arkansas is the most
Republican-leaning state, with 48% of the state reported as Republican or
leaning Republican.
132
The traditional reticence of Republican political
ideals towards regulation may indicate that other factors influenced the
Arkansas regulation.
133
Those factors include public interest concerns
134
and
frustration with the failure to regulate the real estate wholesaling industry
through the existing structure, as seen in cases like Stassi v. Isom.
135
As of
the writing of this Comment, there has not been a comprehensive report that
details the word and restriction counts for the Arkansas administrative
code.
136
Lacking this information, it is difficult to determine if Arkansans
have normalized government regulation.
circumvents the requirement for licensure thereby eliminating remedies available to
consumers through the commission.”); see also ARK. CODE ANN. § 17-42-104(c) (2017)
(“(c) A person or entity shall not under any circumstance qualify for an exemption under this
section if the person or entity: (1) Obtains an equitable interest in real estate with knowledge
that the interest was obtained on behalf of a person or entity that intends to gain an interest in
the real estate other than that of ownership; or (2) Strategically circumvents the requirement
for licensure thereby eliminating remedies available to consumers through the
commission.”).
131
. See supra note 87.
132
. Jones, supra note 75.
133
. See supra note 74.
134
. See generally Randy Thomason, Comment to Arkansas Real Estate Commission
Views on Wholesaling in Arkansas, BIGGERPOCKETS, https://www.biggerpockets.com/
forums/547/topics/672453-arkansas-real-estate-commission-views-on-wholesaling-in-
arkansas (last visited Sept. 3, 2021) (stating that the AREC was concerned with wholesalers
who used assignments as “a blatant attempt to circumvent licensee law [where] you should
have a real estate license”).
135
. See also Mark Rogers, Arkansas Real Estate Commission Views on Wholesaling in
Arkansas, BIGGERPOCKETS, https://www.biggerpockets.com/forums/547/topics/672453-
arkansas-real-estate-commission-views-on-wholesaling-in-arkansas (last visited Sept. 3,
2021).
136
. See James Broughel & Patrick McLaughlin, Quantifying Regulation in US States
with State RegData 2.0, MERCATUS CTR. GEO. MASON UNIV. (Aug. 31, 2020), https://
www.mercatus.org/publications/regulation/quantifying-regulation-us-states-state-regdata-20
(“Unfortunately, the regulatory code[] of . . . Arkansas . . . w[as] not analyzed due to
limitations in data availability.”).
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164 OKLAHOMA LAW REVIEW [Vol. 74:147
C. Texas
Diverging from Arkansas’s intent analysis, Texas expressly allows
unlicensed real estate wholesaling through a combination of exceptions to
licensing and by requiring the disclosure of wholesaling to buyers.
137
1. Regulations
Like other states, Texas requires a real estate license to “(1) act as or
represent that the person is a broker or sales agent; or (2) act as a residential
rental locator.”
138
Determining what constitutes licensable real estate
activities in Texas requires an examination of the definition of a broker, as
well as a sales agent and residential rental locator.
139
Texas defines a broker
as “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” any of multiple
enumerated activities.
140
The enumerated activities include typical realtor
activities such as selling, negotiating, offering, or listing real estate for
“exchange[], purchase[], or lease[].”
141
Further, a sales agent is any person
that performs any of the above acts of a broker, under a broker’s
sponsorship.
142
A residential rental locator is a person, other than the owner
of a multi-family property, who “offers for consideration to locate a unit in
an apartment complex for lease to a prospective tenant.”
143
Although Texas
outlines an array of activities as licensable, it also articulates a thorough set
of exemptions to licensing.
Texas exempts individuals with an ownership interest in the property
from licensing standards because broker activities must be “perform[ed] for
another person” to require licensing.
144
Additionally, Texas provides a list
of exemptions from licensing including attorneys, a power of attorney if
used three or fewer times a year, auctioneers for purposes of auctions, and
public officials acting in an official context.
145
Coupled with various
137
. See TEX. OCC. CODE ANN. § 1101.0045 (West 2016).
138
. Id. § 1101.351.
139
. See id.
140
. See id. § 1101.002(1) (emphasis added).
141
. Id.
142
. Id. § 1101.002(7).
143
. Id. § 1101.002(6).
144
. See id. § 1101.002.
145
. Id. § 1101.005.
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exceptions, Texas balances public protection with the need for robust real
estate investment strategies.
146
Texas expressly allows wholesaling as long as the wholesaler discloses
the practice to the potential buyer and the wholesaler is not engaging in a
real estate brokerage.
147
By statute, a wholesaler must disclose to a
prospective buyer that the seller is marketing a mere purchase contract
assignment and that the seller is not the party with legal title to the
property.
148
This requires the wholesaler to advertise that they do not own
the property being listed for sale and only have a purchase agreement for
the property.
149
The Texas Occupation Code directly addresses the sale of
an assignment of a purchase contract without a real estate license.
150
It
states that “[a] person may acquire an option or an interest in a contract to
purchase real property and then sell or offer to sell the option or assign or
offer to assign the contract without holding a license” as long as “the option
or contract to purchase [is not used] to engage in real estate brokerage.”
151
In addition to not engaging in a real estate brokerage, the wholesaler must
“disclose[] the nature of the equitable interest to any potential buyer.”
152
A
wholesaler who fails to disclose the assignment structure “to a potential
buyer is engaging in a real estate brokerage.”
153
The statute expressly prohibits a wholesaler from engaging in a real
estate brokerage without a license.
154
This prohibition has little force
against real estate wholesalers because the statutory definition of a real
estate brokerage exempts owners and real estate investors.
155
Texas clarifies
that an individual or entity “is not engaged in real estate brokerage,
regardless of whether the person is licensed . . . , based solely on engaging
146
. See Christine Anderson, Sale of Equitable Interests in Real Estate Clarified, TEX.
REAL EST. COMM’N (July 7, 2017), https://www.trec.texas.gov/article/sale-equitable-
interests-real-estate-clarified (“The practice of ‘wholesaling’ remains legal if these ‘truth in
advertising’ rules are adhered to.”).
147
. TEX. OCC. CODE ANN. § 1101.0045(a).
148
. See id. §1101.0045(b).
149
. See id.
150
. Id. § 1101.0045(a).
151
. Id. § 1101.0045(a)(1).
152
. Id. § 1101.0045(a)(2).
153
. Id. § 1101.0045(b).
154
. See id. § 1101.0045(a)(1).
155
. See id. § 1101.004(b)(2)–(b)(3).
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166 OKLAHOMA LAW REVIEW [Vol. 74:147
in . . . sponsoring, promoting, or managing, or otherwise participating as a
principal, partner, or financial manager of, an investment in real estate.”
156
Although Texas allows wholesaling without a real estate license, it
balances public protection by requiring disclosure to the buyer.
157
The
statute provides that a failure to properly disclose the wholesaling structure
makes the unlicensed investor a real estate brokerage.
158
Classification as a
real estate brokerage brings the potentially troublesome wholesaler under
the regulatory authority of the Texas Real Estate Commission.
159
Texas’s
approach appears to be a savvy compromise between enforcing strict
licensing regulation and protecting the public interest.
160
2. Policy Consideration and Political Drivers
The legislators likely struck a compromise between enforcing strict
licensing requirements and protecting the public interest to balance the
goals of regulators and the regulated.
161
Senate Bill 2212, which
implemented the wholesale disclosure and transparency requirements in
Texas, was “developed in a coordinated effort between the Texas Real
Estate Commission (TREC), the Texas Association of REALTORS, and
stakeholders across the state to ensure more transparency and disclosure in
real estate transactions.”
162
The Texas Association of REALTORS was
responsible for lobbying in favor of the initial real estate licensing laws in
Texas and continues to advocate each session for “pro-real estate public
policy to protect consumers.”
163
This aligns with TREC’s regulatory
“mission to protect consumers of real estate services in Texas.”
164
156
. Id. § 1101.004(b)(2).
157
. See id. § 1101.0045(a)(2)–(b).
158
. Id. § 1101.0045(b).
159
. See The Legality of Wholesaling Real Estate in Texas, SILBERMAN L. FIRM, PLLC
(June 29, 2017), https://silblawfirm.com/real-estate-law/the-legality-of-wholesaling-real-
estate-in-texas/.
160
. See supra note 146.
161
. See TEX. SENATE RSCH. CTR., 85R20555 BEE-F, BILL ANALYSIS S.B. 2212, at 1
(2017), https://capitol.texas.gov/tlodocs/85R/analysis/pdf/SB02212S.pdf#navpanes=0.
162
. Id.
163
. Jaime Lee, A Century of Advocacy, TEX. REALTORS
®
(May 1, 2020), https://www.
texasrealestate.com/members/communications/texas-realtor-magazine/issues/may-2020/a-
century-of-advocacy.
164
. About TREC, TEX. REAL EST. COMM’N, https://www.trec.texas.gov/agency-
information/about-trec (last visited July 14, 2021).
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Importantly, the regulation of wholesalers does not limit the practice in
Texas; it merely mandates disclosure.
165
This careful balance in the regulation of wholesaling favoring disclosure
rather than licensure departs from the limitations placed by Illinois or
Arkansas and is likely shaped by Texas’s political values. Of the states that
regulate real estate wholesaling, Texas is the state with the cleanest split
along party lines.
166
The state is categorized as “competitive” when
comparing party advantage; 42% of the state reported as Republican or
leaning Republican, while 39% of the state reported as Democrat or leaning
Democrat.
167
Although Texas has over twice the population of Illinois,
168
Texas has slightly fewer mandatory regulations, including 17,175,100
words and a total of 262,763 restrictions.
169
The party split in Texas and the
unique approach to regulation may reflect a compromise between
Democratic perception that government regulation of business is necessary
and the traditional reticence of Republican political ideals towards
regulation.
170
Further, the similar number of regulations between Texas and
Illinois may support that although more evenly split along party lines,
Texas is accepting of regulations because the state has normalized a
comprehensive regulatory code.
171
Overall, lobbying efforts and the
political split between parties in Texas has culminated in unique
wholesaling regulations that allow a broad assertion of ownership rights
while protecting consumers with mandatory disclosure of the wholesaling
structure.
V. Proposed Legislative Approach for Oklahoma
The disparate legislative approaches to wholesaling in Illinois, Arkansas,
and Texas, contrasted with the numerous states that have no wholesaling
regulation, illustrate the divergent path legislatures have before them. In
Oklahoma, the state Legislature can revive a bill identical to the unenacted
165
. See supra note 146.
166
. See Jones, supra note 75.
167
. Id.
168
. QuickFacts: Illinois; Texas, U.S. CENSUS BUREAU, https://www.census.gov/quick
facts/fact/table/IL,TX/RHI725219 (last visited Aug. 3, 2021).
169
. Mercatus Ctr. at George Mason Univ., supra note 63.
170
. See supra note 74.
171
. See supra note 86.
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168 OKLAHOMA LAW REVIEW [Vol. 74:147
2020 Predatory Wholesaler Prohibition Act,
172
model legislation after
another state, introduce novel legislation, or do nothing and maintain the
status quo. Protection of home sellers and buyers alike demands that either
legislatures act or that administrative enforcement agencies find a way to
work within the existing system. In Oklahoma, given the challenges faced
with administrative enforcement against wholesalers, the Legislature should
carefully construct wholesaling regulation that meets the needs of the state.
Meeting Oklahomans’ needs requires identifying which real estate
wholesaling structures need to be regulated. The Legislature has the choice
of regulating all wholesaling by closing the ownership exception gap or
narrowing the focus to only those wholesalers that never take title to the
property. Carefully crafted legislation could leave an ownership exemption
in place for bona fide homeowners, while protecting parties to real estate
transactions from those wholesalers seeking to exploit the ownership
exception.
A. Oklahoma Compared to Federal Securities Regulation
Federal securities law provides an example of how to effectively narrow
exemptions to licensing meant to allow bona fide private owners to bypass
licensing requirements.
173
An analogy to securities law is appropriate
because a real estate wholesaler’s intent to resell property, instead of using
it as an owner, is similar to the role an underwriter plays in securities. An
underwriter is “[s]omeone who buys stock from the insurer with an intent to
resell it to the public,” and often this role is held by an investment
banker.
174
Similarly, real estate “[w]holesaling is [a] business model being
taught to novice real estate investors . . . [where] [t]he wholesaler contracts
on [a] property and then attempts to sell the contract at a higher price.”
175
Additionally, the failed 2020 Predatory Wholesaler Prohibition Act sought
to prohibit unlicensed real estate wholesaling by preventing the sale of a
purchase contract, similar to the way that securities underwriters are
prohibited from reselling securities interests without appropriate licensing
172
. H.B. 3104, supra note 33 (prohibiting all unlicensed marketing of real estate
purchase contract interests).
173
. See 1 THOMAS LEE HAZEN, TREATISE ON THE LAW OF SECURITIES REGULATION §
4:106 (2020).
174
. Underwriter, BLACK’S LAW DICTIONARY (11th ed. 2019).
175
. Roach, supra note 5.
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and registration.
176
Not only are the investment goals and sales structures of
real estate wholesalers and securities investors the same, but the hazards are
also similar.
The purpose of licensing and registration requirements for securities
underwriters and real estate professionals is to protect the general public in
their respective transactions.
177
When a securities purchaser “intends to turn
around immediately and sell the securities to the general public, the purpose
of the private offering exemption would be undermined because the
securities could fall into the hands of unsophisticated investors who lacked
the information to properly value the security.”
178
Similar concerns are
echoed in the dangers of real estate transactions without a licensed real
estate professional, including that “[w]ithout an advocate and guide to
direct the process, people are often taken advantage of.”
179
Restricting
licensing exceptions to parties that intend to own the regulated item limits
the evasions of licensing by parties quickly flipping an ephemeral interest.
Determining intent to own, however, can be challenging.
180
Intent to own is addressed in federal securities underwriting regulation
by denoting that a prolonged holding indicates the “securities have ‘come to
rest’” and fall into an exemption category to underwriting licensing and
registration.
181
The substantial one-year period required for an individual to
hold a security before resale, without registering, illustrates the securities
approach to ensuring that the ownership exemptions are not abused.
182
This
176
. Compare H.B. 3104, supra note 33 (proposing legislation that would prohibit
unlicensed marketing of real estate purchase contract interests), with BRENT A. OLSON,
CALIFORNIA BUSINESS LAW DESKBOOK § 39.47 (2020) (explaining that a safe harbor resale
of securities does not require registration as an underwriter that sells securities subject to the
Securities Act of 1933).
177
. See 15 U.S.C. § 78b (“[T]ransactions in securities as commonly conducted upon
securities exchanges and over-the-counter markets are effected with a national public
interest which makes it necessary to provide for regulation and control of such transactions
and of practices and matters related thereto . . . .”); see also Ratcliff v. Cobb, 1968 OK 34, ¶
9, 439 P.2d 194, 196 (“[O]ne purpose of the [Real Estate License] Act was to regulate such
business and the parties engaged therein for the protection of . . . the public . . . .”).
178
. OLSON, supra note 176, § 39.24.
179
. Roach, supra note 5.
180
. See United States v. Sherwood, 175 F. Supp. 480, 483 (S.D.N.Y. 1959) (analyzing
behavior of an investor holding securities and then reselling after two years) (“From such
behavior, it is impossible to infer the intention to distribute, at the time of acquisition . . . .”
(quoting the defendant)).
181
. OLSON, supra note 176, § 39.24.
182
. See HAZEN, supra note 173, § 4:106.
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170 OKLAHOMA LAW REVIEW [Vol. 74:147
holding period was predicated on the idea that a substantial period passing
“before the commencement of distribution . . . is an insuperable obstacle to
[a] finding that [an individual] took the[] shares with a view to distribution
thereof, in the absence of any relevant evidence from which [it] could [be]
conclude[d] [that] he did not take the shares for investment.”
183
In contrast,
real estate wholesalers seek to quickly turn over their interests in wholesale
properties.
184
Mirroring federal securities regulation by imposing a similar
minimum period for holding a property before resale, without a real estate
license, would limit the opportunity to bypass real estate licensing.
Implementing a mandatory holding period for a real estate interest would
curtail abuses of the ownership exemption; however, it may not prevent all
types of real estate wholesaling. Although many real estate wholesalers
quickly resell or assign their purchase contract interest,
185
some become
legitimate owners of the properties they buy.
186
A mandatory holding period
would address concerns of wholesalers that abandon transactions and harm
home sellers.
187
Further, requiring wholesalers to close on the property and
then hold it for some time to assert any ownership exemption to licensing
would abrogate the wholesaling tactic of utilizing contingency clauses,
reduced earnest money, and creative contracting to avoid closing on
properties.
188
Finally, requiring unlicensed wholesalers to carry through
with their purchase contracts and become bona fide owners reduces
significant bypass of licensing and returns to the spirit of the exemption for
property owners.
189
Understanding the problems potential legislation should
address allows an effective evaluation of whether existing state legislation
models would meet Oklahoma’s needs.
B. Oklahoma Compared to Illinois
The Illinois model of wholesaling regulation, although currently the most
restrictive in the country, is less restrictive than the failed 2020 Oklahoma
legislation.
190
The more in-depth Illinois regulations, including wholesaling
183
. Sherwood, 175 F. Supp. at 483.
184
. MERRILL, supra note 2, at 10.
185
. Roach, supra note 5.
186
. About Us, NATURE’S HOMES, LLC, https://natureshomesllc.managebuilding.com/
Resident/public/custom/22 (last visited Jan. 14, 2021).
187
. See generally Roach, supra note 5.
188
. See generally MERRILL, supra note 2, at 11.
189
. See infra Part VI.
190
. Compare 225 ILL. COMP. STAT. 454/1-10 (2019) (licensable activities are any
activity included under the activities of a broker including purchase contract assignments),
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transaction limits, align with the concept that the Illinois definition of
licensable activities is more comprehensive than the Oklahoma
definition.
191
Just as these states’ legislative attempts overlap, there is an
overlap in the basic licensable real estate activities.
192
Both states address
receiving a commission, advertising, and making offers to sell, buy, rent,
and lease.
193
The similarities between the licensing structures indicate that
similar challenges would occur in Oklahoma if new legislation, similar to
the strong Illinois prohibition, is enacted.
There are potential problems with the Illinois single transaction limit on
unlicensed real estate sales.
194
For example, an unlicensed individual who
legitimately owns several properties and wishes to sell them without a
realtor in a given year would be prohibited from using the licensing
exemption.
195
Under the single transaction limit, the unlicensed owner is
acting as a broker and would be performing licensable activities.
196
The
problems that make the Illinois model inappropriate, however, extend
beyond prohibiting a legitimate owner from selling multiple properties in a
single year.
The Illinois statute reflects an expansion of licensable activities that may
prove difficult to enforce and lacks clear enforcement precedent.
197
An
Illinois real estate attorney noted that the revisions impacting wholesalers
are anticipated to result in “a large number of disgruntled sellers, licensed
Brokers, and especially licensed Wholesalers . . . submitting complaints to
with H.B. 3104, supra note 33 (proposed legislation would prohibit unlicensed marketing of
real estate purchase contract interests).
191
. Compare 225 ILL. COMP. STAT. 454/1-10 (anyone acting as a broker requires a
license for activities including the sale and assignment of more than one purchase contract
per year), with 59 OKLA. STAT. §§ 858-301, 858-102(2), (11) (West, Westlaw through 1st
Reg. 2021 Sess.) (a license is mandatory for anyone acting as a broker, which includes
leasing, renting, selling, or otherwise arranging the exchange of property interests).
192
. See 225 ILL. COMP. STAT. 454/1-10; 59 OKLA. STAT. § 858-102(2) (a license is
required to receive a commission, advertise, and make offers to sell, buy, rent, and lease
property).
193
. 225 ILL. COMP. STAT. 454/1-10; 59 OKLA. STAT. § 858-102(2).
194
. See Bob Floss II, Wholesalers Require Brokers License in Illinois, FLOSS L. (Aug.
14, 2019), http://flosslaw.com/blog/wholesale.
195
. See Bryan Johnson, Real Estate Wholesaling in Illinois: An Investment Strategy
Under Scrutiny, REJOURNALS (Feb. 12, 2020), https://rejournals.com/real-estate-
wholesaling-in-illinois-an-investment-strategy-under-scrutiny/.
196
. Id.
197
. See Floss, supra note 194194.
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172 OKLAHOMA LAW REVIEW [Vol. 74:147
[the Illinois real estate licensing agency].”
198
Similar challenges to
enforcement are foreseeable in Oklahoma because OREC is already faced
with ongoing complaints related to wholesaling, which is a practice it does
not currently regulate.
199
Further, the Illinois structure would require
additional investigation of complaints to determine whether multiple sales
had occurred during the year and tracing of separate entities to ensure that
wholesalers are not using shell entities to bypass the licensing
requirement.
200
The Illinois structure is likely too restrictive and faces
enforcement challenges that would make modeling Oklahoma legislation
after the Illinois statute unadvisable.
C. Oklahoma Compared to Arkansas
The proposed Oklahoma legislation would have limited a wholesaler’s
ability to use the ownership exception to sell purchase contract
assignments, while the Arkansas statute seeks to limit the exception by
determining a purchaser’s intent.
201
Although the two states have taken
different paths regulating wholesaling, similarities between real estate
regulations suggest Oklahoma may benefit from core concepts of the
Arkansas regulation. Similar to the Oklahoma statute, Arkansas exempts
individuals from licensing standards if the individual has an ownership
interest in the property.
202
Unlike Oklahoma, Arkansas has included
exceptions to the list of licensing exemptions to limit loopholes.
203
The
Arkansas statute makes it improper to assert the licensing exception if a
wholesaler does not intend to own the property.
204
This limitation removes
evasion of the licensing requirement by performing back-to-back closing,
but proving intent may lead to difficulties in enforcement.
Although the Arkansas statute facially limits unlicensed wholesaling, as
seen with securities regulation, it can be difficult to determine intent to own
198
. Id.
199
. Emde, Chairman’s Corner, supra note 29.
200
. See 225 ILL. COMP. STAT. 454/1-10 (2019).
201
. Compare H.B. 3104, supra note 33 (proposed legislation would prohibit unlicensed
marketing of real estate purchase contract interests), with ARK. CODE ANN. § 17-42-104(c)
(2017) (the ownership exception does not apply if the property with not obtained with the
intent to own).
202
. See ARK. CODE ANN. § 17-42-104(a)(1)(A); 59 OKLA. STAT. § 858-301(1) (West,
Westlaw through 1st Reg. 2021 Sess.).
203
. ARK. CODE ANN. § 17-42-104(c).
204
. Id.
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without a defined holding period.
205
The Arkansas statutory language that
requires “knowledge that the [property] interest was obtained” for “other
than that of ownership” may be difficult to enforce.
206
One potential
problem includes determining how long ownership must be maintained to
fulfill the intent-to-own requirement.
207
For example, if title to the property
is transferred into the wholesaler’s name before the end buyer, through
back-to-back closings, that may be enough to satisfy the intent-to-own
requirement.
208
This difficulty could be cured with a minimum holding
period, similar to the holding periods in securities underwriting.
209
Although the Arkansas statute may be an adequate method to prevent
wholesaling, the ambiguities will probably make long-term enforcement
against creative wholesalers difficult.
210
The Arkansas structure is likely too
ambiguous to prevent wholesalers from circumventing the licensing
process. Additionally, when crafting a new statute for Oklahoma, the
potential enforcement challenges presented make modifications
appropriate.
D. Oklahoma Compared to Texas
The full disclosure approach to wholesaling regulation makes Texas the
least restrictive state that has directly addressed the practice.
211
Additionally, the Texas legislation that expressly allows wholesaling stands
in stark contrast to the 2020 proposed Oklahoma legislation, which would
have banned unlicensed wholesaling of purchase contract interests.
212
Both
states, however, have common ground in recognizing an ownership
205
. See supra note 180.
206
. ARK. CODE ANN. § 17-42-104(c).
207
. See Sherwood, 175 F. Supp. at 483.
208
. Davis, supra note 1.
209
. See generally OLSON, supra note 176,176 § 39.42 (“Whether the securities have
‘come to rest’ depends on the length of time the purchaser held them. Under the Rule 144
safe harbor, the holding period was originally set at two years.”); see also Sherwood, 175 F.
Supp. at 483.
210
. See Davis, supra note 1 (article by an Arkansas attorney) (detailing how the intent to
own can be circumvented with “closings [that] occur back-to-back so [the wholesaler] do[es]
not hold the property for long and put[s] no-money into it for rehabilitation”).
211
. See generally TEX. OCC. CODE ANN. § 1101.0045 (West 2016).
212
. Compare id. (sale of purchase contract assignments does not require a real estate
license if the sale structure is disclosed), with H.B. 3104, supra note 33 (proposed legislation
would prohibit unlicensed marketing of real estate purchase contract interests).
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174 OKLAHOMA LAW REVIEW [Vol. 74:147
exemption to licensing requirements.
213
Texas, unlike Oklahoma, has
addressed real estate wholesaling by requiring full disclosure of purchase
contract assignment sales.
214
The direct acquiescence to wholesaling in
Texas ostensibly removes the need to limit the ownership exception
because potential wholesaling issues are addressed through disclosure
requirements.
215
Disclosure of purchase contract sales, however, may not
cure all the potential problems of wholesaling.
Disclosure would require a wholesaler to inform the seller of the deal
structure, but disclosure alone may not protect against unscrupulous
wholesalers.
216
It has long been established that parties are bound to the
terms of the contract, whether they read them or not.
217
The purpose of real
estate regulation is not contractual enforcement—it is for public
protection.
218
Further, a standalone policy of required disclosure would not
impact the operations of wholesalers that intend to close on properties and
take short-term ownership instead of flipping paper contracts.
219
A policy of
disclosure alone, modeled after the Texas statute, does not address the full
array of concerns with wholesaling. Therefore, it would be prudent to
couple disclosure with additional requirements to fully protect Oklahoma
consumers.
213
. See 59 OKLA. STAT. § 858-301(1) (West, Westlaw through 1st Reg. 2021 Sess.)
(property owners are exempt from real estate licensing requirements when performing
licensable activities related to their property); see also TEX. OCC. CODE ANN. § 1101.002(1)
(the activities of a broker are licensable when the broker “performs for another person”).
214
. TEX. OCC. CODE ANN. § 1101.0045.
215
. See generally id.
216
. Cf. HAZEN, supra note 173, § 2:11 (“It is generally conceded to be a fiction that
each investor or potential investor reads the prospectus from cover to cover; and thus, it has
been suggested by some observers that most disclosures that are required by the securities
laws are not in fact relevant to the majority of investors. . . . Other observers have disagreed,
expressing the view that disclosure requirements are directly meaningful to investors.”).
217
. Upton v. Tribilcock, 91 U.S. 45, 50 (1875) (“A contractor must stand by the words
of his contract; and, if he will not read what he signs, he alone is responsible for his
omission.”).
218
. E.g., Ratcliff v. Cobb, 1968 OK 34, ¶ 9, 439 P.2d 194, 196 (“[O]ne purpose of the
[Real Estate License] Act was to regulate such business and the parties engaged therein for
the protection of . . . the public . . . .”).
219
. See, e.g., Adelman & McCoy, supra note 19 (reporting that wholesalers in
Philadelphia buy at lost cost, often from estate, and sell for high profit days or weeks after
closing).
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E. New Legislative Path for Oklahoma
After examining existing state regulations of wholesalers, it is apparent
that Oklahoma should craft novel legislation. Oklahoma should take a two-
fold approach to wholesaling regulation. First, it should close the exploited
gap in the ownership exception by requiring a holding period before a
property can be reconveyed under the ownership exception. Even a short
minimum holding period of six months would return the licensing
exception to its intended purpose, which is exempting property owners.
Second, new legislation should require disclosure of the wholesaling
structure when a purchase contract assignment is sold without a real estate
license. Similar to the Texas requirement, if a wholesaler fails to disclose
the assignment structure, then the wholesaler would be performing
unlicensed real estate activities.
220
Combining the holding period
requirements of federal securities regulation with the disclosure
requirements of the Texas real estate statute would effectively regulate both
types of wholesaling in Oklahoma.
Regulation of both types of wholesaling is appropriate to fulfill the
public protection mission of OREC.
221
Requiring a holding period for the
ownership exception would allow bona fide owners to dispose of their
property without a real estate license, while making back-to-back closing
on properties to assert the ownership exemption impossible. It is likely that
a holding period would strongly discourage unscrupulous wholesalers from
taking advantage of buyers and sellers. A holding period would prevent
wholesalers from flipping paper by engaging in back-to-back closings that
the wholesaler could not fund independently.
222
Further, requiring
disclosure of the purchase contract assignment structure would keep all
parties to a wholesale transaction fully informed of the intent. Knowledge
of the structure would help to put the seller on notice of the risk and allow
the seller to make an informed decision whether to enter into a purchase
contract with a wholesaler. Fulfilling the mission of OREC with effective
regulation would place Oklahoma at the forefront of addressing real estate
wholesaling regulation.
Oklahoma has a unique chance to revive and reshape the failed Predatory
Real Estate Wholesaler Prohibition Act into the new model for real estate
wholesaling regulation. Further, states that lack mechanisms to address real
220
. See generally TEX. OCC. CODE ANN. § 1101.0045(a).
221
. See Ratcliff, 1968 OK 34, ¶ 9, 439 P.2d at 196.
222
. See, e.g., Youngling, supra note 4, at 115.
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176 OKLAHOMA LAW REVIEW [Vol. 74:147
estate wholesaling could benefit from a hybrid approach. Closing gaps in
the ownership exception protects legitimate property owners’ rights to sell
their property without a real estate license, while avoiding undermining the
purpose of licensing. Disclosure of the purchase contract assignment
structure allows sellers the opportunity to take on the risk of contracting
with a wholesaler, while avoiding enforcement challenges due to
complicated yearly transaction limits. Overall, a hybrid structure of
regulation would be beneficial to all states seeking to protect consumers
from wholesalers; however, existing Oklahoma regulations may provide
sufficient protections.
VI. Alternative Reframing of Existing Statutes
Although the Oklahoma Legislature
223
and OREC
224
have framed the
issue of real estate wholesaling as one that must be addressed through
additional legislation, the key question is: should a twenty-five-year-old
state trial court case
225
dictate that outcome? A thorough re-evaluation of
existing precedents and current Oklahoma law reveals that a purchase
contract likely is not sufficient to qualify for the ownership exception to the
licensing requirement.
226
Reaching this conclusion requires a thorough
understanding of the ownership interest claimed to assert the ownership
exception, the Legislature’s intent in creating the exception, and the public
policy impacts of the current enforcement policy.
At the most basic level, the ownership exception allows an owner of real
estate to manage, market, and sell an interest in real estate without a real
estate license issued by OREC.
227
Wholesalers, however, do not have an
ownership interest in the real estate sold because existing Oklahoma case
law indicates that a purchase contract alone, without intent to close the
purchase, does not create an equitable or legal ownership interest in real
property.
228
Additionally, a typical wholesaler does not take additional
223
. H.B. 3104, supra note 33.
224
. See Emde, Chairman’s Corner, supra note 29.
225
. See State ex rel. Okla. Real Est. Comm’n v. Cheshier, No. CJ-94-259 BH, at 3 (Dist.
Ct. Cleveland Cnty. Oct. 14, 1994) (holding that contracts to purchase are an ownership
interest in real estate entitled to exemption from licensing).
226
. See infra Section VI.A.
227
. 59 OKLA. STAT. § 858-301(1) (West, Westlaw through 1st Reg. 2021 Sess.).
228
. See Bank of Commerce v. Breakers, L.L.C., 2011 OK CIV APP 45, ¶¶ 15–19, 256
P.3d 1053, 1057–58 (holding a purchase contract alone does not create an interest in a
property); see also First Nat’l Bank & Tr. Co. v. United States, 462 F.2d 908, 910 (10th Cir.
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steps, such as possession of the property or taking title, that would evidence
ownership.
229
Therefore, OREC can present a strong case to establish
wholesalers do not have an ownership interest in the real property when
they perform the unlicensed activity; this would depart from current policy.
Currently, OREC does not classify the practice of wholesaling as a
licensable activity.
230
Purchase contracts are treated as an equitable interest
in real estate, which wholesalers use to assert an exemption from
licensing.
231
Wholesalers’ exemption from licensing requirements may
impede OREC’s core purpose of protecting the public.
232
The practice of
wholesaling, however, would be a licensable real estate activity in
Oklahoma if the ownership exception was narrowly construed.
A. Purchase Contracts Do Not Create an Ownership Interest in Real
Property Because They Do Not Vest Equitable Title
A wholesaler’s licensing exception claim is predicated on the assertion
that a purchase contract creates a future interest in a property that is
sufficient to evidence ownership.
233
Oklahoma law indicates a purchase
contract alone, however, is not enough to grant a future purchaser interest in
the real property.
234
Courts deciding cases under Oklahoma law have found
that completion of the purchase contract,
235
assuming the risk of loss to the
subject property,
236
physical possession before closing,
237
and modifications
1972) (determining the “intention of the parties . . . to be bound” by the purchase contract
impacts ownership of property under contract); State Life Ins. Co. v. State ex rel. Kehn,
1942 OK 385, ¶ 15, 135 P.2d 965, 967 (finding the parties’ intentions matter when
evaluating if a purchase contract vests equitable title).
229
. See Window to the Law: Real Estate Wholesaling, supra note 121.
230
. See Gray, supra note 39.
231
. See supra note 38.
232
. Lodes v. State ex rel. Okla. Real Est. Comm’n, 1992 OK CIV APP 23, ¶ 4, 837 P.2d
925, 926 (citing Ratcliff v. Cobb, 1968 OK 34, ¶ 9, 439 P.2d 194, 196).
233
. See sources cited supra note 50.
234
. See, e.g., Bank of Commerce v. Breakers, L.L.C., 2011 OK CIV APP 45, ¶¶ 15–19,
256 P.3d 1053, 1057–58 (holding a purchase contract alone does not create an interest in a
property).
235
. See Bradford v. Jones, 1935 OK 193, ¶ 8, 41 P.2d 857, 859 (holding that a contract
to purchase property conferred “no legal title to the property until [the purchaser] had paid
the full consideration”). Additionally, “[u]nder the rule announced in Parks v. Classen
Company, [the buyer] had no equitable title.” Id. (citing Parks v. Classen Co., 1932 OK 157,
¶ 23, 9 P.2d 432, 434).
236
. See Bank of Commerce, 2011 OK CIV APP 45, ¶ 2, 15–19, 256 P.3d at 1054, 1057–
58 (holding in a foreclosure action that a buyer with a valid purchase contract is not entitled
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178 OKLAHOMA LAW REVIEW [Vol. 74:147
to the property before closing
238
are each sufficient to create a property
interest. The common factor between these cases is that equitable title only
vests with the execution of a purchase contract plus something additional.
For almost ninety years, Oklahoma courts have indicated that a purchase
contract, absent additional actions, such as assuming risk of loss on the
property, does not create an ownership interest in real property.
The ownership exception to licensing does not apply to most wholesalers
because, as most wholesale deals are structured, the wholesaler only has a
contract to purchase the property in the future.
239
As established nearly
ninety years ago, the signing of a purchase contract does not create
equitable title.
240
The performance of the purchase contract is contingent on
the future act of title transfer and payment at closing, which makes a
finding that title vests inappropriate.
241
Further, wholesalers do not assume
the risk of loss while the property is under contract.
242
The opposite is true;
the wholesaler can delay or leave the purchase contract with little to no
consequences since there is little or no earnest money put forward and no
firm closing date is included in the purchase contract.
243
The full burden of
risk, including loss of the property, belongs to the seller that contracts with
the wholesaler.
244
Absent something more, a purchase contract does not
evidence an ownership interest in real property; however, a future buyer
that takes additional steps to exhibit ownership intent may acquire an
ownership interest.
to notice because the purchase contract does not create an interest in the property, in part,
because under the terms of the purchase contract “the risk of loss remain[s] on the seller
until closing”).
237
. State Life Ins. Co. v. State ex rel. Kehn, 1942 OK 385, ¶¶ 15–18, 135 P.2d 965,
967–68 (holding that a contract’s provision for immediate possession, followed by the
buyer’s actual possession, combined to function as a completed sale that vested a “present
equitable estate . . . in the [buyer]”).
238
. See First Nat’l Bank & Tr. Co. v. United States, 462 F.2d 908, 909–10 (10th Cir.
1972) (the “intention of the parties . . . to be bound,” as manifest through improvements to
the property before the funding of the purchase or transfer of legal title, “operates as an
equitable conversion” of title to the contract property).
239
. See, e.g., Window to the Law: Real Estate Wholesaling, supra note 121.121
240
. Bradford, 1935 OK 193, ¶ 7, 41 P.2d at 859 (citing Parks, ¶ 23, 9 P.2d at 432).
241
. Id. ¶ 8, 41 P.2d at 859 (citing Parks, ¶ 23, 9 P.2d at 432).
242
. See MERRILL, supra note 2, at 10–11.
243
. See generally id.
244
. See generally id.
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A future purchaser that manifests ownership intent, while under a valid
purchase contract, may be vested with equitable title.
245
A typical
wholesaler, however, does not manifest ownership intention under the
purchase contract, such as through taking physical possession of the
property or receiving legal title at the closing of the property.
246
Without
additional actions supporting an intent to own, equitable title does not vest,
and the ownership exception does not apply.
247
Oklahoma courts have
stressed that the intention of the parties is important.
248
In examining the
intention of a wholesaler, it appears a typical wholesaler has no intent to
own the property.
249
If the wholesaler were to assume control over the
property once it was under contract, then the wholesaler could assert the
ownership exception to licensing.
250
Assuming immediate control of the
property is only one way a wholesaler could manifest ownership intent.
A wholesaler could manifest ownership intent during the purchase
contract period by making improvements to the property.
251
A typical
wholesaler intends to sell an assignment of the purchase contract before the
estimated closing date.
252
Therefore, it is unlikely that a wholesaler would
ever undertake actions that display an intent to own because that is the
exact opposite goal of a wholesale operation.
253
Wholesalers intend to make
a profit by facilitating the sale of a discounted property to a third-party
buyer—not to purchase the property from the buyer.
254
Making property
improvements would undercut the financial gain of quickly flipping a
contract assignment and go against the practice of “‘flip[ping] the paper’
rather than the house.”
255
Absent additional action by a wholesaler,
245
. See First Nat’l Bank & Tr. Co. v. United States, 462 F.2d 908, 910 (10th Cir. 1972)
(determining the “intention of the parties . . . to be bound” by the purchase contract impacts
ownership of property under contract); see also State Life Ins. Co. v. State ex rel. Kehn,
1942 OK 385, ¶ 15, 135 P.2d 965, 967 (stating the parties’ intentions matter when evaluating
if a purchase contract vests equitable title).
246
. See generally Youngling, supra note 4, at 115.
247
. See cases cited supra note 245.
248
. E.g., State Life Ins. Co., ¶ 15, 135 P.2d at 967 (noting “the intention of the
parties . . . governs” in all contracts).
249
. See, e.g., Youngling, supra note 4, at 115.
250
. See State Life Ins. Co., ¶ 17, 135 P.2d at 968 (stating a present equitable estate in
property is vested through possession).
251
. See First Nat’l Bank & Tr. Co., 462 F.2d at 910.
252
. See, e.g., Youngling, supra note 4, at 115.
253
. See id.
254
. See id.
255
. See id.
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Oklahoma case law suggests a purchase contract is not an ownership
interest, but there is a lack of direct guidance from Oklahoma courts related
to wholesaling.
256
Oklahoma courts appear to have addressed the issue of whether a
purchase contract qualifies as an ownership interest under the Real Estate
License Code and Rules only one other time.
257
In 1994, a Cleveland
County District Court highlighted that the definition of what it means to
“own” real estate was an issue of first impression.
258
The court was asked to
review the applicability of the ownership exception to an employee of a
home builder who was selling assignments of contracts to purchase real
estate without a real estate license.
259
The home builder claimed the
purchase contracts were an ownership interest in real estate under the
statutory definition.
260
The court agreed, and it determined that a future
purchaser “becomes the ‘owner’ of the real estate at the time the contract is
entered.”
261
Due to the lack of Oklahoma case law, the court relied on First
National Bank & Trust Co. of Chickasha to extend the concept of equitable
conversion to real estate ownership.
262
First National Bank & Trust Co. of Chickasha, however, is
distinguishable because in that case the future buyer undertook
improvements to the property while under purchase contract.
263
The future
buyer then used those improvements to assert an ownership interest for tax
write-off purposes on a property the buyer eventually owned.
264
Wholesaling is distinct from the circumstances of First National Bank &
Trust Co. of Chickasha, because wholesalers have no intention of ever
taking title to the property and do not make improvements while under
contract.
265
A wholesaler’s lack of intent to own the property indicates that
a purchase contract is not an ownership interest in real estate that exempts
256
. See, e.g., Bank of Commerce v. Breakers, L.L.C., 2011 OK CIV APP 45, ¶¶ 15–16,
256 P.3d 1053, 1057.
257
. Gray, supra note 39; see also State ex rel. Okla. Real Est. Comm’n v. Cheshier, No.
CJ-94-259 BH (Dist. Ct. Cleveland Cnty. Oct. 14, 1994).
258
. Cheshier, No. CJ-94-259 BH, at 2.
259
. Id. at 1–2.
260
. See id. at 2.
261
. Id. at 3.
262
. Id.
263
. First Nat’l Bank & Tr. Co. v. United States, 462 F.2d 908, 909–10 (10th Cir. 1972).
264
. Id.
265
. See generally Youngling, supra note 4, at 115.
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the wholesaler from the licensing requirement.
266
Not only is the nature of a
purchase contract interest such that it likely does not qualify for the
ownership exception, but the Legislature probably did not intend the
exception to be used in that fashion.
B. The Legislature Did Not Intend for a Purchase Contract to Be Classified
as an Ownership Interest in Real Property
Beyond the ethereal nature of purchase contract assignments there lurks
a problem with reconciling court interpretation, legislative intent, and the
wholesalers’ exploitation of the exception. First, when interpreting the
Oklahoma Real Estate Licensing Code, “[w]henever possible, words used
in a statute will be interpreted [by the court] according to their common,
everyday meaning.”
267
To align with legislative intent, a court should
“refrain from interpreting words used so liberally that great inconvenience
or absurd consequences result. Nor may the courts adopt an interpretation
of a statute which is so expansive that the court’s interpretation has the
effect of amending, repealing or circumventing the purpose of the
statute.”
268
Second, an undercurrent of protecting the public interest is
present in interpreting the Real Estate Licensing Code and counsels against
an application of estoppel.
269
Applying these two concepts to wholesaling reveals that enforcing
licensing requirements against wholesalers may be successful. First, the
dictionary definition of a word should prevail, absent evidence of
legislative intent of another meaning.
270
Other than the previously discussed
1994 Cleveland County District Court case, there appears to be an absence
of court interpretation of the meaning of an ownership interest.
271
Lacking a
direct interpretation, it is appropriate to explore the dictionary definition.
266
. See Bank of Commerce v. Breakers, L.L.C., 2011 OK CIV APP 45, ¶¶ 15–19, 256
P.3d 1053, 1057–58; see also Youngling, supra note 4, at 115 (explaining that wholesalers
“[w]ith no money of their own . . . become wholesalers and ‘flip the paper’ rather than the
house”).
267
. Yoder v. State ex rel. Case, 1989 OK 103, ¶¶ 7–11, 776 P.2d 1273, 1275–76
(determining the meaning of the word “sent” in the Real Estate Licensing Code by using the
dictionary definition).
268
. Id. ¶ 8, 776 P.2d at 1275.
269
. Id. ¶ 13, 776 P.2d at 1276 (stating that “[a]pplication of estoppel against government
agencies is not favored” absent compelling public interest).
270
. See id. ¶¶ 11–12, 776 P.2d at 1276.
271
. See generally State ex rel. Okla. Real Est. Comm’n v. Cheshier, No. CJ-94-259 BH
(Dist. Ct. Cleveland Cnty. Oct. 14, 1994).
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182 OKLAHOMA LAW REVIEW [Vol. 74:147
The dictionary definition of ownership of real property indicates that a
wholesaler is not the owner of the property under contract.
272
“Own” is
defined as the right to (1) “have or possess as property”; or (2) “have legal
title to [property].”
273
Applying the legal dictionary definition of the term in
question indicates wholesalers do not own property merely under a
purchase contract.
274
Wholesalers do not possess the property, in
conformance with the primary definition, because a property under
purchase contract remains in the homeowner’s possession.
275
Further,
Oklahoma case law indicates a purchase contract alone does not vest title.
276
Lack of title means that a wholesaler does not “own” the property in
conformance with the second definition.
277
Although a wholesaler does not
own property in conformance with a plain meaning interpretation of the
statute, a savvy legal defense may try to assert that the historic lack of
enforcement actions demonstrates an acquiescence to the practice.
Following the 1994 Cleveland County trial court case, which found that
purchase contracts are an ownership interest,
278
enforcement actions for
licensing violations against wholesalers effectively ceased.
279
A wholesaler
should not, however, be able to utilize the application of estoppel to prevent
OREC from asserting that a purchase contract is not an ownership
interest.
280
An application of estoppel would be contrary to the public
protection mission of OREC.
281
The plain meaning of ownership indicates
the exception does not apply to wholesaling, and the Legislature likely did
not intend the exception to be used as a licensing bypass.
272
. See Own, BLACK’S LAW DICTIONARY (11th ed. 2019).
273
. Id.
274
. Cf. Yoder, ¶¶ 7–10, 776 P.2d at 1275 (determining that the statutory meaning of
“sent” should be construed based on its literal, ordinary usage).
275
. See generally Youngling, supra note 4, at 115.
276
. See cases cited supra note 228.
277
. See Own, BLACK’S LAW DICTIONARY (11th ed. 2019).
278
. See also State ex rel. Okla. Real Est. Comm’n v. Cheshier, No. CJ-94-259 BH (Dist.
Ct. Cleveland Cnty. Oct. 14, 1994) (addressing the employee of home builder who sold
assignments of contracts to purchase real estate without a real estate license claiming the
contract is an ownership of real estate under the statutory definition).
279
. See generally Gray, supra note 39
280
. See Yoder v. State ex rel. Case, 1989 OK 103, ¶ 13, 776 P.2d 1273, 1276 (citation
omitted).
281
. See Lodes v. State ex rel. Okla. Real Est. Comm’n, 1992 OK CIV APP 23, ¶ 4, 837
P.2d 925, 926 (citing Ratcliff v. Cobb, 1968 OK 34, ¶ 9, 439 P.2d 194, 196) (stating that the
purpose of the Commission is protecting the public).
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Although wholesaling was not a common practice when the Legislature
enacted the ownership exception, it is unlikely that the Legislature intended
the exception to include properties that are merely under contract.
282
An
everyday citizen thinks of ownership similar to the legal definition—
ownership is the right to have physical possession or legal title of a
property.
283
The statute’s plain text and the word’s common meaning make
it absurd to believe that the Legislature meant to exempt wholesalers from
real estate licensing requirements simply by asserting an ownership interest
through an executory, assignable purchase contract. Legislative intent,
however, is only one consideration in interpreting a statute; public policy
concerns permeate legislative action and guide interpretation.
C. The Unchecked Use of Contract Assignments as an Exemption to Real
Estate Licensing Is Harmful to the Public Interest
Public policy concerns are central to real estate licensing and must be
considered in reviewing possible enforcement avenues related to
wholesaling.
284
In Oklahoma, “[o]ne of the long-recognized purposes of [the]
real estate licensing law is the regulation of the business of selling real estate
for a fee or commission for the protection of . . . the public.”
285
Additionally,
to protect the public the Legislature has “furnish[ed] a full and
comprehensive descriptive statement of the acts and activities embraced in
the business of brokers and salesmen engaged in selling real estate for other
persons for a fee or commission.”
286
Comprehensive regulations are not
enough to protect consumers; courts must interpret challenged regulations in
a way that allows effective agency enforcement.
The Oklahoma Supreme Court has mandated that Oklahoma courts should
not interpret a statute in a way that is adverse to the public-protection interest
of the enforcement agency.
287
Further, enforcement officials analyze real
estate licensing enforcement actions through a public policy lens by
282
. See 59 OKLA. STAT. § 858-301 (West, Westlaw through 1st Reg. 2021 Sess.)
(codifying ownership exception in 1974). See generally Youngling, supra note 4, at 109
(referencing rise of wholesaling occurred in the wake of 2000s housing crisis).
283
. See Own, BLACK’S LAW DICTIONARY (11th ed. 2019).
284
. See supra note 218.
285
. Lodes, ¶ 4, 837 P.2d at 926.
286
. Ratcliff, ¶ 9, 439 P.2d at 196.
287
. Lodes, ¶¶ 3–6, 837 P.2d at 926–27 (holding that statutory restraints on broker
behavior prohibiting “untrustworthy, improper, fraudulent, or dishonest dealings” were not
too broad to be enforceable) (“[I]t is proper to consider the purpose of the statute, and the
legitimate interest that the state is seeking to protect by the statute.”).
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184 OKLAHOMA LAW REVIEW [Vol. 74:147
reviewing the impact on the enforcement agency and then considering what a
reasonable industry professional’s interpretation of the regulations would
be.
288
A wholesaler’s use of a purchase contract to assert an exemption fails
on both a public-protection and the reasonable industry professional
interpretation analysis.
Interpreting a wholesaler’s purchase contract as an ownership interest that
exempts a party from licensing would be adverse to the enforcement mission
of OREC and the public interest.
289
A traditional application of the ownership
exception would remove a limited number of transactions from the agency’s
regulatory oversight; however, treating a purchase contract as an ownership
interest provides a de facto workaround for licensing.
290
Wholesalers often
fail to close on properties because they do not have the financing to complete
the transaction.
291
While a licensed broker is required to “treat all parties with
honesty” and “exercise reasonable skill and care,”
292
unlicensed wholesalers
do not have the same duties of professional competence. A broker’s duty of
competency would prohibit him or her from engaging in a pattern of
arranging contracts that cannot close.
293
Further, a licensee breaching this
duty would be subject to penalties under the Oklahoma Real Estate License
Code; however, because wholesalers work outside the licensing structure,
they are not subject to enforcement penalties.
294
Interpreting a purchase
contract as an ownership interest that exempts a seller from licensing not only
undermines public protection, but it is also contrary to a real estate
professional’s common-sense interpretation.
The real estate licensing code should be interpreted as a reasonable
businessperson engaged in the profession would understand the ownership
exemption.
295
Utilizing purchase contracts as an ownership exemption would
288
. See id. ¶ 6, 837 P.2d at 927 (stating that a reasonable businessperson would
understand what the real estate licensing provisions meant in the context of the profession
regulated).
289
. See id. ¶ 4, 837 P.2d at 926 (citing Ratcliff, ¶ 9, 439 P.2d at 196) (stating the core
purpose of OREC is to protect the public in real estate transactions).
290
. See, e.g., Emde, Chairman’s Corner, supra note 29. The regulatory body indicates it
is working towards a “plan to address [wholesaling] without restricting the ability of a
property owner to sell their property on their own.” Id.
291
. See generally Roach, supra note 5.
292
. See 59 OKLA. STAT. § 858-353(A)(1) (West, Westlaw through 1st Reg. 2021 Sess.).
293
. See generally id.
294
. See id. § 858-401(A).
295
. See Lodes v. State ex rel. Okla. Real Est. Comm’n, 1992 OK CIV APP 23, ¶¶ 2–3,
837 P.2d 925, 926.
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allow virtually limitless exceptions to Oklahoma’s real estate licensing
requirements. If this were the case, why would a real estate professional ever
meet the education requirement, take the licensing exam, and pay the
required fees to obtain a real estate license? The stream of enforcement
complaints to OREC indicates a reasonable real estate professional does not
believe a wholesaler needs to merely enter into a purchase contract to avoid
the licensing and regulatory authority of OREC.
296
Further, a wholesaler’s
commercial interest in marketing the future ownership of a property cannot
outweigh the public protection purpose of OREC and the Oklahoma Real
Estate License Code and Rules.
A wholesaler performs unlicensed real estate activity when it markets and
sells an assignment of a property for a fee without a valid Oklahoma real
estate license. Existing Oklahoma case law indicates equitable title is not
created by a purchase contract. Further, the Legislature probably did not
intend for the definition of ownership to include a purchase contract that the
reseller had no intention of consummating. Therefore, a wholesaler has no
actual ownership interest in the property. Absent an ownership interest in the
property, wholesalers are performing unlicensed activities that are subject to
regulation by OREC. Overall, the Oklahoma Real Estate Licensing Code and
Rules were designed to protect the public. Extending the ownership
exemption of licensing to the sale of an assignment of a purchase contract is
contrary to the public protection mission of OREC and the regulatory purpose
of the Code and Rules.
Given that public protection is the purpose of licensing and the ongoing
problems with wholesaling, explicit legislation that subjects wholesaling to
real estate licensing requirements may be the most appropriate course of
action. Requiring real estate licensing for wholesaling is arguably more
appropriate now that significate barriers to licensing have been removed.
297
The passage of House Bill 1373 in May 2019 removed limitations on licenses
to those with “good moral character” and limits license refusals to the
“convict[ion] of a felony crime that [is] substantially relate[d] to the
occupation of a real estate agent and poses a reasonable threat to public
296
. See Emde, Chairman’s Corner, supra note 29.
297
. See Barbara Hoberock, Gov. Kevin Stitt Rolls Out New Criminal Justice Reform
Package, TULSA WORLD (May 2, 2019), https://tulsaworld.com/news/state-and-regional/gov-
kevin-stitt-rolls-out-new-criminal-justice-reform-package/article_1f514e08-3493-5be9-91f8-
8d18f1e81f26.html (“Stitt wants lawmakers to send him House Bill 1373 that would let
those with a nonviolent felony conviction . . . be licensed in occupations as long as the job is
not substantially related to the offense. The goal is to reduce barriers to employment.”).
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186 OKLAHOMA LAW REVIEW [Vol. 74:147
safety.”
298
Further, because the Oklahoma definition of real estate includes a
future interest in property, enforcement without a new statute may be
tenuous.
299
A textualist reading of the existing statute and expansive
definition of real estate in Oklahoma makes new, targeted legislation
appropriate to swiftly and effectively address real estate wholesaling.
VII. Conclusion
Key Oklahoma stakeholders, including realtors, OREC, and the Oklahoma
Legislature, have expressed an interest in addressing the practice of
wholesaling. It is undisputed that wholesaling practices should be proactively
addressed to protect the public from the dual-nature dangers of
wholesaling.
300
Although it can be lucrative for the individual wholesaler,
wholesaling is linked to predatory practices that harm individuals and the
economy as a whole. It is unclear, however, if the proposed Predatory Real
Estate Wholesaler Prohibition Act is the best method, or even required, to
regulate real estate wholesalers.
A reframing of enforcement under the current rules may serve the purpose
of regulating wholesalers without requiring additional legislation. If the
Legislature desires to make a clear policy statement, then Oklahoma should
adopt a hybrid approach. Oklahoma should blend a minimum holding period
to claim the ownership exception and wholesale disclosure requirements to
become the model for regulating the dualistic nature of real estate
wholesaling. This approach to regulating the wild west of the real estate
market would effectively address all types of wholesaling in the state.
Overall, a hybrid approach encompasses Oklahomans’ values of limited
government interference with business and minimal regulatory restrictions,
while being effective and efficient at protecting the public. Thus, if
Oklahoma chooses to adopt new legislation, a hybrid approach of limited
regulation paired with full consumer disclosure is likely the best model for
Oklahoma.
Rebecca Braun-Harrison
298
. H.B. 1373, 57th Leg. (Okla. 2019) (enacted) http://webserver1.lsb.state.ok.us/
cf_pdf/2019-20%20ENR/hB/HB1373%20ENR.PDF.
299
. 59 OKLA. STAT. § 858-102(1).
300
. See, e.g., Roach, supra note 5 (noting the dangers both to sellers and to
wholesalers).
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