On Nov. 1, the Predatory Real Estate Wholesaler Prohibition Act went into effect in Oklahoma. The legislation aims to address predatory practices by real estate wholesalers, referring to a practice in which a wholesaler enters into a contract with a property owner, but the owner ultimately transfers title to a different third party at closing.
To control this practice, the state Legislature opted to expand the scope of Oklahoma’s Real Estate License Code. Previously, individuals and business entities were broadly permitted to purchase, sell, lease, and take other actions on property owned or leased by the individual or entity without having to obtain a real estate license. The most familiar example of this is a homeowner who lists his or her own home “for sale by owner.” Using this exception, unlicensed business entities were able to enter purchase contracts with property owners and then market their newly acquired contractual interest to third parties. Until now, that is.
Under the act, which amends existing law, real estate wholesalers are required to obtain real estate licenses before engaging in these transactions. Licensees are subject to the oversight of the Oklahoma Real Estate Commission and are required to comply with commission rules, such as a requirement to disclose one’s licensing when entering into a transaction in a personal capacity.
With the revised language, the Real Estate License Code now prohibits an unlicensed person 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”. It is not yet clear just how far this language will reach, which is of particular concern within the commercial real estate industry.
Predatory real estate wholesaling and the resulting problems that prompted legislative action are largely tied to residential home sales. However, the legislation does not distinguish between commercial and residential wholesale transactions.
Although the practice of marketing an interest in a real estate contract may be problematic in the residential context, it is common in commercial real estate transactions, such as when a purchaser needs to obtain partners to finance a development concept. So, while the act offers protections for homeowners, commercial purchasers would be wise to evaluate their current practices to ensure compliance with the new rule.
Until there is further guidance, buyers beware.
* This article first appeared in The Journal Record on February 9, 2022, and is reproduced with permission from the publisher.