Wholesaling real estate is a popular strategy among investors, but it can lead to complex legal issues, especially when it involves selling equitable interest in a property. This blog post will delve into the intricacies of wholesaling equitable interest in Tennessee and the potential problems it can pose for property owners, using a recent court case as a reference.
What is Wholesaling Equitable Interest?
Wholesaling real estate typically involves an investor, or wholesaler, entering into a contract with a seller and then assigning that contract to a buyer, effectively serving as a middleman. The wholesaler makes a profit from the difference between the contract price with the seller and the amount the buyer agrees to pay.
When a wholesaler sells an equitable interest in a property, they are essentially selling their rights under the contract with the original seller. This can be a risky proposition, particularly in states like Tennessee where the law requires a Real Estate Brokers License to sell property that you do not own in exchange for valuable consideration.
The Case of Wholesaling in Tennessee
A recent case in Tennessee, Toryiana Louisa SOTO, et al. v. PRESIDENTIAL PROPERTIES, LLC, et al., highlighted the potential pitfalls of wholesaling equitable interest. In this case, the defendants, Presidential Properties, LLC and Kenneth Gross, attempted to sell a property they did not own to the plaintiffs. The defendants had entered into a sales agreement with the original owners of the property, the Colbaughs, with the intention of finding a buyer. They then marketed the property to the plaintiffs, the Sotos, as if they were the owners.
The defendants’ actions led to a series of legal issues. They had violated the Tennessee Real Estate Broker License Act by acting as brokers without a license. The court found that the defendants had fraudulently represented themselves as the owners of the property and had breached their sales contract with the Sotos by agreeing to sell a property they did not own.
The Implications for Property Owners
This case serves as a cautionary tale for property owners in Tennessee. It underscores the importance of understanding the legal implications of real estate transactions, particularly when they involve wholesaling equitable interest.
Property owners should be aware that if they enter into a contract with a wholesaler, they may find themselves embroiled in legal disputes if the wholesaler attempts to sell their equitable interest in the property without a Real Estate Brokers License. This could lead to a breach of contract and potential financial loss.
Moreover, the case highlights the importance of due diligence in real estate transactions. Property owners should verify the credentials of anyone they are dealing with and ensure that all transactions comply with state laws.
Conclusion
Wholesaling equitable interest in property can be a complex and risky strategy, particularly in states like Tennessee where the law requires a Real Estate Brokers License to sell property that you do not own. Property owners should be aware of the potential legal pitfalls and ensure they conduct thorough due diligence in all real estate transactions. As the case of Toryiana Louisa SOTO, et al. v. PRESIDENTIAL PROPERTIES, LLC, et al. demonstrates, failure to do so can lead to significant legal and financial consequences.
