IS WHOLESALING PROPERTY LEGAL IN ILLINOIS NOW?
Governor J.B. Pritzker signed Public Act 101-0357 (“hereinafter referred to as “New Wholesaling Law”), which essentially made wholesaling property illegal in Illinois. Senate Bill 1873 became law on August 9, 2019. The law in terms of wholesaling became effective immediately. Wholesaling is a when a party enters a real estate contract on a distressed property and reserves the right to assign another buyer to substitute in their place. Essentially, a wholesaler is a person or entity that finds good deals for real estate investors and receives a finder’s fee or some other form of compensation for their efforts.
Essentially, this new Wholesaling Law has a legislative intent to make it more difficult to wholesale without a real estate license. The new Wholesaling Law further adds a definition of “whether for another or for themselves, engages in a pattern of business of buying, selling, offering to buy or sell, marketing for sale, exchanging, or otherwise dealing in contracts, including assignable contracts for the purchase or sale of, or options on real estate or improvements thereon….” Public Act 101-0357, Section 1-10
This new Wholesaling Law refers to the sale of real estate as well as land sale contracts among other things. The new Wholesaling Law specifically refers to “assignable contracts” and talks about a pattern of buying, selling, or offering to buy or sell. The new Wholesaling Law is well-defined and broad in its interpretation.
Furthermore, the new Wholesaling Law will require Wholesalers to have a broker’s license (realtor’s license) if they do more than one deal per year. For example, the new Wholesaling Law states that “For purposes of this definition, an individual or entity will be found to have engaged in a pattern of business if the individual or entity by itself or with any combination of other individuals or entities, whether as partners or common owners in another entity, has engaged in one or more of these practices on 2 or more occasions in any 12-month period”. Public Act 101-0357, Section 1-10.
The new Wholesaling Law also prohibits the payment of compensation to non-licensed person(s) or entity. “Compensation” means the valuable consideration given by one person or entity to another person. A licensee shall not pay compensation to an unlicensed person who is not or will not become a party to a real estate transaction in exchange for a referral of real estate services. 225 ILCS 454/10-15(e) (as amended by Public Act 101-0357). Public Act 1-1-0357, Section 1-10. Compensation refers to the following types of payments:
- Referral Fees
- Finder Fees
- Performance of Services
- Coupons or Gift Certificates
- A chance to win a raffle drawing, lottery, or similar game of chance…
- Retainer fee; or
It is also illegal for the Wholesaler to coordinate with a broker and pay them a form of compensation such as a finder’s fee or performance of services. This new Wholesaling Law is outlined in the licensing requirements of brokers under Real Estate License Act of 2000, which is amended effective through January 1, 2020 to January 1, 2030. Every ten (10) years the Real Estate License Act is amended and updated. 225 ILCS 454/10-15(e).
Public Act 101-0357 prohibits wholesaling without a license when a person or entity has participated in two or more occasions in any 12-month period. Thus, a completed sale is not necessary because the new Wholesaling Law requires a broker’s license when one has “participated in two or more occasions”. Simply put, the term “participating” and the term “occasions” are broad terms. One could be involved in wholesaling by receiving mentorship as part of a team. This new law applies to buyers and sellers. Technically, if you in any way where a part of such transaction, this new law is applicable to you. Wholesaling in any 12-month period is illegal, which means that the business of wholesaling refers to any 12-month period. The goal of the new law is to protect consumers. The new law is comprehensive and is well-defined and does not leave any ambiguity. A real estate broker’s license is required to contract to sale real estate (or many related terms). The new Wholesaling Law is aimed at protecting consumers and has a desire to regulate the real estate broker profession. Upon until recently, the wholesaling real estate business was unregulated by the State of Illinois.
Penalties for Unlicensed Activities in Illinois
Under 225 ILCS 454/20-10 (as amended), levels a $25,000 civil penalty for each offense in violation of acting without a license. The unlicensed person is entitled to due process and a hearing. The Department has authority and power to investigate any and all unlicensed activity. 225 ILCS 454/20-10 (as amended). Under 225 ILCS 454/20-15 states that the commission of a single act prohibited by this Act constitutes a violation of the new Wholesaling Law. The State may also discipline and refuse to grant a real estate broker license to an unlicensed individual found to have violated this Act. 225 ILCS 454/20-20 (as amended).