Wholesale Real Estate Buyers and Sellers-So important to understand the LAWS

The recently passed HB 2747 addresses disclosure requirements for wholesale buyers and sellers. Wholesalers don’t own properties, but rather make deals and then resell those deals to other investors for a fee. Their purchase and sale agreements typically include an “or assigns” phrase, giving them the right to assign the property to another investor. So, for instance, wholesale situations occur when a person (the wholesaler) acquires a contract from the original seller. The wholesaler then signs the contract over to a buyer. In this situation, the wholesaler never actually purchases the property.

Because wholesalers are essentially middlemen, they need to find seriously discounted deals from very motivated sellers. This means that wholesale properties are usually distressed or off market. So, why go to all this trouble? Money. The wholesaler makes money from a wholesaling fee.

HB 2747 sets requirements to ensure that all parties understand the situation by:

• Requiring a wholesale buyer of residential real property, before entering into a binding agreement, to provide a disclosure in writing to the seller that the buyer is a wholesale buyer.
• Stipulating if a wholesale buyer violates the disclosure requirement, the seller may cancel the contract for sale at any time prior to the close of escrow without penalty and may retain any earnest money paid by the wholesale buyer.
• Requiring a wholesale seller of residential real property, before entering into a binding agreement, to provide a disclosure in writing to the buyer that the seller is a wholesale seller who holds an equitable interest in the property and that the seller may not be able to convey title to the property.
• Stipulating if a wholesale seller violates the disclosure requirement, the buyer may cancel the contract for sale at any time prior to the close of escrow without penalty and may retain any earnest money paid by the buyer

• “Residential real property” means a “real property with fewer than five dwelling units.”
• “Wholesale buyer” means a “person or entity that enters into a purchase contract for residential real property as the buyer and assigns the same contract to another person or entity.”
• “Wholesale seller” means a “person or entity that enters into a purchase contract for residential real property as the seller, that does not hold legal title to that real property and that assigns that same contract to another person or entity.”

Building Permits and Utilities

With increased awareness of climate change, as well as the negative impact that certain energy sources (e.g., coal) can have on the environment, governments on the federal, state, and local level are looking for opportunities to regulate the energy sources that consumers use. HB 2686, enacted in 2020, curbed the government’s power to control consumers’ utility choices.

Specifically, the law prohibits a city, town, or county from restricting permits or prohibiting construction of buildings based on the utility provider that will be used for the new building. The law also prohibits these entities from imposing higher fees for the use of a particular utility provider.

The law, which was backed by Southwest Gas, a utility provider that supplies natural gas in Arizona, Nevada, and California, has been met with criticism from some state representatives, who claim that the statewide prohibition prevents cities from taking measures to limit their carbon footprint.

If you’d like to read an article about the legislation, check out the link in your optional resources.

Judgment Expiration

Judgment liens come into play in real estate when a court awards a creditor the right to take possession of a debtor’s property—real or personal, depending on the parameters of the judgment order—to pay off the debtor’s debts. For example, landlords can be awarded a judgment when their tenants fail to pay rent. The landlord then records the judgment with the county, and it becomes a lien against the tenant.

Judgments used to expire after five years unless the creditor renewed the judgment for another five years. However, an update to Arizona law, HB 2240, doubled both the original judgment timeline and the renewal period to 10 years. The 10-year time period automatically applies to judgments entered on or after August 3, 2018.

Limitations of Actions

HB 2240 established an eight-year statute of limitations for cities or municipalities who wish to bring lawsuits or other legal actions against a builder or developer. The eight-year window begins on the date the entire project (e.g., house) is complete. This section of the law specifically applies to contract lawsuits related to:

• Real estate contracts
• Sales or construction agreements
• Conveyances
• Agreements for construction of improvements to real property or certain related services

The law doesn’t prevent a city or municipality from suing a builder or developer under its own laws.

The statute of limitations does not apply to cases in which the builder or developer willfully, recklessly, or fraudulently concealed violations of city or county requirements.

So in conclusion, while sometimes we find something that make sense we have to very cautious in these types of purchases.

Any questions, remember that I answer my phone and available for you.

Linda – 602-688-9279