Is Wholesaling Real Estate Legal In Maryland? A 2024 Guide For Investors

Are you ready to unlock the secrets of wholesaling real estate in Maryland? This burning question has sparked the enthusiasm of countless up-and-coming investors, all eager to dive into the lucrative world of Maryland's real estate market. However, before starting, many aspiring investors have a straightforward question: Is wholesaling real estate legal in Maryland?

This article is your gateway to understanding the legalities and thrilling possibilities of wholesaling real estate in Maryland. With that out of the way, let's embark on an exciting journey to break down Maryland's laws, rules, and regulations that govern one of today's best real estate exit strategies. In doing so, we'll cover the following topics for real estate wholesalers in Maryland:

• What Do You Need To Know About Wholesaling Properties In Maryland?
• Is Wholesaling Real Estate Legal In Maryland?
• What Are The Wholesaling Laws In Maryland?
• Do You Need A Real Estate License To Wholesale In Maryland?
• What Are The Penalties For Wholesaling Without A License In Maryland?
• Is Double Closing Legal In Maryland?
• Maryland Wholesale Real Estate Contracts
• Final Thoughts

*Before we begin our guide on the legalities of wholesaling real estate in Maryland, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!

While not a novel concept, wholesaling in Maryland has recently gained recognition as an emerging term in the state's real estate community. This strategy involves a series of steps whereby an investor becomes a middleman in the property transaction without taking ownership. Still, despite its rise in popularity, people are still asking one question: Is wholesaling real estate legal in Maryland?

The process begins when a real estate investor signs a contract to purchase a property, signaling this commitment by placing an earnest money deposit in an escrow account. The crux of wholesaling lies in the investor's ability to sell the rights and obligations outlined in the purchase contract to a third party—often referred to as the end buyer. This transfer allows the investor to profit from the sale without owning the property.

Experienced wholesalers typically maintain a cultivated list of potential buyers, which they have compiled over time through extensive networking and past transactions. This list is crucial for quickly finding an interested party to whom the contract can be assigned.

The legal foundation that permits the sale of one's rights in a contract of sale is the Doctrine of Equitable Conversion. This doctrine is a principle in real estate investing that allows the contract holder to be treated as the property's owner for the purpose of the contract, thus enabling the transfer of these rights to another buyer. In essence, it facilitates the wholesaler's ability to act as a mediator between the original seller and the end buyer, streamlining the property transaction process without the need for direct property ownership.

Is wholesaling real estate in Maryland legal? This strategy, which involves acquiring properties from motivated sellers at discounts to earn an 'assignment fee,' poses this common inquiry. However, those who work within the confines of local laws and contracts will find wholesaling worthwhile. Done correctly, wholesaling can earn investors a fee. The fee is the difference between the purchase and sale prices, with actual profits calculated after subtracting transactional costs.

Unlike house flipping, which requires a substantial investment for property improvements, wholesaling is appealing for its minimal capital requirement; this makes it a favored approach among those looking to enter the real estate market in Maryland with limited funds, distinguishing it as a low-barrier investment strategy.

Wholesaling in Maryland coincides with attractive prospects. As a result, it's time to stop asking, "Is wholesaling real estate legal in Maryland," and start looking into how to wholesale real estate legally.

Read Also: How To Wholesale Real Estate In Maryland

What Do You Need To Know About Wholesaling Properties In Maryland

The state of Maryland is in the mid-Atlantic region of the United States. Its overall area exceeds 12,400,000 square miles. It was the seventh state admitted to the Union in 1788, originally named to honor King Charles’ wife, Queen Mary. While it is among the geographically smallest states, it is also the 19th most densely populated state. According to the U.S. Census Bureau, the state's dense population results from its 6,180,253 residents.

Maryland's population is concentrated around its five most-populated cities:

• Baltimore (584,548)
• Columbia (106,600)
• Germantown (90,210)
• Silverspring (81,808)
• Waldorf (81,077)

While Maryland isn't the most populous state, it has several organizations to help govern the local real estate market. The most prominent real estate trade and professional organizations in Maryland are noted below (each of these associations is a member of the National Association of Realtors (NAR):

• Maryland Association of Realtors (MAR): Headquartered in Annapolis, the Maryland Association of Realtors is the state-level trade association for real estate professionals. The MAR seeks to support professionals in working ethically (and successfully) with the public in the real estate market.
• Greater Capital Area Association of Realtors (GCAAR): With more than 10,000 members, the GCAAR is recognized as one of the largest non-state REALTOR associations nationwide. Members include real estate professionals from Montgomery County in Maryland and Washington, DC. The GCAAR seeks to act as the voice of local real estate and to promote/protect the rights of private property owners.
• Greater Baltimore Board of Realtors (GBB): Founded in 1858, the GBB is the country’s first association dedicated to the real estate profession. Its approximately 5,000 members represent all facets of the real estate business. The GBB offers training and workshops and strongly advocates regulatory issues regarding wholesale properties in Baltimore, Maryland. Anyone looking for Baltimore wholesale properties would be wise to consult the GBB.
• Anne Arundel County Association of Realtors (AACAR): Established in the early 1940s, the AACAR now serves and supports more than 3,000 real estate professionals in the Chesapeake Bay/Central Maryland area. It advocates to advance policies in support of public and private interests.
• Southern Maryland Association of REALTORS (SMAR): Established in the early 1970s, the SMAR serves nearly 2,000 real estate professionals in the southern portion of the state, making it southern Maryland’s most influential trade organization in the real estate business. SMAR’s mission is to help communities in southern Maryland to thrive.

The Maryland Real Estate Brokers Act notes the state real estate laws that govern wholesale real estate Maryland rules and the legality of actions in Maryland.

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Maryland Real Estate Commission

Maryland Real Estate Commission (MREC), housed within the Maryland Department of Labor, administers the licensing processes for real estate professionals. Its powers and authority are delineated in the Maryland Real Estate Brokers Act (Title 17 in §17–202).

The qualifications to earn a two-year real estate license in Maryland are noted in the state laws in provision §17–303.

However, it should be noted that MREC can waive licensing requirements by provision §17–3A–02. The reciprocal licensee must conduct Maryland business with an affiliated licensed broker.

A real estate license earned from another state must have licensing requirements similar to those of Maryland. Currently, Maryland has signed a reciprocity agreement with these states for other licensed real estate agents:

• Pennsylvania Reciprocity Agreement
• Oklahoma Reciprocity Agreement

Is Wholesaling Real Estate Legal In Maryland?

Yes, wholesaling real estate in Maryland is legal, but there's a bit more to the story. It's all about playing by today's Maryland real estate laws. As long as you stay within those lines and avoid stepping into the shoes of a real estate agent or broker without a license, you're in the clear.

The key here is understanding what you can and can't do. In Maryland, certain actions are strictly for the pros – meaning only licensed real estate agents or brokers can perform them. If a wholesaler tries to do any of these things without the proper license, they could find themselves in hot water, legally speaking.

So, if you're looking into wholesaling in Maryland, the smart move is to get familiar with what requires a license (like brokering deals between buyers and sellers). If you cross that line and act like a broker without the official credentials, you're breaking the law.

In short, yes, you can wholesale real estate in Maryland, but it's not just a free-for-all. It's legal as long as you stick to the rules, steer clear of activities that require a real estate license, and always keep on the right side of Maryland's legal requirements. This way, wholesale properties in Maryland can be a legit part of your real estate strategy as long as you play it smart and stay informed.

What Are The Wholesaling Laws In Maryland?

Is wholesaling real estate legal in Maryland? The legal key to wholesaling real estate in Maryland is to accomplish your goal without acting in a way that requires a real estate license, as noted in provision § 17-301 (a,1).

According to the Maryland Real Estate Brokers Act (§17–101 (I)), "Licensed real estate broker” means a broker who is licensed by the Commission to provide real estate brokerage services unless the context requires otherwise. To be clear, real estate brokerage services are defined in §17–101 (l 1-6).

For the sake of clarity, §17–101 (m 1,2) defines real estate as "any interest in real property that is located in this State or elsewhere." In the context of Maryland law, real estate includes "an interest in a condominium" and "a time-share estate or a time-share license." However, provision §17–102 reveals those instances when the licensing requirements found in Maryland do not apply. This is further delineated in §17–301(b), which dictates when a license is not required.

According to provision §17–302 (a), these are the instances when an individual is not required to hold a real estate license in Maryland:

• If they sell six or fewer (in a calendar year) unimproved lots in which the individual has ownership
• If they subdivide or sell property that has been unimproved and owned for at least ten years

The law further explains how time and ownership are measured (§17–302 (b, c).

The Protection for Homeowners in Foreclosure Act (PHIFA) in Maryland

The Protection of Homeowners in Foreclosure Act applies to those times when a homeowner’s current mortgage loan is 60 days delinquent or more. The PHIFA sets forth the guidelines that dictate foreclosure consulting services offered to homeowners in serious default. Anyone engaging with a homeowner facing mortgage delinquency of at least 60 days must follow specific rules when working with those homeowners.

This may be perceived to include real estate wholesalers, so tread carefully.

The PHIFA is essentially in place to protect homeowners who work with ‘foreclosure consultants,’ which is defined as someone who is representing a homeowner (by any means) to perform (or offer to perform) activities that include:

• Stopping or delaying foreclosure, etc.
• Arranging the property’s sale to another party in lieu of foreclosure.
• Purchase (or receive a purchase option) within 20 days of the advertised foreclosure sale, among others.

If your activities include working with homeowners facing foreclosure, a real estate wholesaler may be considered a foreclosure consultant and thus subject to the PHIFA statute.

Do You Need A Real Estate License To Wholesale In Maryland?

No, a real estate wholesaler does not need a real estate license in Maryland if their wholesaling actions do not require a Maryland real estate broker/salesperson license.

The key to remaining within Maryland’s legal limits is to avoid any actions that would be perceived as ‘providing real estate brokerage services’ as defined in provision §17–101 (l 1-6).

To make things easier, Maryland real estate wholesalers should exercise the following traits:

• Be Transparent: Keep the contract clear and concise.
• Be Honest: Manage the seller’s expectations and let them know what to expect moving forward.
• Don’t Market The Property: Market and sell your right to purchase the property (not the property itself).
• Don't Burn Bridges: Understand how real estate licensees view real estate wholesalers and act accordingly.
• Seek Legal Help: Consider consulting a legal expert when working with any legally enforceable documents.

Read Also: Maryland Real Estate Courses Online

What Are The Penalties For Wholesaling Without A License In Maryland?

In Maryland, real estate wholesalers must not perform actions that would require a real estate license. As noted previously, this includes a host of activities that fall under the category of ‘Real Estate Brokerage Services.’

Advertising or marketing is an effective way to market a home. However, there are advertising rules to follow to stay on the legal side of the law. One of the areas where real estate wholesalers must remain vigilant and stay within Maryland’s license law is in the area of advertising. Maryland’s guidance has been developed to try to avoid consumer confusion.

You can unintentionally overstep legal boundaries in real estate as a wholesaler by advertising a property for sale if:

• The wholesaler has no legal ownership in the property being advertised
• The advertiser does not hold a valid, unencumbered Maryland real estate license (with the owner's authorization).

MREC provides a checklist with regard to advertising, which applies to licensed real estate professionals.

The consequences and penalties for violating Title 17 of the Maryland Code are found in §17–613. Specifically, "a person who violates any provision of the following sections of this title is guilty of a misdemeanor and on conviction for a first offense is subject to a fine not exceeding $5,000 or imprisonment not exceeding 1 year or both."

The above applies to these legal provisions:

According to § 17-613 (c 1-3):

• For the first violation, a $5,000 maximum fine
• For the second violation, a $15,000 maximum fine or two years imprisonment (or both)
• For the third violation, a $25,000 maximum fine or three years imprisonment (or both)

Is Double Closing Legal In Maryland?

The closing, which is also known as settlement, can take place in a number of places, depending on the state and state laws. A real estate closing is the time when paperwork is executed and ownership (or title) is transferred to the new owner.

A double closing is one of the more popular real estate investing exit strategies, along with the assignment of contract strategy. Essentially, a double closing is simply two closings that typically occur back-to-back, with the ownership of the property changing hands twice:

• The first closing is between the seller and the wholesaler (or buyer)
• The second closing is between the wholesaler (now the seller) and a new end buyer

A double closing offers real estate wholesalers a safe and legal track to the transaction’s close because the wholesaler was indeed the buyer in the real estate deal and acting as a principal, as evidenced by the first closing. As the owner of the property at the time of the second closing, the licensing rules no longer apply to owners who sell their own property.

Comparatively speaking, the additional safety offered by using the double closing exit strategy tends to be more costly than the assignment exit strategy, simply because there are two sets of closing costs.

Maryland Wholesale Real Estate Contracts

Local investors should acquaint themselves with two specific types of contracts: the Maryland purchase agreement and the Maryland real estate assignment contract

A purchase agreement or contract of sale is the most important document in a wholesale transaction. It details the specific terms of the wholesale transaction in writing and is legally enforceable.

The purchase agreement includes standard information, like the parties to the deal, a property description, and a sale price; however, contracts are tailored to meet the needs of each party to the contract with no limit to provisions, unless the provisions reference illegal acts.

Maryland law provides for the buyer of real property to select the title company or settlement real estate attorney.

An assignment contract is a legal document that transfers the wholesaler’s (now known as the assignor) rights and obligations to an end buyer, who is often a cash buyer (known as the assignee).

In January 2020, the Maryland Realtor Residential Contract of Sale underwent severa revisions.

Here's a detailed video walkthrough of the Maryland Residential Purchase Contract by a local real estate broker:

A copy of the Maryland Residential Property Disclosure & Disclaimer Statement is also available.

Legal Challenges To Maryland’s Real Estate Assignment Contract Law

In a legal case involving real estate contract assignments, Pines Pl vs. Berkley Trace LLC, the highest court in Maryland ruled that the obligations in a contract do not automatically transfer when the contract is assigned unless "The assignment explicitly provides so. The seller, in this case, invites us to reverse that presumption and hold that an assignee normally assumes the obligations of the assignor under the contract unless the assignment provides otherwise," according to BTLG Attorneys at Law.

Prudent wholesalers can meet this legal requirement with a compliant assignment contract.

Final Thoughts

Many real estate wholesalers begin with distressed properties as these are – in a typical market, available to be purchased below market value. Even basic resource sites like Craigslist or Zillow can help refine a search to locate an investment or rental property to wholesale. Sellers are typically motivated and often glad to have found someone to take the property off their hands.

An essential thing to remember is that a real estate wholesaler needs to market the rights/obligations, not the property! A well-written contract and transparent negotiations help manage everyone’s expectations and make the wholesale deal close smoothly.

*Disclosure: Real Estate Skills is not a law firm, and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs