Wholesaler or huckster? Philly Council passes bill to curb real estate scammers

City Council unanimously passed the bill targeting real estate wholesalers. Despite Council support, some realtors fear the legislation could backfire.

Signs that read, ''I Buy Houses'' and ''We Buy Houses'' can be seen posted on a street pole in Philly

Signs from residential wholesale buyers can be found all over Philadelphia, advertising fast cash for homes. (Courtesy of Community Legal Services)

North Philadelphia native Blondelle Murphy, 66, almost lost her family home last year.

When her parents died, she and her five siblings inherited the house near Temple University. Her 81-year-old brother was the only one living in the house at the time.

A man approached him trying to buy the house for $30,000, significantly less than what the property is worth. He picked him up, brought him to City Hall, and had the brother sign papers he didn’t understand. It turned out that he signed paperwork stating that his siblings had no interest in the home. This man pressured the 81-year-old to sign away their home without his other siblings’ consent — a crime.

Murphy took it upon herself to personally call the man preying on her brother to tell him to leave the family alone. Her brother cannot sell because he is not the sole owner, she told the man.

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“I felt as though it was a great injustice, because he tricked my brother,” Murphy said. “He found someone that was vulnerable and took advantage of them. He was actually trying to steal.”

It was Murphy’s tenacity that saved her brother from being scammed, but not everyone is so lucky.

A bill passed Thursday by City Council aims to curb the prevalence of real estate speculators known as wholesalers — and protect other families from the experience Murphy’s brother had.

“When I introduced this legislation in October, I mentioned the signs we all see in our communities – the ‘we buy houses’ signs,” said Councilmember Allan Domb, who spearheaded the legislation.

Those signs, Domb said, reminded him of the “many ways people can be taken advantage of”  in a real estate market where home values are rising in areas that have not experienced such growth in the past. In gentrifying areas like the section of North Philadelphia near Temple, longtime owners may be unaware of the equity they have accrued.

Wholesalers, who primarily operate under layers of LLCs, do not typically buy houses. Instead, they make an offer to the homeowner and then assign or sell the sales contract to someone else for a better price. This leaves the homeowner with less than what the house is worth and more profits for the wholesaler.

The Greater Philadelphia Association of REALTORS has endorsed the bill.

It’s not a coincidence that Murphy’s elderly brother was approached in their family’s situation. According to Kate Dugan, an attorney for the Homeownership and Consumer Rights Unit at Community Legal Services, these operators often target vulnerable homeowners such as seniors or immigrants who do not speak or read English, heirs who are grieving dead family members and those who are at risk for mortgage or tax foreclosure.

The bill will require a licensing system for wholesalers who must follow a set of ethical guidelines. The licensing requirements include an application fee of $200, proof of insurance, the name and address of an actual person (not just an LLC), and a criminal background check.

Wholesalers also have to provide homeowners with a disclosure, or a seller’s bill of rights, at least three days before presenting an offer to the homeowner. This disclosure must include how to access resources that assess the fair value of the homeowner’s property. The disclosure also has to inform the homeowner of their rights, which includes the homeowner’s right to hire a real estate agent and to seek legal counsel. The wholesaler must have the homeowner sign this disclosure as evidence that they provided it.

For homeowners who don’t want to sell but feel as if they don’t have a choice, this is a document that gives clear guidance on options. For those who do want to sell, it gives information on how to get a fair price.

The bill also creates a Do Not Call list for homeowners who do not want to be solicited to sell or rent their property. Any property owner who appears on the Do Not Call list can request in writing that the Commission remove their name from the list. The Commission will fulfill that request within 30 days.

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“All homeowners deserve a fair deal in the real estate market, and everyone deserves to work with the knowledge they need to make an informed decision about their financial future,” Domb said. “Homes offer people the ability to generate and perpetuate wealth in families, so it’s upon all of us to be sure we help people keep their homes when they wish, and help sell them for a fair price when it’s the right time for them to sell.”

It’s such a problem in the gentrifying neighborhood of Strawberry Mansion that people have started social media campaigns to try to save their homes. Strawberry Mansion CDC President Tonnetta Graham said homeowners are harrassed daily with street signs, door knockers, postcards and even text messages.

“Enough is enough,” Graham said. “It’s time to put this industry on notice that we are not going to let them push the displacement/gentrification agenda without exposing their practices and providing legal protection and recourse for our residents.”

If a wholesaler is found out to be unlicensed, the sale can be nulled at any time before a title transfer. Any violation of this law will be a Class III offense and the wholesaler will be subject to fines. Homeowners who sold their homes through unlicensed wholesalers would have new options to save their homes.

During Thursday’s City Council meeting, Judith Robinson, a licensed real estate broker, said she doesn’t see the bill working in practice.

She said she sees the licensure requirement as meaningless since it doesn’t require the same level of training or education as a professional real estate broker. She also doesn’t see how a disclosure is going to help, even with the three-day waiting period.

“You are still putting … a legally binding document in front of a homeowner who is not aware of what is in front of them,” Robinson said. “It elevates paper-pushing.”

Katey McGrath, a realtor and director of operations and a partner of Elfant Wissahickon Realtors, doesn’t feel the same.

“[The] bill asks the city to hold these wholesalers to reasonable professional standards,” she said. “It asks wholesalers to stand by the service they offer, and to perform it ethically and in a transparent manner.”

The ordinance will take effect two months after it becomes law.

Broke in PhillyWHYY is one of over 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push towards economic justice. Follow us at @BrokeInPhilly.

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