Illinois wholesaling law: when assigning contracts needs a license

What the 2019 amendment changed

Public Act 101-0357 (Senate Bill 1872) rewrote large parts of the Illinois Real Estate License Act of 2000 and took effect on August 9, 2019². Among its changes, it expanded the definition of "broker" in Section 1-10 to reach people who deal in purchase contracts, which is what most investors mean by wholesaling. Before the change, a wholesaler who never listed property for others could argue the Act did not apply. After it, the definition itself answers the question once activity crosses a frequency threshold.

The definition applies statewide. It does not depend on whether the property is in Chicago, Cook County or downstate.

The operative wording

Section 1-10 defines a broker as a person or entity who, "for another and for compensation, or with the intention or expectation of receiving compensation, either directly or indirectly," does any of 12 listed activities. Item (5) is the wholesaling clause. It reads in full¹:

(5) Whether for another or 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. 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.

Four phrases do the work:

• "Whether for another or themselves." Most broker activities require acting for someone else. This one does not. Dealing in your own contracts counts.
• "Including assignable contracts." The classic wholesale, where you sign a purchase contract and sell your position for a fee, is named directly.
• "Marketing for sale." Advertising a property you only have under contract is one of the listed practices.
• "2 or more occasions in any 12-month period." A rolling 12-month window, not a calendar year, and activity through partners or co-owned entities is combined.

Other items in the same definition can also apply to a wholesaling business. Item (7) covers anyone who "advertises or represents oneself as being engaged in the business of buying, selling, exchanging, renting, or leasing real estate," and item (8) covers assisting or directing in procuring or referring leads intended to result in a sale¹.

The owner exemption and its limits

Section 5-20 exempts an owner or lessor who performs broker activities "only as it relates to the owned or leased property," and the owner's regular employees acting incidental to managing or selling that property. The exemption expressly does not apply to licensed activity for property the person does not own or lease³.

That is why the structure of the deal matters:

Penalties

• Civil penalty for unlicensed practice. A person who practices, offers or attempts to practice, or holds out as a broker without a license must pay a civil penalty of up to $25,000 for each offense, as determined by IDFPR after a hearing. The penalty is due within 60 days of the order, and the order can be enforced like a court judgment⁴.
• Investigation. Section 20-10 gives the Department authority to investigate any unlicensed activity⁴.
• Discipline and fines. Section 20-20 lets the Department impose a fine of up to $25,000 for each violation on licensees, applicants and people who hold themselves out as applicants or licensees, along with license discipline⁵.

Worked example: counting the 12-month window

Assignment versus double close in Chicago

An assignment usually records one deed, from the original seller to the end buyer, and the assignment fee shows up on the settlement statement. A double close records two deeds. In Chicago, that means the city's buyer-side tax applies to each transfer: the city portion is owed by the transferee on each deed, and the CTA portion by the transferor⁷.

See transfer tax for every rate and recording basics for what each deed needs.

What end buyers should check

1. Who owns the property. Pull the recorded deed and confirm the seller on your contract is the owner of record. If not, you are buying an assignment.
2. The assignment document. Read the underlying contract and the assignment. Confirm the original contract allows assignment, the closing date and earnest money terms, and the price the original seller expects.
3. The assignor's license status. If the person assigning to you is in the business, ask whether they or their sponsoring broker are licensed by IDFPR.
4. Disclosures. Seller disclosures, lead-based paint disclosures for pre-1978 housing and the radon disclosure come from the owner, not the wholesaler. See lead and radon rules.
5. Chicago certificates. For 1 to 5 unit residential property, the seller must clear the water Full Payment Certificate and Certificate of Zoning Compliance before city stamps issue. A wholesaler cannot deliver those.

What lenders look at

Lender policies on assigned contracts vary, and this site does not quote any lender's terms. Expect questions about:

• the chain of title and how long the seller has owned the property;
• the size of any assignment fee and whether the appraisal supports the total price;
• whether the purchase price on the loan application matches the settlement statement;
• for a double close, whether the first purchase was funded with transactional money.

For federally insured loans the rule is fixed. FHA requires that the property be purchased from the owner of record and that the transaction not involve any sale or assignment of the sales contract. A resale contract signed 90 days or less after the seller acquired the property is not eligible for FHA insurance, and a resale between 91 and 180 days at a price 100 percent or more over the seller's purchase price requires additional documentation, including a second appraisal⁶. If your exit buyer is likely to use FHA, plan the timeline around those dates. Investor-focused loans are covered under fix-and-flip loans and hard money loans.

General information for investors, not legal, tax or financial advice. Confirm current rules with the office that administers them. Found an error? Email corrections@illinoisfixandfliploan.com.