Subcommittee approves bill requiring wholesalers to disclose assignments in real estate deals

The Business & Utilities Subcommittee on Wednesday advanced House Bill 781, a measure that would require a buyer engaged in wholesaling real property to disclose to the original seller and to a subsequent purchaser certain information about the transaction.

The bill, sponsored by Representative Martin, defines wholesaling as a transaction in which a buyer contracts to purchase real property and then assigns the buyer's equitable interest to a subsequent purchaser for a higher price. It would require disclosure of (1) the nature of the buyer's equitable interest, (2) the buyer's intent to market that equitable interest before the contract is executed, and (3) the effective date of any assignment at least three business days before that assignment takes effect.

Supporters said the disclosures are intended to give sellers and later purchasers clearer information so they can make informed decisions. "The notice of assignment goes to the original seller, the owner of the property, where the wholesaler says, mister seller, I have found a capable purchaser, and in 3 days, my assignment of my interest becomes effective," Addison Russell, testifying on behalf of Tennessee Realtors, told the committee. "It doesn't give the seller the right to terminate that contract. It's just letting them know that someone else will be coming to the closing table." (Addison Russell, testimony)

Why it matters

Proponents said the bill addresses a transparency gap in transactions that can be confusing to sellers, especially unsolicited approaches to elderly homeowners. "These sellers are not represented by an agent. They're not getting advice as to what these contracts mean," Representative Barrett said during debate. He also said he has seen actors record contracts to try to create liens on property.

Key details and debate

- Definition: The bill defines wholesaling as assignment of a buyer's equitable interest before legal title transfers. That equitable interest is the buyer's right to benefit or profit from real property after entering a purchase contract but before title transfer.

- Three disclosures required: (1) the nature of the buyer's equitable interest; (2) the buyer's intent to market that interest prior to contract execution; and (3) the effective date of any assignment, at least three business days before that effective date.

- Timing and practical concerns: Chairman Lafferty and others asked whether the assignment effective date could be the date of closing and raised concerns that the three-business-day notice could allow a subsequent purchaser to withdraw and approach the seller directly. Representative Lafferty said one risk is that "the capable buyer has no idea about the distressed seller" and could withdraw when informed of the assignment, possibly harming a distressed seller's deal.

- Scope and enforcement: Representatives asked whether the bill would prevent ordinary investment purchases; sponsors replied it would not prohibit buying investment property but would require disclosure when the buyer only holds an equitable interest and intends to assign it. Penalties were described as primarily civil remedies: "we are looking primarily at civil lawsuits right here," Addison Russell said when asked about enforcement.

- Consumer protections: Representative Barrett and others argued the bill was a first step but does not go far enough to protect sellers who are targeted by cold calls or door knocks. Several members said the bill could lay groundwork for stronger measures later if problems persist.

Committee action and outcome

The committee voted to send House Bill 781 to full Commerce; the clerk recorded 10 ayes and no nays. "House Bill 781 passes. It's on its way to full commerce," the chairman announced after the vote.

What the bill does not specify

The bill text as discussed does not set a criminal penalty, instead pointing to civil remedies; it does not quantitatively limit the number of wholesale transactions a person may do; and members noted the statutory text leaves open whether the assignment effective date could coincide with closing. Sponsors and witnesses indicated those points could be addressed in future legislation.

Provenance

This article draws chiefly on the sponsor's explanation and testimony beginning when Representative Martin was recognized to explain House Bill 781 and the committee vote that followed. The committee heard external testimony from Addison Russell of Tennessee Realtors during an out-of-session testimony period.

Ending

The measure now goes to the full Commerce committee. Supporters said it will increase transparency for sellers and subsequent purchasers; critics said it is a limited first step and questioned whether civil remedies are sufficient to protect vulnerable homeowners.