A new Pennsylvania law protects homeowners against 'We Buy Houses' hustlers

A new Pennsylvania law aimed at protecting homeowners from predatory tactics that can strip them of their housing wealth will expand protections already in place in Philadelphia.

The state law will regulate third parties in real estate deals called “wholesalers,” who sign agreements of sale with homeowners and then sell those agreements to someone else. Wholesalers solicit homeowners with “We Buy Houses” signs, as well as texts, calls, mailers, and visits, and then often use high-pressure tactics to get owners to sign contracts.

To maximize profits, wholesalers often look for owners who don’t know what their homes are worth and get those owners to sign away their properties for much less than they could get for them on the open market.

Legislation that Gov. Josh Shapiro signed into law this month will require wholesalers to have real estate licenses, which means they will be required to follow rules that regulate licensees, and consumers can go to the state’s Real Estate Commission if they encounter problems. The Pennsylvania Association of Realtors pushed for the legislation.

Wholesalers also must tell people that they are participating in a wholesale transaction and that they have a right to a property appraisal and legal counsel. The law also will make it easier for homeowners to back out of deals they sign with wholesalers if problems arise.

An increase in wholesaling

Wholesaling has picked up in recent years as home values have grown and the supply of homes on the market has shrunk, thanks in part to elevated mortgage interest rates that have caused owners to hold onto their properties. Homeowners in historically neglected neighborhoods that have gentrified are especially vulnerable to being cheated out of their home’s true value.

Homeowners may be interested in third-party deals because they can get lots of quick cash without going through the home selling process. But clients of legal aid organizations have said they didn’t realize what they were giving up or what their rights were.

Philadelphia’s law requiring wholesalers to be licensed with the city and homeowners to be informed of their rights took effect 3½ years ago. The city also created a digital Do Not Solicit List that homeowners can join to stop unsolicited calls, texts, and mail from wholesalers asking to buy their properties.

Pennsylvania lawmakers overwhelmingly voted to pass the state legislation, which applies to properties with one to four housing units. The law takes effect in January.

‘Natural extension’ of Philly law

Michael Froehlich, managing attorney of the home ownership and consumer rights unit at Community Legal Services of Philadelphia, said the legislation “could be huge” for the legal aid nonprofit’s low-income clients, particularly those who realize after signing a deal with a wholesaler that they could have gotten much more money for their home.

Froehlich said the organization is most excited that homeowners will have 30 days or until the property is transferred to back out of a deal, whichever comes first.

“I think that is going to be the part that will benefit our low-income homeowners the most,” he said.

In 2020, Community Legal Services teamed up with the Greater Philadelphia Association of Realtors to get Philadelphia’s protections passed. Froehlich called the new state law a “natural extension of the Philadelphia law.”

In addition to requiring wholesalers to be licensed with the city and homeowners to be notified of their rights, Philadelphia’s law gives homeowners the right to cancel agreements they sign with wholesalers who are not licensed. Homeowners also need to be given a few days between when they are informed of their rights and when they sign an agreement of sale.

“The number of low-income homeowners coming to CLS saying they were duped by wholesalers has significantly dropped,” since the city’s regulations took effect, Froehlich said. And helping clients who regret signing agreements with wholesalers has gotten easier, he said.

The state law adds to those protections.

“The interests of our low-income clients definitely overlapped with the interests of the Realtors,” Froehlich said.

The state law will bring “much needed uniformity” and transparency to the practice of residential wholesaling, said Bill Lublin, incoming president of the Pennsylvania Association of Realtors.

“We’re big believers in information and transparency and educating the consumer, and Act 52 does that well,” he said. “Now there’s gonna be a light shined on these activities.”

Lublin said that he has seen homeowners sometimes lose out on as much money as they got in wholesaling transactions.

“The people that are damaged by wholesaling are typically the people who can least afford to be damaged,” he said.