Wholesaling, Assignment, and Novation in 2026

Those of you who have attended seminars or are my clients have heard me say that wholesalers that lead the seller into believing that they (the wholesaler) are planning to buy and live in the house, or don’t tell the buyer that they hold a contract for the property, not the title, are sketchy and I don’t deal with them. But I do work with wholesalers who give notice

to both sides exactly what their position and interest is. Read on to find out what is legally required, and what the proposed laws will require.

The two Wholesaling deal structures most commonly used by investors— Assignment, and Novation—are often misunderstood and are operating in a changing legal environment. Two pending bills, House Bill 586 and Senate Bill 246, show the direction the state is moving. While neither bill is yet enacted, both reflect a clear legislative intent: wholesaling is no longer viewed as an informal, lightly regulated activity. Wholesaling deals are being seen as consumer protected deals that require transparency, licensing, and oversight.

Wholesaling

First, Wholesaling is not illegal, and AL Code defines it exactly as you would expect. Wholesaling is the lowest cost entry point for new investors and the model is simple: a buyer/wholesaler signs a contract, gains equitable interest, and then finds a subsequent purchaser willing to pay more. Under existing law, this can be done without a real estate license but the law does require the wholesaler to disclose the intent and nature of the wholesaler’s equitable interest to the seller and buyer. But changes are coming.

2026 HB586 would require wholesalers to be licensed by the Alabama Real Estate Commission.

2026 SB246 would authorize the Alabama Securities Commission to regulate solicitations. Together, these bills signal that wholesaling is shifting from an unregulated hustle to a licensed, disclosure‑driven profession.

Assignment

Assignment remains the most common lawful tool, but its legal treatment is changing as well. Currently, the code clearly allows assignment of a contract for real property. Under Alabama law, an assignment transfers rights (to buy) but not obligations (to buy) for a fee. The original buyer remains liable to the contract unless the seller expressly releases them. HB586 incorporates this principle by requiring written disclosures whenever a buyer intends to market or transfer an equitable interest, whether by assignment, novation, or any similar method. Assignments will still be permitted, but they must be transparent, documented, and communicated clearly.

Novation

Novation is the least understood because it requires more paperwork. A true novation extinguishes the original contract and by mutual written agreement, replaces it with a new one, with a new buyer substituted in and the original buyer fully released. Alabama law recognizes novation as a valid contract mechanism, and the pending bills do not restrict its use. However, HB586 explicitly states that the disclosure requirements would apply to any transfer of equitable interest, including novation. This means that even though novation is a more formal and consensual structure, investors must still notify sellers of their intent to substitute a new buyer and must document the timing and nature of the transfer. Novation remains a powerful tool for investors who want to control a deal without taking title, but it will require clear communication and cleaner paperwork in the years ahead.

Summary

Alabama is moving toward investor‑driven real estate activity requiring licensing, disclosures, and oversight. HB586 would require wholesalers to be licensed and would give the Real Estate Commission authority to discipline them. SB246 would regulate unsolicited offers, impose mandatory notices, create cancellation rights for homeowners, and give the Securities Commission the power to investigate and penalize violations. Both bills reflect the same underlying concern: protecting homeowners, especially seniors and long‑term owners, from confusing or predatory investor practices.

The message for investors is not that wholesaling, assignment, or novation is going away. Instead, the message is that these tools must now be used with clarity, transparency, and professionalism. The informal, internet or home-made documents that once defined the investor world are being replaced by a compliance‑oriented framework requiring Alabama specific, and deal-specific paperwork. Those who adapt will continue to thrive.

Always use an escrow agent and attorney to close property sales in Alabama: www.Alabama-Closings.com . And don't take legal advice from the internet.