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Why Investors Get Sued and Screwed

Jason Hanson
2 min read

I’m sure you’ve been at a REIA meeting where some “expert” has told you that you should never do a subject-to because they’re a legal landmine… or you should never do foreclosures because you’ll get sued… or tried to tell you that pretty much any method you use could get you thrown in jail, or something like that.

Well… the person who told you this, is right and wrong. First off, the person who says this is most likely ignorant about real estate investing (no surprise there) — that said, in any real estate method you use, you can get into trouble if you don’t know what you’re doing. And the biggest reason people get in trouble is because they usually use the wrong paperwork.

Let me give you a personal example…

I just got engaged last week (Feel free to talk me out of it) and I have a significant net worth, so I told my fiancée (before we were engaged) that we were doing a prenup. Now, if I was some moron I would do a two sentence prenup on the back of a napkin and if I ever needed to use it, it would probably get me in trouble and not hold up in court.

Instead, one of my attorneys is going to draw up the most iron-clad prenup, ever in the history of prenups.

The point I’m trying to make is that I often see investors “use a napkin” for a contract instead of an iron-clad subject-to contract their attorney created.

In fact, I’ve spent over $2,200 on just one contract I had my attorney create.

And when I do subject-to’s I have about 7 different documents that get signed with disclaimer, after disclaimer.

Plus, I use the common disclaimer that says, “I understand what’s going on, I’m not under the influence of drugs or alcohol, no one put a gun to my head, yaddda, yadda, yadda, yadda.”

Now, even if you have solid paperwork there is one more thing that you should do to always protect yourself.

What is it?

Go to closing at an attorney or settlement company. Do not close at the kitchen table.

If you ever happen to get in trouble, do you want to stand before a judge while the poor homeowner says, “he made me sign everything at the kitchen table, I didn’t know what was going on?” Or do you want to be able to say to the judge, “to make sure the seller was comfortable and knew what was going on we closed at XYZ settlement company so a neutral third party could do the closing with us?”

In short, don’t make dumb mistakes, protect yourself.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.