Hello all. As I previously mentioned in an earlier post I am a Wholesale newbie in Clarendon County, SC. I am need of some serious expertise here. I am planing to launch my first marketing campaign for absentee owners sometime next week. Now here lies the problem; in response to my marketing, I am sure that I will be receiving calls from individuals in foreclosure, pre-foreclosure, upside down in there mortgages, etc. However I heard via this site that newbies should try to stand clear of foreclosure deals until they gain a little more experience. That advice totally resonates with me as I find foreclosure deals to be rather confusing and equally intimidating to a certain degree. My question to you guys is, how should I handle the foreclosure calls that I am anticipating. Thank you in advance, Reggie.
@Reginald S. best way to progress is to hook up with an experienced
Wholesaler that can show you the way through the maze. As a wholesaler you should be looking everywhere for the good deals and ways to help people while making a living.
Tom Keith, TAK Enterprises | [email protected] | 903‑452‑8843
Are you trying to wholesale?
If so, then, yes, foreclosure deals will be challenging.
Before the sale most of the potential deals are going to be short sales. These are often listed on the MLS. All require patience and persistence to get a deal approved by the lender. After they sale they're going to be REOs which are always listed on the MLS. In both of these cases the lenders involved will make it difficult to resell the property quickly. Not impossible, though. You'll need to double close and probably user a transactional lender. And don't get a MLS listed property under contract just below the listed price and send it to your buyer's list at a price above the MLS price. Anyone could have bought it off the MLS so why would they pay more for it from you?
Buying at the auction typically requires cash and a lot of knowledge to really buy what you think you're buying.
Jon Holdman, Flying Phoenix LLC
To expand on what @Jon Holdman said, and given that you mentioned getting calls from people in foreclosure (or preforeclosure - same thing), I'd add the following points:
1. Depending on your location we are getting back to a time where not all preforeclosures are underwater and require a short sale. For a while there, almost all were. But pre-2008, most foreclosures were due to the 5 D's - Death, Disease, Divorce, Drugs, and Denial - where people end up in a situation where they are losing their home, rather than just being underwater and walking away. In these cases, where there is equity, it is likely possible to do deals.
2. One of the reasons that some advise to steer clear of these deals is that many states have equity protection laws to protect homeowners in foreclosure. For example Civil Code 1695 in California. It doesn't make it impossible to buy a preforeclosure, but it definitely adds some hoops that you need to jump through, and increases your risk should the homeowner have a change of heart. Even long after the purchase potentially.
3. Given 2 above, if you do these deals, I'd strongly advise being very upfront with the owner about your plans, whether to rent, fix and flip or wholesale. You'd b surprised by how many people are still willing to sell even when you fully disclose that you intend to make money. This is definitely not the place to be trying to convince them that it is worth less than it is (I personally don't think there is ever the place for that actually, but the risks are higher here).
Oregon and Washington have the same laws.. with Oregon you need to be a licensed foreclosure consultant.. IE RE broker, Mortgage Broker, lawyer.
Of course these laws are broken daily... And many times the seller just moves on and never knew they had rights. These rights are related to how much profit the new buyer can take and how much they have to give back to the seller if they flip the house. Takes most of the motivation away from those in the pre foreclosure business. As well as in Oregon your not allowed to buy pre foreclosure then rent back to the owner ( not sure why but that's the law)
@Jay Hinrichs I've worked a bunch with state legislatures on this issue. Primary issue on rent back was that is was so abused they decided it was simply easier to say no then to try to craft rules around it.
We had one guy in CA that would approach homeowners (in foreclosure, with equity) with the pitch that he'd take over their payments, rent back to them (super cheap), and then sell the house back to them when they were back on their feet for $1. Doesn't make much sense to us honest folk, right? Well here's what he'd do... he'd put the whole thing in a corporation with himself and a buddy as shareholders. He'd put maybe 20 properties in, and would use the "rents" to make payments. The rents were less than the payments, so the corporation would quickly be unable to pay its debts and he'd declare bankruptcy.
Here's where it gets interesting. The federal bankruptcy court would appoint a trustee to take over the company. The trustee would then review the month-to-month rent agreements and mortgage payments and come to the conclusion that the tenants need to be evicted and the assets sold. Despite the cries of homeowners, and in some case despite state law, the federal trustee would evict the homeowners, sell the properties, and then... hand the cash (minus reasonable trustee fees) back to the shareholders.
After the 2nd or 3rd time, the bankruptcy court judges finally got a clue that they were being used to steal homes and barred the principals from ever declaring bankruptcy again. Never saw the principals face any consequences though. :-(
More to it, but long story short. ;-)
Ooh that's a good one... I would think with the power the BK judges have they might have really gone after them for BK fraud.. and or at least turned it over to the AG.
Prior to the new laws coming into effect about 07ish.. I acquired most of my rentals in this manner.. And would rent back ( at fair market rents) to the home owners.. I had 2 people buy the properties back at fair market price..
My experience with hold over sellers is they would just fall down the same hole that got them into foreclosure in the first place, they would eventually move on. And in addition we always paid some fairly substantial amount for their equity... I have seen many of these folks sign over there homes for 10 dollars.
But as you said previously you had the 5 D's going on and some folks just can't manage their finance's no matter how hard you try to help them.
In addition most of the homes we acquired were within literally hours before the sale.. Not uncommon to do the deal the day before have to hire a courier to run a cashiers check to the trustee.. I found a lot of these folks wanted to stay because of kids schools.
@Sean OToole Great to see you in here. That's great advice and interesting explanation on rent back. Crooks can sure be creative.
Hi @Mike D'Arrigo , thanks!
@Jay Hinrichs, on the fraud thing, that was the most interesting part. It was definitely brought to the attention of local, state and federal law enforcement, but they could find nothing to charge them with. The homeowners were told it was a civil matter - nothing illegal about having a trustee wind down a corporation, and at the time, nothing illegal about the rent back. The BK judge's position was the only thing he could do was bar them from future actions.
Originally posted by @Sean OToole :
"...and at the time, nothing illegal about the rent back."
Is there something illegal about rent back in CA now?
Reginald, sounds like your read one of my posts.
There are dozens of scams, I agree with the 5 Ds Sean mentioned, I say Job is the number one or lack of income to meet the obligation, but Job doesn't start with a "D"!
Those "Ds" is what we refer to as "life events" things happen to people that cause bad things to happen.
My initial concern in my warnings are primarily for newbies trying to wholesale without the ability to actually buy. The art practiced by many is to deceive a seller putting them under contract and then failing to close. Too bad as this is really so easy to do with full disclosure as mentioned above.
While these fall through deals certainly cause problems for sellers to a seller in foreclosure it can be a disaster.
There are new laws mentioned above concerning "helping" people in FC. That is often part of the sales pitch, I'm going to help you. When you go there you're likely in violation of these new consumer protection laws.
Another issue, banks, it is a federal violation of law to obstruct any banking operation, to provide any false information with respect to any insured institution in any loan, not just loans applied for but loans held as well regardless of status. These laws may be applied to causing the delay in the administration of any loan including one in foreclosure. Delays cost money.
The unknowing investor gets what he thinks is a good contract. He may then rely on that contract to act in other matters, if his actions are reasonable a judge may hold you responsible for your failure to perform
Now lets say the owner sends a copy of his contract to the bank and asks for a few days, or any delay, even in the processing of that FC. The bank holds off, some will, but if they still continue they are now aware of a possible pending sale.
You fail to close and the bank asks why, the borrower could very well appear to have been trying to delay his FC or that you did, or both of you did.
Let's also consider that the owner has an attorney involved, the attorney now has knowledge of your proposed purchase.
All kinds of flak can shoot off when some newbie wholesaler fails to buy and doing so with the song and dance of partners, or inspectors or the other guru stuff they dream up. Fact is, you were not dealing in good faith, you didn't have the ability to buy, you may have been fraudulent in your representations, doing so has caused financial harm to the owner, you chewed up precious time with some screwy plan that the seller could have used to market the property to a real buyer. Avoid FC, avoiding destroying his credit, avoiding any loss in attempting to secure other housing.
If you so much as mentioned "helping" and you don't have the proper HUD license, you're in violation of federal law. If you caused the bank any loss, including the pay some lowly bank employee is paid spending time messing with the matter, that is a bank loss, another violation of federal law. Acting in the capacity as a credit counselor is another violation of federal law. Mush less the state laws that pile up behind these matters. Getting involved in any method or ploy in a foreclosure that misrepresents your position, causes delay, provides any advice or means to avoid a FC is a violation of federal law unless you hold the proper license as to your involvement or you are an attorney.
Now, if you have cash or the real ability to obtain financing required to actually buy, go for it! If newbies have some whizbang guru scheme to spin off a few dollars on a pre- or FC property, stay away, far away, as far as you can possibly get away.
These matters have been up before here, a few whizbangs argued they knew what they were doing or what they did wasn't going to be in violation, whatever their financial interest was in promoting this stuff, they were not lawyers and the had no clue as to the breadth or depth of the ramifications of their actions, much less the risks involved.
Another side, as to the issues mentioned above, any other party to that transaction, agent, title folks, bank, attorney, or even the seller's 3rd cousin who came over for dinner may very well see you as some scam artist and get on the phone getting who knows what authority involved. If you deal with any FC matter your contract better be customary for the area, clean, without BS contingencies and show up as a valid, good faith contract. There are too many in the industry sick and tired of whizbangs getting involved in FCs, pretty much why laws were passed concerning the matter. They are gunning for these types, they have caused financial losses to homeowners and banks as well as in related areas of sales.
Sorry if I sounded a bit harsh, but to the point made this post much shorter:)
When a bank has to foreclose the homeowner has caused the bank a financial loss and there should be laws that punishment the homeowner not rewarded them. Deadbeat homeowners will cry and hire a shady tree lawyer to try to stay in their home for another year for free.
@Bill Gulley thank you for your input. This was an area that I was maybe looking at to start a career in real estate and have found several obsticals before even diving into it. I spoke with a real estate attorney regarding the matter and was informed of the Home Equity Sales Act (in California) and that additional contracts are required that disclose your sellers right to cancel the contract(within 5 days I believe). From what you're telling me it sounds that the wholesaler is in a much safer position as long as they completely disclose everything that can happen during the process to the seller. Is that right? Also, as far as claiming to "help" the person in FC; what is the proper way to go about reaching out to them then? Does this mean that you cannot market to these people?
How will you disclose what you don't know?
Are you that well versed in RE that you can tell a seller up front, I'm not buying it but selling my contract to a buyer who will buy it?
Can you give the buyer some assurances of years of experience, ability to manage all types of issues that might arise and get his deal to closing within a required deadline?
In the event anything goes wrong, like your buyer dropping dead, can you buy it?
There is a tightrope 100' long, 40' in the air over a pit of alligators that you can't climb out of. There is $2,000 dollars on the other side.
Now, why is it that young folks that have very little knowledge or skill in walking tightropes want to try to do it.....when there is a walking bridge about 50' feet away that has $500 on the other side everyday?
Disclosures do not absolve you from any wrong doing, doesn't matter what you disclose.
You also can not learn in a few days, weeks or even months or even years on your own how to manage these FC deals.
Maybe by putting it this way, I have more than tons of knowledge and experience, I have conducted FCs, there isn't much if anything I do not know on both sides of this issue. AND, under the current laws and circumstances, I WOULD NOT GET INVOLVED for the type of money that might be had doing such wholesale deals......and I can gain the confidence of most any seller in a number of ways.
Now, what makes youngsters with little or no knowledge and no experience and probably no money or fantastic credit makes them think this is something to do when there are much easier things to do with much, much less risk? Let me guess, someone on the internet said anyone can do it.
It's not even a serious discussion.
To your last question, I'd say yes, most definitely, you can't even go there wholesaling. I'm laughing....
I will just start off by saying I really don't know what I don't. That's why I am here on BP asking people with experience about what they really think and try to pick their brains as much as possible. I would have to say that you're right in the fact that it would be foolish to just dive into such a complicated system without the experience or knowledge. But I disagree with you on just running away from the matter. I believe that if you can find someone to work with who has done it many times before and can learn from that said person, then you should try and soak up as much as you can. I will never learn something by just avoiding it. I feel that you are sort of throwing a wet blanket on the matter and saying its not worth it by any means.
Not really, saying there are other things to learn first that are more available deals that can make for money with less risk.
Since most in wholesaling are newbies, that might be hard to do. No one has experience doing deals under the new laws. The old tricks will get you hammered.
Learning means taking good advice found here.
Why not see your attorney again, if he tries to sell you contracts for $750, see another attorney. Tell an attorney exactly what your plans are dealing with folks in FC doing wholesale deals. Better yet, call CREC and see what they think of your idea.
You disagree because you lack knowledge, you don't begin as a brain surgeon.
Contrary to the idiots on the internet, RE is not in little niches that are to be studied without regard to the basics of RE. RE is not an assembly line of switches to execute in sequence.
I pretty sure that learning from idiots will just make better idiots.
Never said not to learn, or hide, what I'm saying is begin like everyone else in every business known to mankind, at the beginning and work your way up, learn more as you go. You want to be a brain surgeon next year, ain't gonna happen no matter who you find. How quickly you can do that is up to you. Instant gratification, make me a millionaire next year, do deals laced with laws and regulations most here have no clue about, that's not RE.
Want to learn, okay, go find some whizbang, follow them, just start doing deals, you'll learn the hard way in time I'm sure, no skin off my nose.
Good luck. :)
Account Closed no, in fact CA 1695.3(f) specifically states that "the terms of any rental agreement" need to be included in the purchase contract, which implies its ok so long as all terms are agreed upon.
There was talk about adding it in CA, but it looks like it wasn't adopted - hadn't checked in a while, sorry for implying otherwise.
Wow, thank you all for the wealth of great information! This site truly can be likened to a mini RE course. However with that being said, I think my question was still unintentionally left unanswered. You see in my original post I stated that I agreed that from what I had recently learned via this BP site, foreclosures was not something that an inexperienced investor like myself should be delving into so soon. Nevertheless my question was, "how should I handle the foreclosure calls that I am expecting to receive. Perhaps just like Ryan, I perceive that some people may assume that the "as-is" ( that is in about 100% of my marketing) include PFCs, upside-down mortgages, etc. Do I just explain to them that even though my marketing says "as-is", it's talking about the physics of the property only? Just not sure what to say to them? Every line that I have come up with on my own so far just doesn't sound very professional for me for some reason. In all of the RE courses that I have taken thus far, I don't recall learning how to turn hurting, fearful, needy people away. Thanks again everyone! Reggie.
My first comment is I don't think your going to be getting a deluge of phone calls in the first place... And if you get a foreclosure situation just make a deal with a local wholesaler investor and bird dog it for them.. When you get the call.. Just tell them its not your area of expertise but you are going to put them in touch with someone who is well versed at it. ETC ETC.
But don't be afraid to talk with them, and get the skinny you will learn a lot about how this bizz works talking with any and everyone who wants to sell be it distressed assets.. inherited and wants quick cash.. etc.
My most successful clients that I fund for this activity don't wait for calls they identify the properties then attack it like they were private investigators doing a skip trace that's were the deals are made.
@Reginald S. - I would say that it's wise to avoid any kind of investment of business activity that you do not understand very well. Not just foreclosures or RE, but maybe also stocks, bonds, commodities, options, etc.
@Ryan LaRocca You are not going to find a perfect answer because laws are never black and white, and often other less obvious parts of the law apply that you don't realize. There were a handful of guys who thought bid rigging at foreclosure auctions couldn't cost them more than $10k or 1 year in jail because they read the state law (CA civil code 2924), and then found themselves charged federally and screwed. If your mindset is to look for loopholes, or to take some legal chances you'll likely find yourself in trouble someday.
If your mindset is to be honest, fair and law abiding, there are no guarantees but you'll probably be fine - even with preforeclosures. Bill is definitely right though, there are easier, smarter places to get started, all of which you'll find discussed at length here on BP.
Originally posted by @Sean OToole :
"... and then found themselves charged federally ..."
What federal law covers bid rigging at a trustee sale? Haven't heard that before. I'm guessing the foreclosing loan was somehow federally related.
Thanks for the earlier answer.
the bid rigging was rampant in Oregon in my day at the court house steps.
And I know its common in almost all markets.. ( IE hey here is a thousand bucks go have lunch)... Or I have witnessed much higher negotiations between parties... some of these guys were just so brazen it was unreal.
I was not mr popular If I wanted a property I bid what I would pay and disregarded the attempts to buy me off.
Although there were many who showed up to the sales with NO intention of buying and just hoping for a payoff...
I remember some guys in either NC or SC getting nailed by the feds about 07 or so.. 800k fine and not sure about jail.
In my really early years in Oakland CA Alameda county.. You had Al Florida and Shep they showed up with a suitcase full of cash and a 356 magnum you did not screw with those dudes .. they had an office next to mine, I was running a HML company at the time. The front of their office had a bunch of guys cutting out the NOD's and such and pasting them to paper LOL the good ole days.
PS love Truckee,, I flew in there in my plane a few years ago for golf at OLD Greenwood.. When I went to depart there are big signs showing density altitude that day it was 8800 feet... My bird could handle it but many would have been grounded.
Bid rigging still go on at auctions but a little more organized.
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