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June Crile
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Why Should/Shouldn't I buy an Alabama Occupied Foreclosure?

June Crile
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Posted Jul 11 2022, 16:05

Hello Alabama Community, I'm not new to buying foreclosures in Georgia. I have children that recently moved to Alabama. I am considering buying at foreclosure auction.  I've been reading as much as I can. My main question is this: Have any of you bought occupied foreclosures? By the time I make my bid at auction in GA the properties are vacant. In Alabama I understand it is common for the foreclosed property to be occupied, the investor must evict (evict may not be the correct terminology) the occupant, and if tenant occupied could be responsible to make a tenant whole. Another concern is increased property damage if I pssssss off the occupying foreclosed party/tenant. 

Would you, OR wouldn't you, buy an occupied property in Alabama? Why? Many Thanks ! ! ! 

Appreciate Y'all

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Randall Alan
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Randall Alan
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Replied Jul 11 2022, 17:16
Quote from @June Crile:

Hello Alabama Community, I'm not new to buying foreclosures in Georgia. I have children that recently moved to Alabama. I am considering buying at foreclosure auction.  I've been reading as much as I can. My main question is this: Have any of you bought occupied foreclosures? By the time I make my bid at auction in GA the properties are vacant. In Alabama I understand it is common for the foreclosed property to be occupied, the investor must evict (evict may not be the correct terminology) the occupant, and if tenant occupied could be responsible to make a tenant whole. Another concern is increased property damage if I pssssss off the occupying foreclosed party/tenant. 

Would you, OR wouldn't you, buy an occupied property in Alabama? Why? Many Thanks ! ! ! 

Appreciate Y'all

I look at occupied properties as the possibility that you have an instant cash-flowing property with little to no initial rehab.  The tenant has already accepted the property in the condition its in.  

We have encountered this a couple of times (albeit in Florida).  Each time we went to the existing tenant and advised that we are the new owners of the property and they could either continue to rent it from us for $X / month, or they would need to vacate the property.  If they didn’t we would have to evict them.

Both times the tenant continued to rent from us while we did various external fixes to the property. Obviously it just depends on how it all comes together and your plans for rehab, etc.  Eventually they left the property and then we did the interior rehab and flipped the property.
One other thing… if it is the old owner occupying the property (the case in both the ones we did), we helped them collect the excess funds paid in the auction (over all the foreclosure costs).  They are entitled to those funds… each if our new tenants got $30-40,000 - which made it really easy for them to pay us rent for a year or two.  If you are saying  “Wait, what ?”… the auction closed for $125,000, but the bank foreclosure only totaled about $78,000 that the tenant owed to the bank / court.  The difference between those two figures is the previous owner’s funds.  (They typically have no idea!) They just have to apply to the court and follow a simple procedure to claim it. 

Be aware that the condition of the house might be really bad.  One of ours, the guy had 10 cats and never emptied the litter boxes.  The whole place smelled like cat urine… even after removing all carpeting, etc.  so buyer beware… anticipate surprises! 

all the best!

Randy 

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Denise Evans
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Denise Evans
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Replied Jul 11 2022, 19:38

There are some risks associated with an occupied Alabama foreclosure property. You should give the 10-day notice to vacate immediately. If the borrower does not vacate in a timely manner, they lose their redemption rights. 

If you want to get them out using the courts, you file an ejectment lawsuit in circuit court. it can be timely and expensive, but most times you are able to get a summary judgment. 

Sometimes borrowers have grievances against their lender and wish to sue. Their lawyers tell them to wait until an ejectment lawsuit is filed in state court. that way they can add the lender as a party and keep the dispute in state courts, which are procedurally much more forgiving and friendly than federal court. if the borrower just sued the lender in a stand-alone lawsuit, the lender would remove them to federal court. Federal judges are very strict about rules of procedure and rules of evidence and deadlines and stuff like that. Most lawyers are uncomfortable practicing in federal court.

Lender liability law in Alabama is rather swift justice against the borrower, and most lawyers know that. It is rare for somebody to be able to successfully cause trouble. I'm just warning you that is a possibility, but a low-risk possibility.

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June Crile
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June Crile
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Replied Jul 12 2022, 07:44

Hello Randall, Yes, I know the homeowner is entitled to excess funds over the payoff at auction, but I never thought about helping them collect in order to gain their favor and secure future income. Great idea. I mentioned in my original post that my  fear/concern is dealing with the occupants, it's so great to hear about your success with the situation and it has given me the assurance I needed to start looking for my first Alabama foreclosure.

Many thanks for your reply. I appreciate you! Sincerely, June

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June Crile
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June Crile
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Replied Jul 12 2022, 08:11

Hello Denise,

Thank you very much for the correct terminology "ejectment lawsuit".

I read and understand I should give the 10-day notice to vacate immediately. If the borrower does not vacate in a timely manner, they lose their redemption rights.

Q) Is the 10 day notice a standard Alabama form? Is this something I need to go thru circuit or probate court, or sheriff department to do, or can I post it on the front door myself? No, I am not afraid to approach the occupants. I am in my sixties and been doing this in GA since my 20's, armed with attitude. JK.

You stated "If you want to get them out using the courts, you file an ejectment lawsuit in circuit court. it can be timely and expensive, but most times you are able to get a summary judgment."            

Q) My question is there another way than using the circuit court? You said "IF I want to use the courts", is there another/ faster way?

Q) you stated it's expensive and timely, how long is timely and how expensive are we talking about? I hope your answer is 30 days and couple hundred dollars!

I appreciate you and will keep your name handy. It may be MONTHS before my next project is ready for market.

Sincerely, June

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Denise Evans
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Denise Evans
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Replied Jul 12 2022, 08:49

There are no preferred forms for the notice to vacate. I suggest posting it on the door and mailing by certified and regular mail. The time starts from receipt, so send as many ways as possible.  Something like, "I purchased your property at the foreclosure auction on ______, 2022. This is your notice to vacate the premises within ten calendar days. Failure to vacate in a timely manner will result in loss of any redemption rights and subject you to a lawsuit and a request for damages for unlawful possession."  Put your contact information at the bottom so if they want to redeem they can contact you. mostly, you don't want them LATER saying they would have contacted you to redeem but didn't know how to get hold of you.

You can buy them out rather than using courts. The going rate is $2,000 cash for keys if they vacate in three weeks, but they also have to release any redemption rights to you.

If there are no problems (e.g., a claim the foreclosure process was invalid for some reason) then an ejectment lawsuit will cost around $500 for the lawyer and $200 for the court filing fee and $50 for a default judgment. That will take 30 calendar days from when you obtain service. I recommend a private process server for the speed and the ability to instruct the process server to video themselves serving the papers. That way, the defendant cannot later claim they were not served and possibly get a default judgment set aside. Private process server will cost around $75.  if they file a generic answer and force you to prove your right to an ejectment order, your lawyer can file a motion for summary judgment. That usually costs a couple of hundred dollars extra. You can nail this stuff down when interviewing lawyers. The motion for summary judgment tells the court "There are no fact issues in dispute, maybe only questions of law. Because of that, there is no need for a trial so a trier of fact (judge or jury) can decide the correct facts.  So, here are the facts, they are undisputed, now please rule as a matter of law that we win." That usually takes about three to four weeks. Then the ejectment order has to be final and non-appealable, which takes 42 days. Assuming there is no appeal and no post-judgment motions, you can then get your turnout order. That takes a couple of days. In most counties, you can them make an appointment with the sheriff's department for a deputy to accompany you and keep the piece while your movers put everything out on the street and the owners are escorted out.  If they resist, then you go back to court and ask for them to be found in contempt of court. that takes about a week.  If you are in Jefferson County, then the turnout orders have a backlog of several months because of there being too many ejectments and evictions to administer, and not enough sheriff's deputies. All other counties it is pretty fast.

For the above reasons, it usually makes sense to negotiate cash for keys.

By the way, it is not usually the borrower you have to worry about redeeming. It is the borrower selling its redemption rights to another investor, who the redeems and snatches your deal away from you.

If there is a redemption, you are entitled to repayment of the auction bid price (not the price you paid the bank, if you bought it from them after the auction) plus casualty insurance premiums, plus the value of any permanent improvements or repairs made after the auction, all at 7.5% interest.

If you have to eject, you are also entitled to damages equal to the fair rental value of the property from date of demand until delivery of possession, but borrowers are usually judgment-proof, so don't pin a lot of hopes on that being collectible.

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June Crile
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June Crile
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Replied Jul 12 2022, 17:17

Hello Denise,

That is a lot of GREAT information. To me, the biggest concern is the borrower selling the right to redeem. 

Q) May I ask, Have you personally been involved personally or professionally in that situation? If you have a hard learned lesson, will you please share the details? Forums like this are great so we can come together as a community, work together, hopefully increase each others prosperity, and save each other devastation.

My attorneys may be able to get past a third party right of redemption. Maybe, maybe not.

I pulled this from: 
The Right Of Redemption Before and After Foreclosure In Alabama | Birmingham Foreclosure Attorneys (cloudwillis.com)

Alabama allows a person to buy back their home (not a third party) after it has been sold at a foreclosure sale by paying the price that the new owner paid for the property, plus additional costs. In Alabama, the original owner may choose to exercise their statutory right of redemption after you buy the property.  if it happens then you will be reimbursed the amount of money that you paid at the foreclosure sale, plus various other costs such as interest, taxes that you have paid on the property, and the value of any improvements that you made to the property. You will then be forced to convey the property back to the party who exercised their right of redemption.

Let's say a distressed homeowner (Party A) sells an investor (party C) the foreclosure right of redemption. The property is purchased by an Invester (Party B) at the courthouse steps. If I am Party B there's no way I am going to allow a third party (Party C) to redeem without a fight. If the homeowner SOLD the property, and there was a transfer of Deed prior to the foreclosure, that's a different story. Remembering that a deed does not have to be recorded to be valid. I also learned there are a lot of bankruptcy attorneys that will back date a bankruptcy, then you have to fight to get your funds back from the foreclosing attorney (months without interest). There's a lot that can go wrong in any state, with foreclosures, tax sales, it's a lot to learn, I've had some HARD learned lessons. They stick with you!!!

You are a treasure trove of information, and when I say I appreciate you, I mean it. Thank you

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Denise Evans
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Denise Evans
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Replied Jul 12 2022, 18:13

 I do not understand the advice from Cloud Willis that only the original owner can buy back their property. There is a list of parties entitled to redeem, including spouse, guarantor, lienholders, etc.  In addition, an Alabama Supreme Court case ruled that the statutory right of redemption is a personal right, not a real estate interest, and is transferred via an assignment, not a quitclaim deed.

One cannot sell redemption rights before the foreclosure because they do not come into existence until after the foreclosure.

You cannot back date a bankruptcy. Before the 2005 amendments to the bankruptcy code, a bankruptcy filing would allow a borrower to reverse a foreclosure that had already occurred, but that is no longer possible.

Foreclosure investing is very profitable and relatively safe in Alabama. You just need to  know what you are doing.

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June Crile
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June Crile
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Replied Jul 13 2022, 11:13

Hello, for clarification and full disclosure I added the words (not a third party) to the first sentence in my previous post. 
If I were looking to acquire my Alabama RE license, what school do you recommend?

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Leo R.
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Leo R.
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Replied Jul 13 2022, 11:35

@June Crile this sounds like a massive potential headache, and personally I'd only consider it if the cashflow and appreciation numbers were insanely good (and even then, it might not be worth the headaches at any price).

Keep in mind: the owner who's being foreclosed on is experiencing foreclosure at the end of one of the greatest real estate market upswings in history--where appreciation was astronomical, owners had more equity than at any point in recent history, debt was dirt, dirt cheap, and money was everywhere. A person who loses their home to foreclosure in that type of market either experienced some severe, severe unexpected hardships, or they are not particularly competent--in which case, do you want to have your money dependent on their actions in any way? (probably not).

You might be able to mitigate some of that risk if you could meet the owner and assess their circumstances before buying the property--but even then, your assessment is likely to be pretty hit-and-miss (although some people experience significant hardship through no fault of their own, it's not uncommon for people to create a fake sob story to cover up their own negligence/incompetence...even if you could talk to the owner, how would you be able to know the difference between legitimate hardship that was no fault of their own vs. a fake sob story?) 

Other things to consider: what grade is the property, and what grade is the neighborhood? (I'm guessing most of these types of properties are C or lower grade, which usually come with a lot of headaches and high liability).  ...there have been times where houses in some very hard-hit neighborhoods were free, but the burden of owning an F- property in an F- neighborhood completely overshadowed the potential returns of owning a property for free....

Good luck out there!

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Denise Evans
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Denise Evans
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Replied Jul 13 2022, 12:33

Not C or lower. I just saw a foreclosure deed recorded a few days ago for a house appraised at $1.2M and the credit bid price was slightly north of $800,000. In Tuscaloosa, Alabama, that is a two-income professionals (doctor and lawyer) house or business owner.  Many people are foreclosed upon and can afford significant rent, but the loan was accelerated and they could not refinance.  Or, their COVID forbearance expired and the missed payments were capitalized and now they cannot afford the larger payments. Or their many reasons. Each situation must be evaluated on it own. Personally, I prefer to identify pre-foreclosure properties and negotiate short sales.  During the last crash I typically obtained short sale approval at 20% to 25% less than true then-market value. Plus the owner doesn't care if you have earnest money or not. Plus they will spill their guts about everything wrong, and you can use that info to drive down the lender's appraisal.  Plus the process generally takes 60 to 90 days, so plenty of time to round up investors if you need them. Plus no competition, such as you encounter at a foreclosure auction.

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Leo R.
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Leo R.
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Replied Jul 13 2022, 15:08

@Denise Evans that's interesting. (admittedly, this is not my area of RE expertise).  I'd be interested to know: roughly what percentage of foreclosed properties are B or A?

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Denise Evans
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Replied Jul 13 2022, 15:11

I'm sure there are some industry statistics somewhere. There are several government agencies that track residential lending and foreclosures.

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June Crile
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June Crile
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Replied Jul 16 2022, 12:15

I agree with Denise about not C or lower.  I personally have no experience with working with a lender on a short sale. My purchases have been on the courthouse steps, or by contacting the homeowner prior to the sale. I don't buy into sob stories and can usually tell if the person I am dealing with is sincere, of course that means face to face contact. The homeowners I've dealt with had unexpected, devasting medical issues, or drug problems, a couple inherited a home from her deceased mother and they were just...no nice way to say this.... they were trash that tried to burn the house and collect on insurance, another man sold to me before going in to serve a lengthy jail sentence. One of my sellers just quit paying his mortgage when he was granted Covid forbearance, he saved what he would have spent on the mortgage and moved into his girlfriend's house right before the foreclosure; and this brick home was immaculate, great condition! Each foreclosure is different.

Denise> How do you identify the short sales you want to go after?

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Randall Alan
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Randall Alan
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Replied Jul 17 2022, 12:10

@June Crile

While redemption is always a possibility... my experience has been that if a property made it to foreclosure, the person being foreclosed upon has had PLENTY of opportunity to redeem the property already.  On the ones I did, both parties had pretty much just 'quit dealing with life' to put it  mildly.  Both were people in life situations where they just saw no way to solve their problems and they more or less stuck their head in the sand and said "what will happen will happen".  One was divorced and just didn't understand how life worked... had quit her job and just had no way to pay.  The other had their spouse die, was in poor health, hated the government and seemed to just be ok with riding out the foreclosure knowing that "that day" will come some time.  Interestingly, the second person started renting from us and actually passed away in the house 6 months after we took it over.  Which is a whole other story! Point being - I think redemption is really rare... and if they do redeem the property you obviously get the vast majority of your money back.  In Florida the fee to the county isn't refundable (believe it or not!) - I think because a 3rd party vendor runs the auctions and still gets paid so the investor is at risk - but only for a small percentage.  I have also had a sale go through, just to find out that the person filed for bankruptcy either the same day, or the day before and the court was unaware, so they voided the sale after the fact.  

Fun fun!

Randy

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Denise Evans
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Denise Evans
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Replied Jul 17 2022, 17:42

1. How do I identify short sales to go after? I don't have a formula or a plan. I look over the opportunities and evaluate. Every deal is different.

2. Redemptions--rarely does a borrower redeem. More often, not very common, is someone who purchases the borrower's rights and redeems. Often, the numbers don't work for that strategy because there are other liens against the property that are reinstated if there is a redemption.

Sadly, it is not uncommon for someone to buy the borrower's redemption rights, threaten to redeem, and then extort money from the current owner to just go away. That is why it is important to know what the redemption charges are, which includes the amount by which the property value has been increased due to the current owner's post-foreclosure permanent improvements and/or repairs.  Investors should always take immediate steps to make it too expensive to redeem.  There are other strategies to make it too expensive to redeem, or if someone DOES redeem, the investor does not care because it is making a killing in profits.

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June Crile
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June Crile
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Replied Aug 1 2022, 14:03

Hello Denise,

I have a question I think you can answer. I hope you don't mind helping me think this through.  

If an owner of a pre-foreclosure and I reach an agreement and I buy the property before the foreclosure sale, the seller/distressed owner transfers by warranty deed or quit claim deed and I record the deed. I am not paying off the mortgage, I know that violates the due on sale clause in the security deed. When I say buy, I pay the owner any agreed upon amount to transfer the property to me. The property is a desirable property, at auction it is bought for $70,000 more than payoff, so there is an overage that the owner is entitled to. In your opinion, do you think I am legally entitled to file for and receive the excess funds of $70,000? 

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June Crile
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June Crile
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Replied Aug 1 2022, 14:03

Hello Denise,

I have a question I hope you don't mind helping me think through.  

If an owner of a pre-foreclosure and I reach an agreement and I buy the property before the foreclosure sale, the seller/distressed owner transfers by warranty deed or quit claim deed and I record the deed. I am not paying off the mortgage, I know that violates the due on sale clause in the security deed. When I say buy, I pay the owner any agreed upon amount to transfer the property to me. The property is a desirable property, at auction it is bought for more than payoff (and more than I paid the owner) so there is excess funds the foreclosed upon party is entitled to. In your opinion, do you think I am legally entitled to file for and receive the excess funds? I have concerns that because I did not sign the Security Deed/lien, and the foreclosure was not conducted against me that I may not legally be entitled the excess funds.

Please share your thoughts.

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June Crile
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June Crile
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Replied Aug 2 2022, 15:48

I've had the same bankruptcy problem. It took 3 MONTHS, and a letter from my Real Estate Attorney to finally get my money back from the legal firm that conducted the foreclosure. What a nightmare!

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Replied Aug 13 2022, 13:07

I didn't want to make a brand new thread, and thought it might be a relevant question for this one.

Is there a schedule for foreclosure auctions for Jefferson County?  And what properties will be at that auction.

I've been googling for the last hour trying to find out and feel like an idiot.  I see on auction.com where properties have listed dates to go to auction, not sure if that's how you are supposed to do it and if all the foreclosures are captured on the site.  Appreciate any help!

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June Crile
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June Crile
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Replied Aug 16 2022, 12:33

Hello Parker, There is not a list as far As I know. Have you looked at AlabamaPublicNotices. Com? You can filter your search to include only the county(ies) you are Interested in. I wish there was a list for each state that could be filtered to the counties I’m interested in containing owner nane(s), address, year bought, loan amount, deed book/page, attorney Information, etc. I would be a happy subscriber. Best of luck