Buy A House - Get Thrown in Jail?
by Bill Bronchick
Over the past two years, a dozen states have passed foreclosure "protection"
laws, and many states are following suit. Even in states where there are no
specific foreclosure protection laws in place, there's plenty of power within
the state Attorney General or County District Attorney's office to prosecute a
real estate investor.
Here's some of the things you need to do to stay out of trouble:
GET ALL AGREEMENTS IN WRITING
Oral agreements are not good anymore, and they often lead to a dangerous "he
said, she said". If you get a deed from an owner across a kitchen table, it is a
legal transfer, but you should document everything first with a contract and/or
set of good, clear disclosures. These disclosures include the fact that the
owner is losing his property, his equity, and his right to any proceeds from the
home. Although giving a deed should make this obvious, some people truly think
that they are entitled to something more because they are still living in the
house. Also, some investors do offer vague promises to sellers for a right to
re-purchase the house at a later time, which can be misconstrued. Always
document every agreement you have with the seller in writing.
EXPLAIN THINGS IN PLAIN ENGLISH
Even though you have a good written disclosure, it's no excuse for pushing
papers under the seller's nose to sign without reading. Explain everything
clearly to the seller so he understands the implications of the deal. If you are
afraid of telling the truth, don't do the deal. The seller must go into the
transaction with his eyes wide open. Imagine that the local news station was
filming your deal and act accordingly.
DON'T OFFER THE SELLER A RIGHT TO REPURCHASE
Although you can offer the seller a lease-back with an option to re-purchase at
a later time, this kind of arrangment rarely works out. Some state laws restrict
this kind of agreement with a cap on the profit you can make on such a deal,
which all but makes it impractical. Vis-a-vis these laws, a homeowner can claim
such an arrangment was a "disguised" loan and get the property back by filign a
lawsuit. Either way, it's generally a bad idea to leave the seller in the
property. Make a fair deal, give him some cash, and get him to move on with his
life.
COMPLY WITH FORECLOSURE PROTECTION LAWS
Know your state foreclosure protection laws, known as "foreclosure consultant"
laws. Generally speaking, these laws requires a written contract with
state-required disclosures and a rescission period, anywhere from three to ten
days. The rescission gives the seller the right to cancel the agreement. It is
recommended you give a seller a 3 day rescission even if the law does not
require it. If the deal ever blows up and you are in court, it will go a long
way for your credibility.
Bio:
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney,
author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real
estate since 1990, having been involved in over 600 transactions. He has
appeared as a guest on numerous radio and television talk shows including CNBC
Power Lunch. He has been featured in Who's Who in American Business, Money
Magazine, the Los Angeles Times and the Denver Business Journal. William
Bronchick has served as President of the Colorado Association of Real Estate
Investors since 1996.