Subject To And Chapter 13
I have a deal I'm working on and could use some advice. The homeowner is back on the mortgage 19,100 and is currently in Chapter 13. The owner has a lift stay hearing on Friday. I'm sure the lift stay will be granted. The house is worth 200k. The loan balance is 128k. The repairs needed are paint and carpet 5k. There is a second on the house for 6k. The owner will take 5k for his equity.
He says he needs the money to move. I'm worried that he will take the money and file chapter 7. What effect if any would that have on a subject to deal?
I thought there was a subject-to guru on this board somewhere...
How about the tenants? What are their rights? Why haven't they gone to the police, or somebody, and pressed charges for their belongings being destroyed? I agree, there is something missing here. With or without an attorny, I'd be at the front door with a cop wanting my property back. I'd have copies of the recorded paperwork in my hand.
I learned with my ex wife that rolling over isn't going to get you very far
Creative investors are substantially out numbered by the real estate giants. These guys have the BIG guns and it appears they are using them in NC. It sounds like the AG's have been brainwashed by the big boys. I spoke to my cousin who is a RE agent and he filled my head with so much hot air about how sub2 is illegal and immoral and how I would never make a dime and end up in jail, I felt like weeping and giving up entirely. I feel like these guys are on a mission because their livelyhood is at stake. He said 65% of their houses for sale are foreclosures and this is their best year to date. If creative RE investors continue to multiply they could theoretically reduce that 65% number to 0%. It appears the brokers are making millions from the rehab and sale of REO's. Small investors are their eternal enemies.
I know there a lot of realtors that are members, and do not want to offend anyone but this statement directs why my feelings of why I dislike the way the RE business is run by the liscensed thieves.
"our NC Real Estate Commission is involved with this also. They have determined that $10.00 is not sufficient to pay for an option on a property. I asked if they could please tell me what they thought would be enough. They refused to say. It’s just that $10.00 was too little. I said, “What if I gave a car in consideration for an option or anything else of value?” They said that that was O.K. They called us immoral and deceitful, yet they told us that we needed to get our real estate license. I wanted to ask them if this is the type of people with our immoral, deceitful character that they want to invite into their fold.
be condemded or join us?
being a rei you have freedom to act, independence, almost as our forefathers intended. this we the rei must protect at all cost. it is very slowly being taken away.........do you agree or not? ................KENMAX
I would hesitate to lump all realtors together on this. I am for all intents and purposes a realtor. I have never sold a house for anyone else but I do like a commission on REO property and I figure that 3% to sell my houses is a reasonable cost for great exposure. I plan on never using it to work for other people. It is a tool the same as my contractors license is, how good a tool remains to be seen over the years..
I however am a CRI first, I can't see why a realtor would not like to see sub to deals done? in fact I know several that have participated in the process. A commission is a commission ( I do know that everything is geared to protect the commission in Oregon!) Still in many Sub To deals there is room for a commission.
[addsig]
I am waiting to hear back from Diane,
I think however that there were a few "I"'s not dotted and a few "T"'s not crossed as per my first post here. NOw I could see taking a property for $10, but certainly not all of them... I am a student of John Locke and basically believe Sub To is a way to get a great deal and not steal property. If every deal I did was only tking the property for $10 I might not be on the up and up. If in NC $10 isn't good enough then make it a hundred, or $500. Surely all houses there are not bought for $10, some must have some equity, and all investors are not out to take advantage of people and take their house for $10.
[addsig]
Diane,
Have you heard from any of the so-called gurus? Have you tried contacting John Locke? It would seem to me that you could get some good advise. We're still waiting to hear from you about what your attorney is doing about this mess. After a year, he should have had time to be a little more pro-active. Clearly you made a few mistakes (no compensation at all for the deed), but I can't see how they can stop you from doing business. AND....what's your attorney doing about them taking over the property? WOW! All I can say is that if it can happen there, it can happen here. I'm still have analysis paralysis, so I'm hoping to learn whatever I can from this situation.
I think someone needed a couple more
CYA forms!!
I'm in raleigh and the AG can be useless at times. A good attorney is worth the extra $. So much for helping people with a 6th grade education.
I haven't the time to properly respond to this post. Suffice it to say, I am familiar with Diane's facts (I have seen the docs & talked with her in detail), as well as the facts involved with another couple whom the AG hounded out of business. Neither Dianne nor the other couple have "perfect" docs (I like heavier & more direct disclosure than most courses provide)....but their disclosures were adequate to explain the transaction to the sellers. Payments were made as promised, on time in both cases. Dianne and the other couple honored their contracts and did not deceive the sellers. Based on the correspondence I've seen and people I've interviewed, the NC Assistant AG involved is not looking to nail only unethical investors. Instead she wants headlines and is looking to categorically ban Sub2 in NC - and has said as much. The methods she uses are intimidation & threats. Her case has little in the way of substance where Dianne and the other couple are concerned.
As time permits, I will post more on this matter, in some detail. I will also be calling on gurus, websites, reia's & investors who make money off of Sub2 to help establish a legal defense fund - basically put up or shut up. I have already put substantial time into this and will be doing more - because it is WRONG. I have no sympathy for those who teach and profit from this technique but then bury their heads in the sand. This issue affects all businessmen and citizens - it is wrong to drive honest investors out of business and it is wrong to let bureaucrats use taxpayer money to shut down businesses without good reason. As Patrick Henry said "We either hang together or get hung separately".
John Hyre
John Hyre,
Thank you for your input on this matter and taking time from your busy schedule to help out.
Certainly you can count on me for any assistance I might offer.
For those of you who are not familiar with Mr. Hyre on this board he is a very well respected attorney who understands creative real estate investing inside and out.
He also shows individuals how to save people money through his tax strategies.
John $Cash$ Locke
[addsig]
John,
Thank you for the kind words. Thank you for the offer to help - I will be in touch to take you (and others!) up on it. When are able to post details, there will be plenty of opportunities for others to both help fellow investors and learn from what's going on. This sort of issue really brings home the need for full and fair disclosure....given our litigious society, over-disclosure is probably the safest way to go.
John Hyre
Cash and Hyre,
TCI is proud to help out with anything that we can. Diane and I have discussed this over the phone a couple times. Anything we can help with we want to. Just let me know how we can help the community out.
I'm very new to REI (still have analysis paralysis, but getting ready to plunge) and don't have the resourses to contribute financially. However, please let us know what we can all do in terms of phone calls and letters. You're not alone Diane!
If we are talking about Options (as some have stated), then that is a Unilateral Agreement, so each state requires a minimum of cash in exchange for the Option for it to be enforceable in court. That amount is a dollar or ten dollars (or a hundred bucks in Florida). Bilateral Agreements, on the other hand, require no cash or property for contractual consideration--providing both sides are making promises that a reasonable, rational person would expect the other side to keep their word. In other words, both sides must make concessions and give up something of value in exchange for something else. As far as a Purchase and Sale Agreement goes, just the insertion of a price will normally satisfy consideration; however, if the P & S Agreement has a weasel clause, it is no longer a P & S, but it becomes an Option and better have the minimum consideration in cash in your state if it is going to be enforceable. As far as sub2 is concerned, a Deed is a "specialty Contract." This is the one exception. Specialty Contracts require no consideration--not one penny. Yes, Deeds sometimes do mention ten dollars or that it is in exchange for good and valuable consideration the receipt whereof is acknowledged, but this is mainly to avoid problems with attorneys who should but don't know better. Specialty Contracts go back to the days when people would drop wax on a document and imprint the family ring. A Deed transfer is legal with no consideration. All other Contracts have to have consideration, but it need not be cash if a bilateral Agreement. Options must have the state minimum to be enforceable. There is some debate about whether any cash need be paid for a L/O, since the Lease portion is a bilateral Agreement, and in the Lease we are making promises well in excess of a dollar, ten dollars, or even a hundred dollars (payment of rent for a year). The Lease and Option are attached in the same document, so I would say a good case could be made. Whew! Have I confused everyone yet? LOL
The consideration (in addition to nominal amounts of cash) in a Sub2 is the new owner of the property making payments on the seller's loan. That consideration in completely ignored by the NC AG. It consitutes both sufficient consideration and conscienable payment.
John Hyre
JHyre, what do you think about a L/O with the Lease and Option integrated in the same Contract? In your opinion, would the promises made in the Lease (payment of rent for a year plus agreeing to do maintenance and repairs) be sufficient Option consideration for it to be enforceable? I know a straight Option requires the minimum in cash to be enforceable in court. It would seem logical that the Lease Agreement portion would satisfy this.
Diane:
I sympathize with your situation.
I have done research in this area (regarding the legality of Sub2s) and I might be able to shed some light on this.
Mind you, I am NOT an Attorney, but I have discussed this with a former prosecuting Attorney (and plan to call my state AG).
Here's the issue. There is a federal law (18 USC § 1001 Section of the US Code) regarding Fraudulent Concealment which states if you "knowingly
conceal or cover up by any trick, scheme, or device, a material fact
" you have committed this bastardly offense.
In essence, when you took Title a sale has occurred which breaches the Due on Sale. Concealing the sale (a material fact) is fraudulent concealment (a felony).
Lenders have been using the fraud defense ever since Due on Sale was incorporated, and have been very successful (in spite of what William Bronchick states, or should I say misstates, about the cases he cites).
The irony is your CYA letter doesn't help, it actually hinders you (by clearly showing your intent to conceal).
With Sub2 everyone tends to focus on the risk of Due on Sale. The real risk imo is with the Homeowner; if he sues or contacts the AG, the law apparently is on his side.
Please don't shoot the Messenger. I am only trying to shed light on the unexplicable cause of your situation. If I'm wrong, I will be there cheering along side you.
Good luck.
Ron
Rob--
Thanks for commenting.
What exactly are we doingin our attempts to cover up or conceal? To what does this statute you quote apply--anything and everything?
My point is this--just because we aren't announcing the transaction does not mean that we are taking action to cover up or conceal, right?
Kyle
I have looked at several mortgages and found that not 1 says that you have to call and tell the lender that your doing this. It is stated, transfer invokes the DOS clause and the lender has the option to call it due. I don't see where the issue is. If you file your deed your not hiding it. It is there for everybody to see. Of coarse that could send a flag to the lender or not. Am I going to send a letter to the lender stating that I'm taking his deed, probably not. Some of the problems that I've seen with sub to is the Land Trust trying create a smoke screen. That sound's like concealment to me.
Many have attacked the principles of the sub2 approach to transferring real property rather than attacking the practices of those who would abuse the technique. But it's an old and well-recognized practice.
Even the NC statutes refer to it:
§ 45-45.1. Release of mortgagor by dealings between mortgagee and assuming grantee.
... (4) Whenever real property which is encumbered by a mortgage or deed of trust is sold expressly subject to the mortgage or deed of trust, but the grantee does not assume the same, and thereafter the mortgagee or secured creditor under the deed of trust, or trustee acting in his behalf, releases any of the real property included in the mortgage or deed of trust, the mortgagor or grantor of the deed of trust is released to the extent of the value of the property released, which shall be the value at the time of the release or at the time an
action is commenced on the obligation secured by the mortgage or deed of trust, whichever value is the greater. (1961, c. 356.)
I find the most refreshing articulation on the matter comes out of the state of Texas.
Judon Fambrough, in his article entitled "Flipping," writes,
"Texas law supports the public policy preventing unreasonable restraints on resale of property. Property is freely transferable at any time. Land ownership includes the right to sell, mortgage or otherwise transfer the property. Unreasonable restraints are void and unenforceable. "
Fambrough is a member of the State Bar of Texas and a lawyer with the Real Estate Center at Texas A&M University. That article can bew found here : http://recenter.tamu.edu/tgrande/vol11-2/1668.html
Fambrough notes that while the state does not favor restraints on transfers HUD imposes some thru regulation, i.e. the 90-day seasoning issue.
I wonder how other states stand on this basic question of free enterprise in an open and capitalist society? NC seems to have muddied it's current position.
ronb107,
You make one post, you are not an attorney, you have done research, which by the way talking with an AG is not research on this issue.
Now you say Bill Bronchick misstates the issue, there is only one place I can think of your message is coming from.
When you finish law school, then come back and have your say until then sounds like one big guess on your part to me.
John $Cash$ Locke
[addsig]
hi i was looking for some information it took me to your website.as we were looking for the inform
we saw our names on your website their was so much information about us ,i couldn't beliveve my eyes in what we read, i dont know while this person would want to put our personal business on the website,this have nothing to do with what goning on, it was so much said we had to make copies. you all are not getting the full picture
leroy and elizabeth conyers
durham, nc
Great replies Kyle, NCboater, BarnBuilder(?).
Let me respond to each...
Kyle: just because we aren't announcing...
IMO (and the opinion of the prosecuting Attorney), the answer is Yes, you are concealing. The law states if you knowingly conceal. When you take Title, you are transacting a Sale (which is material fact) which breaches the Due on Sale. You, as the new owner, are required to inform the Lender if the contract has been breached; not notifying is concealment. The Case Law that I've read (again, I'm not an Attorney) sets the tone that lack of notification is sufficient cause for fraud; your CYA letter only clarifies the intent.
ncboater: I have looked at several mortgages and found that not 1 says that you have to call...
Interesting point. In all the case law that I've read, there was no indication that notification of a breach needed to be formerly stated in the contract. The federal law looks only for intent to conceal a material fact (the Sale); the Due on Sale is breached if a Sale occurs. One side deals with criminal actions (the AG); the other deals with a civil action (the contract). The fraud issue is not determined by any contract (else I could contract with you to commit a murder, and your defense is I have a valid contract?). In civil court, the defense looks extremely weak; if a breach in contract occurs, I would think it's implied that you are required to disclose this (else these contracts would certainly include the required forms of notification, don't you think?).
BarnBuiler (do you really build barns?): Many have attacked the principles...
Yes, this is a question that goes to the heart of Sub2 - it's legality. If the answer is NO, it doesn't matter how well you perform the transaction; so the focus should remain on the principle, not it's implementation.
My interpretation of the NC statute you cited seems to indicate two points: first, that the assumption is expressly subject to the mortgage indicating a formal assumption; and second, once formal assumption occurs, the Seller is relieved of any further responsibility. In a Sub2, there is no formal assumption, and the CYA letter clearly indicates the Seller remains responsible.
The US Supreme Court de la Cuesta decision (Fidelity Federal Savings and Loan Association v. de la Cuesta et al., 458 U.S. 156) led to Congress passing the Garn-St. Germain Depository Institutions Act of 1982. This Bill states that Due on Sale is enforceable, regardless of what the States enact. In other words, the unreasonable restraints defense created by the States was overturned.
Judon Fambrough's statement is correct, the Lender cannot unreasonably restrain the resale, but requiring a refinance or formal assumption is not unreasonable restraint, especially since there are other lenders available. This also doesn't address the concealment issue.
Excellent post.
Ron
Elizabeth and Leroy Conyers -
Could you please post your side of the story? It would be extremely helpful to this discussion if we had all of the facts. It would also be very educational for myself as well as others.
Thanking you in advance,
Dan Studebaker
Mr and Mrs Conyer,
Could you please fill us in on the whole story. We would all like to hear it since we've only heard one side. Thanks
ronb -
You say that the prosecuting attorneys are the experts, not the real estate attorneys. Even though I am married to an AG I have to woleheartedly disagree with that statement. We have the courts system to interpret the law. If the prosecuters were the only experts we would have no need for defense attorneys, or judges for that matter. While the prosecutors are extremely knowledgeable in the law I hope and presume that there are plenty of defense attorneys (most likely real estate attorneys) who are also extremely knowledgeable. Any prosecutor worth their salt sees the importance of good, knowledgeable defense attorneys in the system.
dstudeba:
Excellent point. No argument with regard to the Courts.
However, I did review the Case Law to get the decisions of the Courts (I believe I mentioned this; especially with regard to the cases cited by Bill Bronchick).
Defense attorneys are our friends (presumably); prosecuting attorneys are not (no offense with regard to your spouse). It would be quite helpful to get the input of your spouse on this issue.
I'm not as optimistic with regard to the capabilities of real estate attorneys in criminal court. I, for one, would feel more comfortable using a defense attorney with litigation experience. In fact, it makes perfect sense to contact defense attorneys to hear the opposing side (another thing to add to my list).
Ron
Ronb107
I've gotta say that's as stupid a comment as I've ever read on this board: "Prosecuting attorneys are the experts" !
Wow! The defense bar will be fascinated to hear that "the law" should be coming only from the mouths of the DAs and AGs.
Believe me, friend, having known a lot of both sides of the criminal bar, no side has any monopoly on brains, knowhow or legal know-how.
Remember the O.J. Simpson case, where all of America was basically persuaded he "done it" but the defense side just plain shut down & shot down the prosecution? Not at all an isolated or exceptional example.
Matter of fact, for large part, the Defense bar's lawyers used to be prosecutors and eventually wound up defending, so they know at least as much as the prosecutors, often MUCH more!
[addsig]
Hey Ron,
Are you here to help or just put this way of REI down. Most people come to this site to HELP! Could you possible find a way to HELP us instead of trying to figure out why it may not legal in your eyes. If you wanted to help then you would be posting POSTIVIES instead of the negatives. Why don't you redirect your energy towards a postive note not your negative.
[addsig]
Diane, I am behind you 1000 percent!! Seriously, if there is anything I can do to help you I will.
Marv_wi, Get fired up!! I couldn't agree more. Most are legal theives and have no conscience about it either. Many of the people I help get ripped and abused by different realtors.
Sorry if I have offended any truly good and honest realtors out there. I know there are some, but few and far between. Yes I do have personal stories that would shock you. Or maybe not.
ncboater:
I thought I was helping, seriously.
This isn't a positive vs. negative issue; it's a question of delving deeper into the issues to be better prepared.
If I'm right about the issue, we're all better off understanding this (and we can take whatever actions we deem appropriate); if I'm wrong, we're still better off (we have a clearer understanding of the legal issues and can better respond to the AG, etc.).
Talking to the AG is one form of defense; if they indicate that they're against Sub2 and will prosecute vigorously, I would avoid Sub2 until the issue is resolved (in the Courts). (This doesn't mean I wouldn't provide moral support for others caught in this predicament; it means I wouldn't stand in front of an freight train).
Talking to defense attorneys provides an understanding of how steer thru this minefield, and avoid litigation. Avoidance is the best defense, imo.
If you want me to explicitly provide moral support, no problem: Diane, I think what the AG is doing is atrocious and immoral. You have my complete support. I will help you in whatever way I can. Seriously.
I hope that digging deeper into these issues is helpful. This is one form of support I can provide.
Ron
Sunre,
Too Funny (get fired up) I usually regret the flaming keyboards, but.
Ron you have a right to your opinion, and if for some reason you are threatened by subto investing, don't do it! In my opionion you are starting to sound like a crusader.
And your interpretation of a few lines of written law will probably get you the pat on the back from some politically motivated AG. that you are looking for.
Politicians write laws daily that they break. and slide off with minute sentences because of their connections. Mortgage companies don't give a rats..... whisker what's right for people except that they get their money(no offense to the brokers here) and that is what people that I know of doing subto do, take responsability to the seller to keep the loan current.
So if your going to crusade, remember the next time you change lanes without your blinker, drive to the nearest police station and turn yourself in.
In my own opinion.
Marv
To all in this thread:
I just finished with a very long and drawn out court case that involved an option to purchase contract. While I cannot give too many specific details, I can say that our position was upheld by a jury of our peers. Even though this thread is about sub2, a topic I endeavor to begin one day, my main business is L/O contracts. The only reason I am chirping in here is the fact the state AG's office is involved as well as the NC Real Estate Commission. My opinions on those two departments isn't very pleasant, but they have left me alone after several contacts.
The assistant legal consul to the Real Estate Commission testified against me in the trial. He called it a sham contract...etc. The whole nine yards. However, when the question was presented to him in the fashion of "how much is required to make the contract legal, " he now had no idea. He stated that generally 3-5% is the norm, but evaded answering there wasn't a minimum. So, with that said...and after speaking to several NC attorney's, $10 is good. The attorney's added it wouldn't hurt to add in ANYTHING of value or service that you will be doing...such as paying a bill or fixing a light. All is consideration, so the discussion is over. Anything you MIGHT do...is consideration. Paying the mortgage is consideration. Cutting the grass...etc.
Anyway, i just wanted to add my 2 cents to the NC battle of the "Government protecting us from the big bad home buyer which doesn't buy your home in a conventional sense, but unconventional which is illegal, but supported by no fact of law to prove it is illegal, but we are the AG's office and what we say is illegal...is illegal."
Best of luck in your battle.
Dave
John Merchant:
I appreciate the kind response.
Having been labeled as an undesireable, I felt the lynch mob forming (excuse my paranoia).
John, I understand exactly what you mean, and I concur totally. We're all in this together, and we have to be onguard to protect our interests.
I'm attempting to raise the bar by delving into the legal issues; not because I want to debunk Sub2 (I like a good tool in my toolchest as much as the next person), but because I want the Sub2 process to be more effective (less risky).
Ron
hte2work,
Thank you for that post. And being a real world example, and you having been there and done that, even though it was a l/o situation, I'm glad for you that your proof was justified and was not upheld by the "experts of law" the AG office. Tommorow they wake up and find another cause to protect the people, and you hopefully you can find another property.
Good investing to you,
Marv
Marv:
Thanks.
I'm not intentionally crusading (i.e., I'm not saying I'm right and you're wrong, and let me count the ways). I think my revulsion to being told I'm wrong without any valid explanation could lead me to crusade against banal responses.
I admit that the current rising litigation is a concern (for me). I can either avoid/ignore Sub2 and move onto Lease-Options (oops, Dave's post just raised the red flag on this), or I can seek to perfect the process.
The latter takes more work (considerably more work), but (imo) it expands the possibilities (which should be a positive for my bottom line).
Pats on the back by the AG. Bite your tongue. I doubt they even care (they probably would not like what I'm doing, if they have political ambitions). I would rather make money than receive empty kudos.
With regard to the remainder of your post, I'm more of a moderate and believe most individuals (in corps) are not vulgar, immoral SOBs. But again, I might be naive.
Ron
Ron,
What kind of written approval are you actually looking for? Do you invest now or give me a background on your need to have a word for word guaranty on the subto method. What actually do you do for a living?
I can tell you that this year I sold two properties that I owned not subto but personally, and having a realtor not being able to sell them, I sold on a cfd. both having due on sale clause, the mortgage co's never even questioned the insurance change or change of address. So I guess I rather make all parties a win-win situation and everyone recieved their money and property and so forth.
Time to copy and paste;
"I'm not intentionally crusading"; at least your acknowlegding that you might be.
(i.e., I'm not saying I'm right and you're wrong, and let me count the ways)
Count the way's what? That it happens and you don't have a clue besides induendos and a dictionary response?
" I think my revulsion to being told I'm wrong without any valid explanation could lead me to crusade against banal responses"
How trite a response, alot of wantebees over analize the rei, and end up being.... book smart and cannot or can't cope with the real world of investing.
"I admit that the current rising litigation is a concern (for me). I can either avoid/ignore Sub2"
Like I have said in my opinion, don't do it. I'm not calling you ignorant, but you don't have what it takes for the bill.
" move onto Lease-Options (oops, Dave's post just raised the red flag on this), or I can seek to perfect the process"
I still am in question what your goal is and what you actually do in real estate?
"The latter takes more work (considerably more work), but (imo) it expands the possibilities (which should be a positive for my bottom line).
What you think your going to change laws for you to have a perfect investment?
"Pats on the back by the AG. Bite your tongue. I doubt they even care (they probably would not like what I'm doing, if they have political ambitions). I would rather make money than receive empty kudos"
You can be percieved as a person that likes the pat. And of coarse they don't care about YOU, but as long as you keep fueling the fire, they want your input.
And you would rather make money than recieve your kudos? once again what do you invest in besides case study?
"With regard to the remainder of your post, I'm more of a moderate and believe most individuals (in corps) are not vulgar, immoral SOBs. But again, I might be naive."
A moderate What? average,conservative, judge or referee?
Just curious, which one?
Just my opinion and in observation.
In closing I think you you need to buy John the $cashmans$ Locke subto coarse and understand the real world of the subto investing.
Marv
I'm not intentionally crusading (i.e., I'm not saying I'm right and you're wrong, and let me count the ways). I think my revulsion to being told I'm wrong without any valid explanation could lead me to crusade against banal responses.
I admit that the current rising litigation is a concern (for me). I can either avoid/ignore Sub2 and move onto Lease-Options (oops, Dave's post just raised the red flag on this), or I can seek to perfect the process.
The latter takes more work (considerably more work), but (imo) it expands the possibilities (which should be a positive for my bottom line).
Pats on the back by the AG. Bite your tongue. I doubt they even care (they probably would not like what I'm doing, if they have political ambitions). I would rather make money than receive empty kudos.
With regard to the remainder of your post, I'm more of a moderate and believe most individuals (in corps) are not vulgar, immoral SOBs. But again, I might be naive.
Ron
------------------------------------------------------------------------
Marv:
You want a background check. Ok.
I'm a full-time RE investor, and have been for nearly 16 months. I've done 7 deals todate (it took 6 months to get the first deal).
My deals are rehabs and wholesales (flips); no landlording (it's not for me). All my deals are cash deals (it's very competitive here). The next step is new construction (first on a small scale; then on a much larger scale in, of all places, NC).
That's it. I guess I don't qualify for the wannabe group.
Moderate? As in Liberal, Moderate, Conservative; somewhat to the right of Liberal and to the left of Conservative. I don't adhere to extremes (i.e., the far left or right), which paints everything as black and white. It's just my view on life in general.
Now, back to the issue. In an increasingly litigious society, with easy access to information (via the net), the non-existent risks of 20 yrs ago are becoming issues today.
We can take a reactive posture, and let the civil suits alter our strategies (this is exactly what's happening in NC); or we can take a proactive posture and try to better understand the legal issues to improve the strategy (not trash it; improve it). Think of this as an Asset Protection technique (which, when you think about it, it is).
We're all in the same boat, as investors. If we fight and bicker, and point fingers of distrust, we'll be less effective challenging the encroaching government regulation.
So, as I said before, my intent is to HELP. It's just not in the form your accustomed to.
Ron
What happened to Diane who is in the center of this? Problem is the sellers want there house back if I remember correctly. She is in the clear.
As for subject 2. There is no court that can tell me my intent. The courts are over steping there bounds as usual with a trigger happy AG. This whole issue could be solved with common sense (oximorron). If it is so illegal why is it on the HUD 1 form. Is the Government promoting such actions?
My atturney said it was fine, and he golfs with our AG. Why do you think I picked him? Do like everyone else does and become a contributer to an election campain. It works.
Sire
As a side note I do believe a Lease with option to purchase violates the DOS clause? Straight lease no problem. DD[ Edited by sire on Date 08/17/2004 ]
Welcome to North Carolina! The only state in the nation where you can sue your spouse's lover for breaking up your marriage and actually get a Million Dollar Judgment against them.
But, it's still better than South Carolina.
I'm a paralegal and a real estate agent, and I agree with the others that some of your info is missing.
Can you catch me up on "Subject to"? It seems like a great program. What kind of Deed do you give the homeowner, and how is "Subject to" different than assuming their mortgage?
I agree that you definitely need a good attorney. The fact that that the original deed was not timely filed presents a problem, and you may have some rights against the person who was supposed to file it, in addition to rights against the original homeowners.
The real estate commission might be right about you or your company needing a real estate license to do this sort of thing in NC. The rules here are strigent, but I'd have to know more about your processes to know whether or not a license is required. To quote the NCREC, "In general, any person or business entity who transacts real estate business (including time share transactions) for compensation as an agent for another must first obtain a real estate license issued by the North Carolina Real Estate Commission". You can Google them and visit their web site for more info.
Good luck, and keep us posted!
Liz
Re: Consideration
I've been purging a lot of old NC legal docs, and throughout the 1970's $10.00 consideration was the standard in most all of them. (We switched the type of law we practiced in the '80's, so we didn't deal with consideration as much after that time).
Wedding rings are consideration for the marriage contract, and if your spouse is willing to accept a $10.00 tin ring in exchange for taking care and putting up with you for the rest of your life, so be it. The state doesn't say the wedding band has to have a certain value. NC is adament about upholding marriage contracts, whether the ring is worth $10 or $10,000.
Someone earlier made an excellent point that all money and effort in the "Subject to" transaction is consideration: Paying the mortgage, back payments on the mortgage, painting, carpeting, mowing the lawn, etc. Just like marriage, if one spouse puts the other through school, or one spouse raises the children - they are all factors to be considered.
Just of few thoughts.
Liz
Sub 2 is a hard nut to crack for the uninitiated and the conventional minded. I can see how it easily gets its bad rap.
The first question that occurs many newly exposed (which might include prosecuting attorneys) is, "Why should a seller sign over the deed to their property while retaining the full responsibility to pay for it?"
And it is a keystone, philosophical question in the matter.
And yet, it has it's equivalent alternative flipside: "Why should a sub2 "buyer" (in a financial-distress situation wherein most sub2s occur) make the payments for a seller without consideration? (i.e. the deed)?"
In other words, the sub 2 deal is really a kind of partnership between buyer/seller for a short period of time until the property is refi'd (thru sale to a third party).
But, I'm sure the AG's perspective (being typically conventional minded) is, "Why shouldn't a buyer just BUY the house outright and get the seller off the note?"
And we all know that is the best answer to the seller's dilemma. But it's an event that doesn't always happen.
And so, here you have a sub2 buyer who comes along, and purchasing outright is not what he/she is all about. They use a different model. They don't want to own the property. They don't want to incur closing costs to buy just to turn around and sell. They want to take a middle position, mitigating the sellers immediate distress, raising the property condition, and eventually placing the product with a new third-party buyer.
A win-win for all.
I can see how the sub2, when done well, is good for the lender, as well. It's immediate relief from financial indigestion.
But there are undeniable sticky issues for the conventional minded observer, that linger. Such as, "What if the sub2 'buyer' can't find a successful third-party buyer?" And, "What recourse does a seller have if a sub2 'buyer' stops making the payments? Do they get the deed back?" "What assurance does buyer offer of ability to perform?"
Etc.
Conventional minds don't like these type questions.
So, let me pose a simplistic query.
The best sub2 deals seem to be those that involve the best communication, open, honest, and candid dealings between the parties. But outside observers aren't privvy to these. They see the bad ones that pop into public light with fanfare, and only serve to reinforce the conventional consternation.
So, why not structure the sub2 deal as a partnership (LLC?) between the sub2 buyer and the seller. Sign over the deed, yet transfer it to escrow with failsafes?
Wouldn't such a formalized agreement call off the attack dogs by dissolving the victim-apparition they seek?
The Sub To deal is always open to an interpretation and when you are dealing as we are with loosers you must expect them to bite back. There are persons here in this fair state that spend their time living rent free and the schemes are endless. Some rather entertaining.
I have had people in foreclosure deed out their properties three and four times without notification and pick up a small sum each time. Their rational is that the persons having them sign the deeds are the lice on the back of humanity. I object to that statement, perhaps a small Tic!
Years ago I took a deed from a nice man to his property in foreclosure and as was my custom imediately recorded the deed and I fell number one. By the third day three more had recorded from my fellow runners. All of them behind me and of course their instruments failed.
I have had a couple in foreclosure sell me their property and as soon as I got it out they had an attorney call me and tell me the notarized deed was false as the husband was not really the designated person on deed.
I just smiled politely, laughed informed them that they were very clever and I deeded the property back and I had their attorney who was laughing loudest take the notary. Oh yes I then gave them a small second to cure the upcoming foreclosure and I had the nice attorney notarize that deed too.
Well anyway it took about six months and I foreclosed on them and finaly got the property. I was very nice I even paid a months rent on their new apartment that they had to move into and of course were evicted four months latter. Purely by chance I held a second on that apartment house.
Come on relax, our forefathers were the scum of Europe. Mine stole handkerchiefs on the streets of London. Debtors prison emptied out and went to Georgia then called Ogelthorpes Colony. What can you expect. Morality? Manners? Proper Conduct.? I have had more courtesy in the caves in Afghanistan. At least the nice man begged my pardon before he tried to cut my throat.
You are experiencing the Human Condition. When people are up against it they change and lash out at everything and if they feel they can get away with it they will.
As to your future, simple do not use the Sub To technique in your State. Use any one of the other ten methods. If it becomes too intense buy your way into the good graces of a few Loss Mitigators and start picking them up after foreclosure from the banks. Not a bad way of operating. Let the lenders take the heat.
Of course it has been said before. But believe me if you are not qualified and even if you were it is not a good idea, get a really good lawyer who actualy practices in the field of real estate. Read some of his or hers prior cases. Some of them are really funny. But check him out prior to employment. I like the one who hangs out with the judges, Referees in Bankruptcy, etc. etc. They tell good stories and they have the connections in court and they are helpfull.
The game you are playing must be played within the system. If you live in Country Club Land, why belong, go play that silly game of golf. Play a little bridge and trump the judges Ace now and then. Hang out with them that would appose you,
if you really want to play the game why start joining the local winning political party. Makes no difference, it is only a game.
I make a point of having breakfast at least once a week at a political hangout for the downtown boys. You get to know them by name and suddenly any problem comes up. Someone tells you about prior to investigation. Soo you stop and you set up a non profit save your house organization. Sing Hymms if thats the thing.
You gotta stay within the social and political groups. You cannot become a target and that is what you have done.
I know its hard, Imitate their accents, let the sun turn your neck red. Please do not chew tobacco, but you might try gum.
Conform. Most important pick a method of obtaining properties that is not identified as anti social.
Now I am a Real Estate Broker most of the larger sums I have earned in my life came from operating a Deal Shop.
I had this office on Sunset Blvd. on the strip. One of my competitors had a sign made which I hung over the door. 'Beware ye who enter here for this is the Layer of the Self Directed' Not sure what it meant but, I liked it.
I hope this is of some help. Besides this is a fun game.Don't mess it up.
Cheers Lucius
OK, I read and read and buy books and courses and never go any further. I found the "Subject to" area and felt here is a win/win possibility with profit potential. Then when ready to start here is this post, slamming on the brakes again. I would appreciate any suggestions on where a true overanalyzer should start? Desperately in need of wet feet.
GLD:
First off, don't be discouraged--I can think of at least 2 fellow John Locke Sub2'ers in your fair state that are doing just fine. Remember that the original post in this immense thread was about events in North Carolina, clear across the country from you.
Second, if you're like I was, you're having trouble landing on a suitable investment strategy from the dozens represented on this site alone. Keep reading and if you find a strategy (like I did with Sub2) that fits your goals and personality--go for it. If it is sub2, order the Locke course and get out there and do it.
What I've found is that, while I'm still working on getting my first deal, I'm DOING something now, not just reading and wishing. While I'm doing this, I'm also still learning about other strategies that can help people beyond the sub2 way: I'm going to local REI club meetings, I'm networking with fellow investors in my area and I'm still reading everything I can on TCI.
I realize if you were to go by all the posts here, that it sometimes appears that RE investing is all problems and no rewards--you have to realize that this is a learning and sharing site, and that the successful investors among us don't post every great deal they've done. Most people are posting to get answers, not to brag about how much money they've made or how much money YOU could make if you do it THEIR way (which is one reason I like it here at TCI).
Hang in there, get a plan, work it and stick to it and you can be successful in this biz.
Good luck investing!
Andy
well said katz........km
You get what you pay for....
They say
A students are litigators
B students go into public work
C-D students are teachers and ........
To Ronb:
Correct me if I'm wrong, since I am not an attorney, (nor do I play one on TV), but when a title is transfered into a land trust, the control is actually with the beneficiary, not the trustee, since the trustee can not act on the trust without the consent of the beneficiary. I was under the impression that the beneficiary has power of direction over the trustee in land trusts that are designed as "Illinois Type", (regardless of the state in which they are utilized). Could you clarify this for me as I am new to using land trusts.
Thanks,
Swaf
I'd like to throw in on this post.
The way I understand it, Sub2 gets a homeowner out of a bad situation (nearing foreclosure, perhaps), cleans up their debt, puts a few bucks in the h/o's pocket and relieves him or her of having to mind the property for a while, even though he still owns it and can take deductions on it.
The middleman (me!) finds someone who does not maybe have stellar credit but who needs a place to live and wants to buy eventually, and I receive a few bucks from the tenant for helping him out.
Then the tenant pays me every month, I pay the mortgage out of what the tenant gives me and pocket the rest. I keep track of what I pocket because the tenant and I have a prearranged agreement that at the end of one year I am going to give him part of that money back to use as a down payment on the property that he will buy directly from the homeowner. I receive a small fee for doing this, as well.
The homeowner has sold his house, cleaned up his credit, the tenant by then has a better credit rating because he has been making his rent on time for the past year, and everybody wins.
While the tenant was paying the rent for the year, the bank was not worried about the DOS clause because they were getting their money. That's what they wanted in the first place and they REALLY did not want to add that property to their REO inventory anyway because they would have probably had to take a loss on it. Even they win!
So what's the problem??
The middleman (me!) knows that only approximately 25% of tenants actually proceed to closing. Something happens along the way - the single mother tenant losses her job at the local diner and can't follow through, the military gives the guy orders overseas and he invoked the move-out clause the military insists be in every lease for the protection of all military personnel, whatever, the deal falls through. The middleman (me!) then has to come up with another tenant to keep from having to pay the mortgage out of my own pocket. I find another tenant,, same deal, one year down the road, he or she goes to closing (hopefully.)
There is at least one guru out there who says that middleman (me!) are immoral because we trade on the tragedies of others, in this case, the tenant. We get their up-front money which goes directly into our pocket, we make a few bucks monthly, all the while "knowing" (when did we become all-seeing of the future?) that the tenant probably won't come through. Maybe he's right. But at least two people were helped by this deal - (me!) and the homeowner. And while some may be shifty and slimey, I am not and realize that I provide an excellent service that saves the credit rating of a lot of unfortunate people, keeps the banks from losing money and keeps the bank's investors happy. I'm sorry the tenant was not able to take advantage of a good deal, but I won, the h/o won and the bank won. What could be better than that?
Now - I am a person who always questions the motives of others. I like to know what is making them tick. Such as the NC AG. Is this an elected position? If so, has anyone gone to the public records to see who has contributed to his or her campaign? Would there be any "big boys" on that list? If so, would making that fact public knowledge make the AG back off? Obviously, he or she has stated that this is a political issue. I disagree! It's an issue, alright. The issue to the AG is whether or not the AG gets to stay in office, that is, remain powerful, for another term.
Anyone want to go check the contributors' list?
Bob
Swaf:
First, I am not an Attorney. I do have experience with Trusts, and use them for all my properties.
A Trust is a contract between 3 (or more) parties: typically the Grantor; the Beneficiary; and the Trustee.
With an revocable trust (such as a Land Trust), both the Beneficiary and the Grantor are the owners. (From the Courts perspective, the Grantor has never given up control/ownership of the property until the trust assets are distributed).
Since a Trust is a contract, it can be drafted to limit the Beneficiary's control (typically used when the Beneficiary is under aged, but not restricted to this).
When drafting a Trust to meet the requirements of the Garn-St. Germain Act, and to ensure that you (as Trustee) has control and it's acceptable to the Lender, it is best to seek a Trust Attorney.
BTW, I work with the Attorney to draft a Trust for the state the property is located in, which is not Illinois.
Ron
Bob:
Now - I am a person who always questions the motives of others...
I've given some thought to this as well. I suspect that pressure from organizations (such as Lending Institutions, the Real Estate Association, the American Bar Association, etc.) might be behind this (afterall, a Sub2 does bypass their services, costing them money).
Ron
like we have said that their are more to this story. the people that were in the house at 14 knob ct we have talk to them when they move out we call them they told us they did want what was left in the house.we had a long talk. i can not tell you all my side of the story right now. but we will soon
Fellow TCI members,
This link will answer the questions regarding this post for the most part.
http://www.thecreativeinvestor.com/Article623-North_Carolina_R_E_Commission_Answers.html
John $Cash$ Locke
[addsig]
I got this article emailed to me by the Conrey's and i had to reply. i want to comment on this article written by Mrs. Barberio. I am the mortgage broker she mentioned in the above article. I want to get something straight for all the real estate investors and please feed back is welcome.
first of all, i had the conreys as clients to do credit repair. I was approached by Mr. and Mrs. Barberio about this client because the clients had mentioned my name to them. Because i am a member of our NC investment group treia and i have talked numerous of times with the Barberio's, they approached me about the conrey's situation. I stated to them that i could not help them refinance their home until their credit repair was finished. I told the Barberio's that i will let them know when it was finished to see what would be next to do. When i started the credit repair for the Conreys, their credit scores were 500 to 525. When i finished the credit repair their scores went to 625-645 and i could get them 100% loan by refinancing. I was told by the Barberio's that the Conrey's did not owe the house and they had to repurchase it from them. I told them they had to work out those details with the Conreys and i will assist them in either way. Now, the problem, there is no blame on the Conrey's education level, but the Barberio's did not explain everything to the Conrey's and that is were the problem became more indepth and the Conrey's felt lost. I told them i could not give them advise because it was not my business of what they had done with the Barberio's but i could do what is needed as a loan officer to get them the best deal. I told the Conrey's and the Barberio's that their house was only valued at $93,000 and there was no equity. The money put in by the Barberio's was long gone. They did not do their homework before taking on this property because if they did, they would had noticed the fair selling market in their area was only $95,000 max. They lose not the Conreys.
Also Diana lied about the amount of money i was to receive out of this transaction $7500. By law in NC, we loan officer/Mortgage brokers can only charge up to 5% of the total closing cost, so you know that was a fat ass lie.
But back to the point for all the investors out there. "Subject to" properties or how every you buy your homes are legal in the State of NC. The problem is when you do not explain the total procedure of the pros and cons to the homeowners, problems will always be there like the problem the Barberio's had with the Conreys. i hope everyone that reads this reply do not feel pity for the Barberio's but feel pity for all the problems they have caused the real estate investors in the State of NC. They opened the eyes to the Attorney General and the Attorney General knows nothing about this topic and any other topics about real estate investing. But they do know the law and if you break it, you will be charged and revoked from doing business like the Barberio's were barred.
take care and happy investing and making lots of money and stop writing things about people if you do not tell the whole story.
spice34,
As many have said, there are always two sides to every story so thank you for giving your side. It is also said, that somewhere in the middle lies the truth, and I believe that that is the deal with this "problem deal" as well. When telling the story, everyone wants to be the hero or victim as the story needs.
Thank you too, John, for taking the time to clarify this matter more thoroughly. Hopefully this will help everyone become better real estate investors in the long run.
Roger
As posted elsewhere on this site, I have provided Russ and Dianne all the necessary responses to the causes of action as filed by the Asst. A.G. (including codes, sites, cases, etc..
The Asst AG’s assertions are trumped up; their allegations are ludicrous; and whomever wrote the causes of action knows nothing about trusts and especially land trusts.
The only error the Barbarios' made in any of their dealings with land trust transfers may have been in not appointing a third-party trustee and a non-paid collections entity (re. monthly payments and impounds). And as I recall (could be wrong here), there may have been an instance where 100% of the beneficiary interest was transferred by the settlor (homeowner) versus just 90% now and 10% at the trust’s term.
I have offered (and continue to do so) my services as an expert witness (having written several books on the subject of land trusts) should this mess go to trial, and am happy to fly to NC to set some folks straight anytime I am needed.
The Equity Holding Trust™ concept (PACTrust™ or NEHTrust™) is designed to prevent exactly what the AG is complaining about and purportedly trying to prevent (unconscionable advantage, loss of control by the relinquishing party, avoidance of the lender’s due-on-sale clause; avoidance of in-rem litigation (again the property), charging orders, partition issues, etc.
This person, who purports to be acting on behalf of the consumer is really hurting them by lumping the EHT in with so-called flip-scams and foreclosure traps.
Here’s how the Equity Holding Trust™ works:
The investor has the homeowner in default place his property into a bona fide title-holding nominee land trust with himself (the homeowner) as the only beneficiary.
The homeowner then leases the property from the single-beneficiary trust (via a “triple net” lease*). *Triple Net refers to the lessee paying for all costs of management, maintenance, insurance, taxes and the mortgage).
Next, a remainder-agent is named, who, in exchange for participation in the property's future appreciation, posts the trust's contingency fund (in an amount sufficient to eliminate the extant foreclosure).
All dealings are done at FMV (within 10-20%), leaving all of the property owner's equity in tact (all but perhaps 20%). Ideally (for added caution and safety) the homeowner's monthly payments will also be reduced by $100 per-month for the first year (and made-up-for in later years).
The contract provides that if the homeowner should default in its lease payments: such default will be considered constructive notice to the remainder agent of the defaulting party's intent to sell his interest in the property at full fair market value to the non-defaulting beneficiary/ies.
Irrespective of the amount of buy-out offered by the non-defaulting party, the defaulting party has the absolute right to challenge the offer (with an MAI appraisal) as being less than FMV (should they so choose)...following payment of a $2,.000 default fee and all missed payments, charges, interest and penalties.
If the defaulting party proves that they are indeed owed more than offered to them, they are to be paid the entire amount proven...in the form on an unsecured promissory note that is to be retired when the property does finally sell…at or before the trust’s scheduled termination.
Note that in this program there is no unconscionable advantage being taken of anyone; there is no loan of monies; there is no forfeiture of ownership at less than FMV; there are no onerous payments to force the owner into default to be taken advantage of; there are no violations of any civil code regulations. And throughout the entire transaction the property is protected (shielded) from lawsuits, creditor judgments, IRS liens, marital dissolution claims, bankruptcy actions, etc. (re. both sides…buyer and seller).
And too...when/if the EHT resident beneficiary should default in his lease obligation with his own trustee, who is it who made all the decisions relative to his own eviction, and who has already directed the trustee in that regard? And who is it who gave up 100% of his legal and equitable title-interest in the property to the 3rd party trustee (which event prevents later claims of “equity” so often heard when one is trying to avoid eviction and force long drawn-out and expensive foreclosure, ejectment and quiet title actions?
Bill Gatten
Hey guys, I am going to lock this thread because we should be discussing it on Johns new article he submitted about the NC Attorney Generals Office.
Users can rate what comments are more relevant than others and it will help document this case a little better than within the forums.
Again here is the link if you would like to make a comment on it:
http://www.thecreativeinvestor.com/Article623.html#comments