You’ve seen it on the evening news:
“Terrible Investor dupes homeowner out of everything by tricking them into signing away their title!”

Now, we know you wouldn’t do this on purpose, but many investors are doing it all over the country, every day. Most of them don’t even realize they’re doing it, they’ve just been taught by someone who doesn’t care (or know themselves!).

Are you using a Land Trust? Are you recording a deed? Guess what; If you answer yes, you are most likely falling into that very dangerous trap! You need to take action and learn the proper methods immediately!

Using a Land Trust can be fine, provided you use it correctly, which most people don’t. You should wait until you’re ready to close before assigning Beneficial Interest, and if you think the homeowner won’t be available, you should have specific wording in your agreement that states even though you are doing the assignment of Beneficial Interest, it SHALL NOT be executed until the time that you specify. That assignment form should also be held in an escrow account or at your closers office.

If you record any type of deed, or assign beneficial interest, you’ve just crossed a line that can get you into LOADS of trouble. You have taken away any possibilty of that homeowner being able to pursue any other means to solve their foreclosure problem.

If their house then goes to foreclosure, and they decide that you had anything to do with it, or that you didn’t do enough to help them during the situation, all they need to do is go share your transaction with an attorney and guess what; You’d better be ready to lose some sleep. That attorney is going to do his/her best to chew you up. Best case, you’ll spend alot of money on your own attorney and lose alot of sleep. Not to mention get plenty of new grey hair.

If you sign up your deals correctly, you shouldn’t have anything to worry about. Whenever someone says “get the deed”, RUN. Run the other way as fast as you can, because they don’t know what they’re talking about.

Our students know exactly how to sign up deals. As a matter of fact, we teach them MANY different ways to sign up deals, so everyone will have a method that works.

If you want to know what our students know, and how to have true success in the short sale arena, Learn about buying foreclosed homes.

Please don’t be the investor on your local nightly news! Learn the RIGHT way.

The short answer to this question is “yes,” you can. HOWEVER, I have never done it, and I never will do it. I know people who do, but I just simply won’t do it. Here’s why. Remember, you met these people because they are in foreclosure. They are in foreclosure because they stopped making their payments to the bank. If they aren’t going to pay the big and bad bank, what makes you think they’re going to pay little ‘ol you? Even if they really and truly want to pay you, and they fully intent on paying you, they simply just may not be ABLE to pay you. And now what? Do you kick them out? Do you evict them? How does it look with the judge when you’re trying to evict them? You tell the judge the story and sure, you have the deed, and you did everything honestly and by the book, however the PERCEPTION is that you’re trying to kick them out of THEIR house! And who is the bad person, the homeowner who is just trying to survive with his wife and kids? Or is the bad guy the investor who is trying to make a $30,000 paycheck on the deal? I can tell you right now, your odds of being looked at as the good guy are slim. You want to do everything possible to avoid a lawsuit. Doing a straight deal where the homeowner moves is your best way to avoid a lawsuit.

Of course no matter which way you go, consult your attorney before you do it. Make sure you’re doing everything possible to protect yourself.

Marty Schulting

When we talk about stopping a foreclosure sale, there is one key thing that you need to think about other than getting the lender to stop the sale, and that is verifying that the sale was stopped. This is something that often gets overlooked with terrible consequences.

Imagine that your sale dates in your area are every Friday, and the loss mitigator told you on Thursday night that yes, indeed the sale has been stopped or postponed. You relax knowing that you have more time to work on this and then you don’t have to tell the homeowner that their house went to sale. Next thing you know the homeowner’s calling you Friday afternoon and yelling at you because you didn’t tell them that their house went to sale. Bad situation!

You need to try and figure out all of the different foreclosing attorneys or trustees that conduct the foreclosure sales in your area, or learn where you can verify whether or not the sale was stopped. In Washington state we know most of the foreclosing attorneys, and we also have access to their websites to see whether or not the sale is been postponed. After the loss mitigator has told us that they have postponed the sale we always contact the foreclosing attorney’s office and confirm that indeed the sale has been stopped. If not, we let the foreclosing attorney know that the loss mitigator has said they will stop the sale and we also immediately contact the lost mitigator and let them know that the sale needs to be stopped because it has not yet. You need to be very proactive with this, because the loss mitigators are so busy that they will make mistakes.

Set up a system starting now where you have the contact information including phone number and website address for whoever is responsible for conducting foreclosure sales in your area.

This will save you many headaches.

David Corbaley

So here’s the situation. You’ve successfully negotiated the short sale on the first mortgage. The homeowner told you when you first met that she only had one mortgage and no additionaly liens. Based on that information, you started cleaning up the property and putting a few hundred dollars into it to increase your paycheck when you get it sold. The title company is used to you knowing what liens are on the property, so they do the title search and don’t say anything. So you’re one week from closing and you call the homeowner to schedule a time for her to come to closing. She’s very excited about getting the deal done, and says to you, “Thank Goodness Marty, because this second mortgage keeps calling and is driving me crazy!!!” Now what do you do. Of course you ask a few questions and realize that yes, there is a 2nd mortgage. So you call the title company and verify the title work. They tell you that they thought you KNEW there were 2 mortgages. In addition to that, they say… “so you didn’t know about the 3 mechanics liens, the judgement, and the two tax liens on the property either?”

This is a true story. In fact, as I type this blog entry, the attorney is putting together the final paperwork so we can close this deal today. My paycheck? right around $10,000. So what happened?

1. I did not have a good enough up front meeting with the homeowner. I breezed over the liens and mortgages. I should have been a little more firm with those questions to her.

2. I did not go over the title search closely enough with the title company. We have gotten into a groove and things are going well… we both assumed the other knew something. From now forward, we will be checking title work more closely.

3. I simply got lazy.

Ok, all that being said, we still got the deal done. How did it work? Here’s how I got it all cleaned up.

first off we had 3 more weeks on our approal letter from the 1st and the sale was 5 weeks away. I made the 1st aware of what was happening and told them my plan was still to close on time. The loss mitigator told me to contact her if I needed any help.

First let’s talk about the 2nd mortgage. It was or $18,000 with HSBC. So we ordered a payoff from the foreclosing atorney for the 1st mortgage, got updated financial information from the homeowner, and put together a complete short sale package with two additional items… the approval letter from the 1st and the payoff letter from the attorney. It was all submitted to HSBC. They ended up taking $1000 and it took about 2 weeks to get the aproval letter.

The tax liens. Luckily, both of these were already paid off. We just needed proof from the IRS. I put this on the back of the homeowner, who cooperated and had the payoffs/release in our office within a week.

Now for the mecanics liens. As it turns out, the mechanics liens were in front of the 1st and 2nd mortgages. This told us that maybe they were not paid off when the property was refinanced back in 2000. Sure enough, this was the case. So we called Litton (the 1st mortgage) and asked them to send us a copy of the title policy and the final HUD settlement statement from when the property was refinanced back in 2000. It took about a week for us to receive that. So with the title policy and the HUD, the title company was able to go back to the previous title company and tack on to the previous title policy (basically file a title claim). So that cleared up the 3 mechanics liens.

Lastly, the judgement. The judgement was for the homeowner to receive $9,000 from the sale of the property. Since the property was being sold via short sale, there were no proceeds, and the judgement did not apply.

So just like that! Now we have a “clean” title… or at least one we can close on.

So what’s your point Marty. Well my point is this. Don’t give up on a messy title. Take it as a challenge and learn from it. Get it cleaned up and get the deal closed and make yourself a paycheck.

Marty Schulting

In this post I’m going to discuss some laws that may apply to you regarding foreclosure investing in your state.  My home state as well as at least 11 others are implementing new legislation this coming week will effect everybody from homeowners to investors to real estate agents and brokers. I’m sure that many people out there (not you of course!) will remain ignorant to the new laws, thereby putting themselves in a dangerous position by continuing to do business in the same way that they always have, which may now be against the law. I’m writing this post simply as a reminder that whether you are a real estate agent, a real estate investor, or in any business dealing with real estate and home owners, you should be very well aware of your current local laws, and you should make it a point to be in contact with someone that can always keep you updated on any new laws. This will not only help ensure the longevity of your business, it can also keep you from getting into a lot of trouble.

You should always have a good real estate attorney as a member of your business team. Someone that you can go to on a regular basis, and know that they are providing you with current, accurate information. Our attorneys are currently in the process of modifying all of our documentation and disclosures to ensure that we comply with this new legislation. I’m very confident with this, because I know that our team of attorneys are very good at what they do.

That was the main point of this post; always get competent legal advice before implementing any new paperwork or strategies in your real estate business. Never, never rely on some paper work that you’ve gotten from a course before having it reviewed by a professional in your area. Also make sure that you understand your local laws and are also abreast of any new legislation.

Happy investing,

David Corbaley

If you’re doing the pre foreclosure short sale business correctly, then you’re flipping your properties using either land trusts or options and never funding a deal. So what happens if you negotiate with the IRS to get a federal tax lien released and they find out that you did a short sale and flipped the property? It can be a disaster for you. That’s why you need to be careful when you’re working with the IRS on a property in foreclosure with a federal or state tax lien.

Here’s the problem. If you’re negotiating to get a tax lien released, then the only way to make that happen is to prove to the IRS that there REALLY isn’t any equity in the property. You may even have to “negotiate” another short sale with the IRS to prove that to them. Simply supplying them with the approval letter from the lender may not be enough for them. Additionally, showing them the property is a pre foreclosure isn’t enough for them. So in theory, after you’ve negotiated the short sale with them and proven to them that the property is only worth, say $200,000, and you do a simultaneous closing and make $40,000 on the deal, if they find out about it, they’re going to be upset. Is it any of their business that you flipped it? No. Is it any of their business that you made $40,000 on the deal? No again. However, they’re still going to feel “duped” and they will absolutely be upset about it.

So what do you do? Well, make sure if you’re using land trusts that the IRS knows up front that you buy all your pre foreclosure short sale properties using land trusts. Make certain they’re clear about this, because in order to finalize the tax lien release, they’re going to want to see a copy of the deed transfer… which, of course, is the land trust paperwork. I know of someone who made this mistake… that’s how the IRS found out about it and threatened legal action. Did anything happen to this person? No. Why? Because he did everything legally, it’s just that that IRS felt duped.

If you’re using Options, it’s not a big deal because there will be two deed transfers, which will make satisfying the IRS’s requirement for a deed faxed to them very easy.

Bottom line about getting a tax lien release. Contact your local state or federal tax office. Find out what they want and give it to them. Make certain if you’re using land trusts that they know that up front and it won’t be a suprise to them later on. It’s no fun for tax liens to show up on your pre foreclosure short sale deals. However with the right information, you can easily get over this hurdle.

Good luck! Let us know if you have any problems with this, we’ll be happy to help.

Marty Schulting

I’m going to share a lesson here that can be very valuable to you. If you ever do a short sale on a deal, and the homeowner decides to file bankruptcy afterwards, you could have an issue. Let me explain. There is a term you need to be aware of called “reasonably equivalent value”. It deals with properties that are sold within a time period before the seller files bankruptcy, 1 year in my state – this may vary in other locations.

What this simply means; If a property is worth 300k and a seller sells it to you for 250k, there could be a serious problem if the 50k difference was actually equity. You see, the sellers creditors whom they are trying to wipeout via a BK would be REALLY interested in getting their hands on some of that 50k – get my picture here?

When doing a short sale, if you already have a property with significant equity, AND you do  short sale on top of that, that’s when you’re at risk. What risk you say? The risk of the Bankruptcy Trustee deeming the sale a “fraudulent sale” and voiding it! Can you imagine the trouble this could make if you have already put a large amount of money into repairs, or if you’ve already resold it – what a mess!

On the other hand, should you do a short sale and buy the property for less than what’s owed on it, and there is little chance the seller could sell it without a short sale and have anything left over, you should be fine. An example would be buying a property worth 400k that had 390k owed it, for a price of 320k and reselling it for 380k. Your resale price was actually less than the original loan amount, so there certainly was no equity there to be had by creditors.

Hopefully, this will help you to avoid this issue, should you ever encounter it.

David Corbaley