HR.... Bill Bronchick.. Gatten..CYA letters.... - Posted by David Alexander

import · July 27, 2001, 10:51am

Re: If this were a perfect world… - Posted by Tom (GA)

Posted by Tom (GA) on July 27, 2001 at 10:51:05:

Good thread. I’m glad I saw it. I am going after a lot of “subject to” properties in my area. Primarily newer VA loans.

I think that giving the seller an option to take the property back is a good idea.

What are your thoughts on getting them to sign a release stating that they declined to take the property back even though they had the option to do so?
(Should the situation ever reach that point)
Just another way to CYA.

Tom

import · July 26, 2001, 11:54pm

Re: If this were a perfect world… - Posted by Mike Schmidt (IL)

Posted by Mike Schmidt (IL) on July 26, 2001 at 23:54:39:

I thought you all where including a clause like this already. My first deal the seller asked what garrenty do I have you make the payments. Well there is none but if I fail to do what I say I will, then you have a way to get your property back, after I paid for repairs, bringing loan current…whatever, its your option if I get 60 days behind.

Not sure I am doing this correctly but I add it to the Contract Addendum, I just found a attorney to work with and he is going over this. I personally dont have a problem offering the seller a way to get the property back should I fail to keep my end of the deal. Plus if Joe Blow investor is not offering the same kind of recourse…who would you rather deal with?

import · July 26, 2001, 11:48pm

I guess I would always… - Posted by David Alexander

Posted by David Alexander on July 26, 2001 at 23:48:40:

seek other solutions and involving the original seller would not be in any way, a route I would go.

But lets take it your way, ok, you give the recourse to the seller, he gets his property back that you are behind on in some fashion… heck but maybe now it’s in disrepair (maybe it was when you bought it) but you now have to have done some sort of walk through before hand so that he gets his property back in the same condition or otherwise you open yourself to more liability.

I cant in my mind ever see a reason to give the seller recourse or control even emotional control. That’s why I have never done sandwhich L/O’s.

David Alexander

import · July 28, 2001, 1:21am

Re: If this were a perfect world… - Posted by JohnBoy

Posted by JohnBoy on July 28, 2001 at 01:21:16:

I think you missed my point I was trying to make.

This isn’t about the sellers, it’s about the feds coming down on you.

Sure, the sellers can still cry foul. Sure, it doesn’t matter that you gave them recourse, you still are obligated to pay. Just the same as any buyer is obligated to pay on any mortgage…even if they default.

The sellers could all cry foul, but what ever they cry, it’s a civil matter that would have to be dealt with in a civil case…not a criminal case.

We can protect ourself from civil cases by using corps and LLC’s. Those won’t protect you in criminal cases.

The purpose of giving the seller recourse isn’t so the seller couldn’t cry foul, it’s to add protection to prevent some hungry prosecutor crying foul and trying to bring criminal charges against you. By not giving the seller ANY recourse of any kind by taking their property and leaving them liable for the loan on a property you now own could have potential legal problems pertaining to being charged with a criminal offense.

If you’ve been following along then you read where this has already happened to someone and they ended up serving 16 months in a federal prision.

The question is, if the sellers had some form of recourse to get the property back, would this person have ever been charged with anything or not? I don’t know, but in my opinion it would certainly add to your defense in not making you out to look like someone who was running around scamming people out of their homes when they were down on their luck.

It has nothing to do with whether they could financially afford to take the property back or not. It’s the point that they were allowed that option if they so choosed to do so in order to protect their position with being liable for a loan that is secured against that property.

How many lenders give second mortgages where a buyer defaults and the lender holding the second chooses not to do anything about taking any recourse against the property because they feel it wasn’t financially feasable for them to do so? How would this be any different with a seller?

Think about it. If some prosecutor could successfully charge you criminally because you defaulted on the sellers loan that they had recourse to get the property back, then wouldn’t be the same as charging every borrower that defaulted on a mortgage criminally???

Are you seeing my point in this? It has nothing to do with civil matters. It’s to add protection against being charged for a criminal matter.

It’s not the sellers that will be prosecuting for some criminal matter. It would be the State and/or the feds that go after you.

import · July 27, 2001, 11:03am

Re: If this were a perfect world… - Posted by JohnBoy

Posted by JohnBoy on July 27, 2001 at 11:03:50:

If you could get them to sign it then do it. But don’t count on it. You have nothing to force them into signing anything. The contract giving them the option to take back the property should be enough, but if you could get something signed by them stating they don’t want it back then go ahead and get it. It couldn’t hurt.

The one issue that needs to be worked out is on how to set this up by allowing the seller the option of getting the property back.

If you just give them an option to take it back and you were willing to just deed it back then I don’t there would be any problem. If they wanted it back if you defaulted and you refused to deed it back to them, then they would have to foreclose or sue you to get it back forcing you to honor their option.

Another way I originally thought of was to just set it up where they would have the option to buy the property back for $1 in the event I was to default and fail to cure the default. Then instead of them having to worry about having to deal with a foreclosure issue or suing for breach of contract they could just sue for specific performance if I were to refuse to sell it back to them.

Of course, I would be putting the clause in the contract for my own protection should anything ever happen that caused me to default and deeding them the property back wouldn’t be an issue on my part since that is what I would glady be willing to do in such a case.

import · July 27, 2001, 12:32am

Re: If this were a perfect world… - Posted by JohnBoy

Posted by JohnBoy on July 27, 2001 at 24:32:08:

Nope. This was an issue that got brought up at the convention in Atlanta. I will use this clause in the future though. I don’t have or see any problem with having it.

Besides, IF something were to happen where I couldn’t perform on the loan then I would rather see the seller get the property back (if they wanted to take it back) rather than seeing them end up with their credit ruined, a foreclosure and a deficiency judgement against them.

It most cases the seller would probably not choose to take the property back since many of them where having problems with making the payments when you stepped in to help them out of their financial mess. Unless this happens later where the seller was in better shape and could afford to take over the property again or if were a seller that wasn’t financially strained but just desperate to get out from under the property for other reasons. But in most cases they probably wouldn’t bother with it. But watch how fast they turn the tables on you how YOU destroyed their credit when their credit was already being destroyed before you ever came along. With no recourse of any kind it would be easy for them to cry foul and pass the blame on to you! People are quick to forget things later on when something goes wrong!

import · July 27, 2001, 12:20am

Guess I’m… - Posted by David Alexander

Posted by David Alexander on July 27, 2001 at 24:20:30:

Joe Blow…

Because I aint offering it…

I offer a take it or leave it type deal…

David Alexander

P.S. This has become an interesting thread, just wish I could type as fast as my thoughts… (I have to hit the enter button way before I’m done otherwise i’d be here all night, typing 15 words a minute with gusts of wind) it’s hard to keep up with Johnboy… but, I’ll catch him next time in person (after buying him more than a few drinks of course)where then, I might have a chance in H*ll at winning a debate with him… whichever side I take.

import · July 27, 2001, 12:15am

Re: I guess I would always… - Posted by JohnBoy

Posted by JohnBoy on July 27, 2001 at 24:15:33:

Of course we would seek other solutions. We’re talking IF other solutions couldn’t be found. Meanwhile you have mortgage payments that aren’t getting paid. IF you couldn’t find another solution and the mortgage payments won’t be able to be paid…just exactly what else are you going to do? Let the loan default and the lender foreclose ruining the seller’s credit?

If you were so confident that another solution could always be found without ever involving the seller then you wouldn’t need to be concerned about adding these disclosures to your CYA letter…right???

If you feel a need or concern to add more disclosures then that must mean there is something that could go wrong to where other solutions can’t be found. So why not create a solution by adding more protection for yourself?

It’s not about involving the seller. It’s not about the seller getting any control of anything. It’s all about adding protection to CYA in the event some prosecutor wanted to criminally charge you with some sort of wrong doing by taking advantage of the seller and leaving them hung out to dry with absolutely no recourse on anything.

We had an long debate on this subject in Atlanta and some follow up debates here. This has become an issue that deserves some close attention in my opinion. Now that I have heard about this other case involving criminal charges and being sent to federal prision it deserves even more attention and concerns.

I don’t know the details of that case other than it had to do with subject to deals where payments didn’t get made due to a bad econonmy, sellers having their credit damaged as a result of it and the case resting on getting a conviction for mail fraud.

The point is, they found a loop hole by being able to use mail fraud to get a conviction. What would concern me now is what can other prosecutors use from this case to go after and prosecute other investors that end up with a problem on their hands where they couldn’t make the payments if the economy took a dump or for what ever reasons???

The bottom line though, it’s all about adding more protection for the investor in the event the worst did happen and you at least had more of a defense for yourself.

Also, the more properties you accumulate this way and should this ever become a big problem where the economy takes a dump causing you to fall behind on more properties, the more likely this could result in criminal charges being filed against you. From what little I know about this other case it sounds like this is what happened there?

import · July 27, 2001, 12:37am

Re: Guess I’m… - Posted by JohnBoy

Posted by JohnBoy on July 27, 2001 at 24:37:30:

LOL

What are you talking about…15 words per minute!

I’m Johnny one finger over here! It’s getting a little faster though, and you should see that sucker go across that keyboard!!! LOL

PS

You keep those beers coming and I’ll let you win all the debates you want!!! LOL

Heck, you can even win both sides!

import · July 27, 2001, 12:30am

Re: Guess I’m… - Posted by Mike Schmidt (IL)

Posted by Mike Schmidt (IL) on July 27, 2001 at 24:30:55:

Well my clause may not last long either if the attorney tells me no. I dont know at this point but will be happy to share it in a week or so.

Lets assume I get the ok to keep adding this. I guess I am with JB, if I get that far behind on a property, what am I going to do with it anyway? Since the seller is still on the hook for the loan, givinh him a chance to get the place back just seems like the right thing to do. Not the best solution but it offers him some recourse.

Your point about any repairs that might need to be made to return the home in the condition it was when you took the deed does concern me though.

Huh, did I hear someone say BEER!! =)

import · July 27, 2001, 12:32am

Re: I guess I would always… - Posted by David Alexander

Posted by David Alexander on July 27, 2001 at 24:32:48:

I guess for me I try other means…

Again I can only see deals going bad when the sellers feel (emotional) that have control or are given control.

With this in mind I prefer to have other means of protection…

Backup Investors, Cash Reserves, Insurance, corps, Lp’s, Trusts.

I just think it’s almost like playing the game cashflow, you either have to have the cash lying around, borrowed or otherwise or keep doing deals to generate the cash… at least when choosing to do leveraged deals as we are.

But I also think there is a point when one should start thinking about deleveraging even if it means the returns go down.

Everyone’s plan is different.

David Alexander

import · July 27, 2001, 10:28am

Re: Guess I’m… - Posted by MoniqueUSA

Posted by MoniqueUSA on July 27, 2001 at 10:28:55:

Regarding repairs … See what your attorney says about “Buyer and Seller shall have no further recourse against either party” covering this situation.

MoniqueUSA