Real Estate Investor Seeks Apprentice… (Maybe NOT!)
Commentary By: Ed Wright - 3/12/07
RE Commentary 100
Real Estate Investor Seeks Apprentice… (Maybe NOT!) One of the most frequently asked questions we receive involves the signs along the Freeway off ramps and posted on telephone poles; the bigger the potential scam, the more signs.
The picture I have chosen above is for a company pushing "Reverse Mortgages," which is a legitimate product... and as such leaves us to wonder about the company selling the service; what honestly successful broker advertises their services illegally on throw away freeway off-ramp signs? These types of cheap little signs are the very reason cities pass sign ordinances that prevent hard working Realtors from being able to post their "Open House" signs at ramps and on corners. As an industry we (Realtors, Brokers & Bankers) need to work together to assure abuses and scams like these are stopped and police up the garbage (like these signs) ourselves before more restrictive laws are passed affecting legitimate business practices.
Presently we see these cheesy little signs all the time about “Real Estate Investor” wants, … or buys houses, or something else designed to gain the viewers attention. It is important to note that legitimate Real Estate Investors do not advertise on illegally posted signs, and the ones Central City Mortgage work with do not fast talk desperate home owners out of their equity. But there is an outside fringe of the “Investment” world that does take advantage of distressed properties, and these are the Real Estate Investors that we are receiving all the calls about and create so much bad press for honest investors. Yes, there are honest Real Estate Investors.
All this said, if your home goes into foreclosure you most probably will meet both kinds of investors… many legitimate, and some looking to take unfair advantage of someone else’s bad situation. With property values stalling and foreclosures on the rise all over Southern California and the Inland Empire we are seeing increasing numbers of those simply looking to take advantage… the fact is in the Calimesa, Redlands, Yucaipa and Loma Linda areas you can hardly get off of a freeway ramp without seeing a sign advertising “Real Estate Investor Seeks Apprentice; Make $20,000 per month.” These signs are multiplying faster than Tarbell Realtor signs and from the $20,000 hype, pay better. How is this possible? What is their secret? If Real Estate Investment is so profitable why advertise illegally with cheesy signs posted on freeway off-ramps and telephone poles?
Keep in mind that the basic goal of most Real Estate Investors is to leverage as much equity as possible out the properties they work with… but the ones posting the signs are typically looking to do so by taking control of other peoples distressed property without actually purchasing the home (Real Investors purchase the home). The established plan is to follow up on default and foreclosure lists which is easy to do because Mortgage Companies start out the foreclose process on delinquent properties by filing a notice of “foreclose” in the county the homes are located in. The County posts these notices, as required by law, and lists of these properties and addresses are compiled by companies that specialize in just such lists. The lists are easy to get and used by legitimate investors and the scammers also. Once Investors have such a list, it is easy to than estimate the value of each property and subtract out the estimated amount owed on the mortgages (which is often posted on the list); if there is a lot of “estimated value” or “equity” Investors are interested… if not they go on to the next name on the list.
Many properties do not have much equity, so this becomes a rather impersonal numbers game. If it is determined there is equity in a property the initial contact of the borrowers is very rapid with many distressed property owners receiving dozens of cards, letters, phone calls and personal contacts at their door from both types of Investors, all wanting to “help.” Many of these contacts are very high pressure… which is a good sign that the Investor making the offer is not legitimate. Real Estate Investors always seek properties with good equity amounts; otherwise it is not worth their time. They then approach the owner with an offer to "help" them out of their financial troubles. These offers vary from Investor to Investor, and most of the problems arise with the investors whose version of “Help” involve an offer to catch up the delinquent amounts owed and than provide a “Rent Back Option.” These types of offers are a trap!
Legitimate Real Estate Investors simply offer to purchase the home outright at a reduced price from what the home might sell for if the owner was not in foreclosure and had the time to sell it on their own. It is important to understand that many in foreclosure are also in denial and fail to believe the mortgage company will actually take their home… so when they hear any option that might allow them to stay in their home and pay off what they are behind, they desperately want to believe in it. What is typically offered is a “Rent Back Option” which allows the borrower to stay in their home and rent it back from the “Investor” for some preset period of time in exchange for taking over the back mortgage payments. What ever the Rent Back period, at the end of the rent back the investors promise to offer the Borrower, actually now converted into a tenant by the agreement, the opportunity to repay the investor and buy back their home. To a homeowner hounded by creditor calls and in default the offer of help without having to sell their home at a discounted price sounds too good to be true… and of course, it typically is.
These “Buy Back” arrangements never work out to the benefit of the borrower, and were designed to be so usurious that it is virtually impossible for the home owner to ever regain control over their property. The paperwork provided with the Rent Back offer always includes some sort of quitclaim deed, which, once signed by the owner, essentially transfers all legal control of the property to the investor. Once the investor is in control of the property things tend to change rapidly and the “Investor” becomes less friendly. At the point any agreement is signed all the investor wants is the borrower out of “their” home. This pointed out, once the initial rental period is over, usually about 3 months, the investor who now is the owner of the property demands unreasonable amounts of rent from the owner-turned-tenant knowing the tenant will not be able to pay it. When he or she cannot pay, the investor tells the homeowner that they need to get their “Investment” back, and explains that they spent all they can afford to invest, have been patient enough… and now evict the tenant.
At this point it becomes all too apparent that this “Investor” intended to sell the home all along and pocket the equity. The goal was always the equity, and at this point the investor controls it; so why share any with the distressed homeowner? In some cases these investors have pocketed several hundred thousand dollars from a single property for the minimal investment of a few delinquent mortgage payments and some discounted rent. Somewhere along this process the original home owner realizes there is no way they can repay the Investor, and things can become hostile. Unfortunately, once one of these “Rent Back” agreements are signed it is too late for the borrower to sell the home to one of the legitimate investors who would have paid them at least some of the equity from their property because the better sounding “Rent Back Deal” now controls their property and all of the equity.
These deals are carefully crafted equity traps designed to take advantage of borrowers exactly when they are in distress and not thinking clearly. This is when good financial counsel is of it’s greatest value... California has few laws regulating these types of investors and buy outs, and even though most of the Investors assume the homeowners property title in a semi-legal manner, homeowners in default seldom have the funds to take appropriate legal actions and these investors have their own attorneys. Many of the better established investors have learned some lending tricks that actually make the title swap a loan transaction, and as such the assumption pretty much legal, at which time there is very little the homeowner can do but move. Unfortunately for any homeowner who finds themselves in financial trouble, the last thing they will receive by responding to these “Real Estate Investor” fliers we see around town is honest help. These fliers were posted along the freeway in hopes that those in default will call… none of these investors is actually paying any apprentice $20,000 a month to learn anything; the numbers are simply designed to grab attention. It works; people call, which is why they keep posting the signs. But keep in mind that NO LEGITAMITE INVESTOR POSTS ILLEGAL SIGNS, nor do they pay their assistants’ $20,000 dollars a month… we would love to meet or interview one that does!
IF YOU READ NOTHING ELSE… PLEASE READ THIS; If you are a homeowner having problems making your mortgage payments, call your lender today, before you fall behind on your payments. NO MORTGAGE LENDER WANTS TO FORECLOSE ON A HOME… It is bad for business, plus they lose money in the process. Most lenders will work with you to help you find a way out of default; Why anyone would trust some “Investor” who posts an illegal sign on a freeway off ramp to provide any real help is beyond comprehension! Selling the home should also be considered; but before you place your home on the market consider that lenders will not loan on a home that is listed for sale. If you want to refinance, do so before placing the home for sale.
NOTE: If you have the kind of equity investors are interested in, you probably also have enough equity to qualify for a refinance which might also save your home. Central City Mortgage has helped save countless home owners from foreclosure, sometimes only days away from the actual foreclosure sale. If you have called your current lender, and they can not help… before accepting some bailout offer from an Investor call Ed Wright and have the “Wright Team” run the numbers for you; we may be able to save you tens of thousands of dollars and your home.
This article was posted by: Ed Wright and Central City Mortgage’s “Wright Team,” specializing in Residential and Commercial Mortgage Lending… Purchase and Refinance. Serving all of California from offices in the Inland Empire. For all your mortgage lending questions please call Ed Wright, “Your Personal Mortgage Consultant For Life” at (909) 938-3777 or E-Mail “The Wright Team:” Ed@ForHomeLoan.info
