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