HB 2207: Bans Sub2???
A friend sent me a scan of an article regarding Texas House Bill 2207
(signed by the governor this summer) that goes into effect Jan 1, 2008
which appears at first glance to say that Sub2 deals now REQUIRE the
consent of the lender.
I’m not positive if attachments come through on this message board, but
it is the file “House bill 2207-2.pdf” OR you can find it by clicking
here (or copying and pasting into a web browser):
HYPERLINK “http://www.dadsbuyhouses.com/Housebill2207-2.pdf”http://www.dadsbuyhouses.com/Housebill2207-2.pdf
The article makes it sound like all of us that purchase property sub2
are screwed.
But I read the bill differently. Attached as “HB02207F[1].pdf is the
actual text of the bill. It can also be found here:
HYPERLINK “http://www.dadsbuyhouses.com/HB02207F”http://www.dadsbuyhouses.com/HB02207F[1].pdf
MY interpretation is that we are all OK, but I really want to hear other
people’s interpretations about this bill.
****** THE FOLLOWING IS MY INTERPRETATION AND IS NOT LEGAL ADVISE.
PLEASE SEEK THE ADVICE OF A LICENSED ATTORNEY BEFORE ACTING FOOLISHLY ON
ANY OF THE INFORMATION PROVIDED ******
My interpretation is that this act obligates the SELLER (not the buyer)
to notify the buyer and each lien holder of certain risks involved in
taking a property Sub2.
However, a violation of this law by the Seller (most of whom won’t know
about the law), does not undo the conveyance. You can see that in
Section 1: (b): “A violation of this section does not invalidate a
conveyance.”
Furthermore, the Seller becomes exempt from the law if either of these
conditions are true (in our case, both or true, but in your case, at
least the second is probably true):
1. From Section 1: (c): (10): “where the purchaser obtains a title
insurance policy insuring the transfer of title to the real property”
2. From Section 1: (c): (11): “to a person who has purchased,
conveyed, or entered into contracts to purchase or convey an interest in
real prperty four or more times in the preceding 12 months.”
So from MY interpretation, this law was meant to keep scammers from
selling property with liens and without title insurance to buyers who
are unaware of existing liens. That’s why it exempts “experienced
buyers” or where you got title insurance…. because that person SHOULD
be aware of liens and it becomes a buyer beware kind of issue.
Would love for your comment. Thanks!
Daniel
ANSWER
Thanks for contributing this Dan!
Fellow Investors,
I do a lot of Sub-To deals. I do them in an LLC and WITH title insurance. I know many investors that buy sub-to by conveying the property into a land trust and not utilizing title insurance. This is quick and cheap, however, I believe these transactions are very problematic on many levels, and are soon probably illegal.
The reason this law was promoted, was because, unfortunately, there are a lot of crooked investors, and we as investors (and unlike realtors, builders, etc.), have done nothing to regulate our own industry. Unfortunately, some investors have been running scams where they buy properties sub-to, and then turn around and sell them with a down payment and wrap-around mortgage. The investor pockets the down payment, and keeps collecting the mortgage payments from the new buyer, but then stops making the underlying mortgage payments. Eventually, the underlying mortgage lender forecloses on the unwitting buyer – who looses their home and down payment, after making all their payments and having done nothing wrong. The original seller also gets screwed, because their credit is ruined. The crooked investor, however, just moves on to the next location.
The problem with this law, is that, although well intentioned, it probably does little to solve the problem. Crooked investors are probably not going to get title insurance or sell with title insurance, and are certainly not going to tell the lenders what they are doing. By the time the deals unravel, the money to fix things will be gone.
The investor is under assault in Texas. We now have laws on the books or pending that ban lease-options, now restrict sub-to deals, will make rehabbers have to register, certify, and warrantee homes that are remodeled. There are additional laws in effect or pending effecting leases and landlords. As people get burned by unscrupulous investors, more laws will be enacted restricting everything we do, until there is not much left.
Across the nation the situation is growing worse with special taxes restricting flipping, and onerous certifications limiting a homeowners ability to evict a non-paying tenents, and even the possibility that in the future, if you sell a home with owner financing to someone that declares bankruptcy, the court could retroactively reduce the sales price you sold the home for, what is owed to you, and restrict your ability to foreclose, even if you are not getting your payments. These laws get enacted in one state or another, and then get shopped from state to state with little resistance.
I believe, ultimately, we are either going to have to regulate our own industry, or the government will do it for us. Realtors, builders, lenders, and just about everyone else in real estate has already gone through this. Sort of like I always tell my short-sale clients – “you need to come up with a plan, or the creditors will come up with one for you, and you probably won’t like the plan they come up with”
Phill
Troy Titus scam
Just wanted to be sure everyone was aware of this. Even Lonnie Scruggs
(of Deals on Wheels fame) was caught in this guy’s scams!
See
HYPERLINK “http://www.mobilehomeuniversity.com/forum/read.php?f=1&i=2433&t=2433″http://www.mobilehomeuniversity.com/forum/read.php?f=1&i=2433&t=2433
for more info.
ANSWER
I have personally run across a number of people that have been scammed, and left with nothing, through my short sale business. A few simple things to look out for are:
1) A deal that is too good to believe
2) A partner that asks you to put your name on a loan (because they can’t, for any of a number of different believable reasons)
3) The partner finds the house, and hires their own appraiser that says it’s worth $X, when it’s really worth < $X
How to protect yourself:
1) Get your own appraiser, or better yet, realtor, and possibly a contractor (people you know and trust) to help you determine the as-is value of something before you buy it.
2) Close your deals at a title company, and get the insurance.
3) Deals that seem too good to believe, probably are. Most scams rely on people’s greed. Always remember that pigs get fat, and hogs get slaughtered. Don’t be a hog…
You don’t have to cut corners to get rich in real estate.
Phill
Consumer group reports on “foreclosure rescue scams”
More bad press for the investor community – the National Consumer Law Center
recently released a report titled “Dreams Foreclosed: The Rampant Theft of
Americans’ Homes Through Equity-Stripping Foreclosure ‘Rescue’ Scams.”
www.consumerlaw.org
www.consumerlaw.org/news/ForeclosureReportFinal.pdf
ANSWER
I found this report quit interesting. (see: http://www.consumerlaw.org/news/ForeclosureReportFinal.pdf)
It is highly worth noting that most of the “Foreclosure Rescue Scams” they write about involve either: 1) clearly illegal activities such as selling services and not actually delivering the services, or 2) deceiving a homeowner into believing in terms that are different than the actual terms in the contracts.
What is distressing are the broad conclusions that therefore virtually any pre-foreclosure deals with investors are probably scams, and need to be regulated. The report goes on to outline suggested regulations on investors involving limiting fees, profits, etc. and giving homeowners rights to pay back or otherwise reverse deals retroactively or be compensated.
Also distressing is the increasing use of the term “equity stripping”. In some contexts equity stripping is already a legally defined term describing an illegal activity in certain real estate transactions. For example, buying a home by assuming a mortgage, and then selling it, with financing, at a profit, but then letting it go into foreclosure anyway by not paying the underlying mortgage despite collecting the new monthly mortgage payments. In other cases, equity stripping just an ominous term, assumed to be illegal or at least highly unethical.
In still other context’s ‘equity stripping’ simply means buying a home with equity (at less than full retail value), and reselling it without equity (at retail value), thus stripping the equity. As investors, we also call that ‘making a profit’. And, as much as I would love to pay everyone full retail for every home I buy, I would be broke, out of business, and facing foreclosure myself quite quickly if I did so.
This report also illustrates examples similar to “I knew I sold my home for $100K, but because I was an idiot or lazy or just needed the money quickly and the investor was smart enough to know that the home was worth $150K, the investor is a crook, and I deserve another $50K…”. This is followed up by commentary from the sympathetic report writer to the tune of “investors are buying properties for less than full value and have the nerve to sell them for profit”… Investors are then referred to as ‘Equity Strippers’, ‘Equity Surplus Purchases’, or ‘Equity Property Purchasers’.
As Capitalists, making a profit is the American way, yet because of the various bad apple amongst us, and no clear way for the public to differentiate among us, there is a growing belief that making a profit as a real estate professional is not a good thing, and something that the government needs to put a stop to – and several states are already doing so.
