Posted by steve on May 02, 2000 at 16:14:25:
From exactly where on the balance sheet did this “cash to seller” come? I think you’ve uncovered yet ANOTHER reason to start cultivating another relationship with another title guy!
Meet me in St. Louie…and a Lecture from my Title Guy? (long) - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 02, 2000 at 01:53:12:
Back from St. Louis…what an “REI RUSH”! My feet still haven’t quite touched the ground. Rubbing elbows with the likes of Terry, Ed, and all of the already successful millionaires (and soon to be’s) in attendence has left a permanent green stain. What a bunch of great people.
Hope to see you all next year. (Terry & Ed, I know that’s the last thing you want to think about now, but rest for a while and get ready for 2001.)
Anyway, I had a long, and slightly heated discussion with my title rep today. Seems the deal he’s closing for me has too many legal “grey” areas. He says I’m not the typical buyer/seller, and I have some very different methods than the normal Joe Blow buying his own home. (Thanks! I take that as a compliment!) He says to me that he’ll tell the truth, and won’t hide anything if he thinks I’m going too far. (What…you’re saying you think I’m dishonest?)
OK here’s the deal-
I’m buying a pre-foreclosure from a husband/wife. I’m getting a new loan to pay-off the first and second mortgages. First is $114K payoff, including arrears, penalties, lawyer’s fees. Second has a payoff of $18K. My offer is contingent on the second discounting the payoff since the deal makes no sense without a discount.
However, in speaking with the loss mitigation dept. for the second, the woman I’m dealing with told me that the sale cannot net the sellers any money if a short sale will be accepted. Makes sense.
However, the sellers wouldn’t do the deal without some money to move and get into a rental. To get them out so I could sell the house sooner, I gave them enough money to get the rental. In return, I had them sign an unsecured note for the money, stating that if the sale did not close as contracted, they agree to pay me back the money. (I know…fat chance. But, I felt I needed some security.) I also had them quit-claim the house to me, which I won’t record unless I need to.
My idea was to keep this transaction private, between me and the sellers. But for a reason that’s not important, I had to tell my title rep about it. He then became very concerned about insuring title, and being in “control” of the closing, when I’m leading the second mortgage company to believe the sellers are not getting any money, then giving them some (with signed and notarized docs).
He implied that all my deals are grey in some way: land trusts to keep the sales cloaked from the lenders, misleading the second mortgage holder, etc. I explained that I have NO legal or moral obligation whatsoever to inform these mortgage companies about what I do, since I have no contractual relationship with them.
I guess I can see his point. I “may” be legally safe, but I may not be 100% honest. (I consider myself honest, and have never been accused otherwise in my entire adult life.)And he says I’m placing him at risk of later being sued. We ended with him telling me he’ll go ahead with these types of deals, but not if any of my methods get more “over the line.” I ended by telling him that I don’t want to place him at risk, and if he ever feels too uncomfortable with a deal, just cut me loose and I’ll get someone else to do it…no hard feelings (we’ve become pretty friendly over the years).
What do you think of this? I like working with this guy, and was surprised by the confrontation. I hate to have to go retrain another title rep, but should I leave this company?
Sorry this was so long…I accidentally went into dumping mode.
Stacy
Lecture from my Title Guy? - Posted by JPiper
Posted by JPiper on May 02, 2000 at 16:38:20:
Stacy:
I have a somewhat different view than most of the posts below.
What this looks like to me is that you have a ?side deal? with the seller. There?s a strong possibility that both of you will be required to sign a document that says that this ?side deal? does not exist?.that the contract represents the complete deal between the two of you. That isn?t true of course?.and I believe that you have rationalized it. It appears to me that you and the seller have misled the lender for the purpose of putting money in the sellers pocket?.in a fashion that you evidently have already been told would not be acceptable to the lender.
My guess is that this is what disturbs your title rep?.and rightfully so. Title companies have had their problems with being included in some of the situations that investors have been involved with?and it sounds like this guy doesn?t want to be in that position. I think that?s a decent decision on his part, given that his company earns some closing fees and a title insurance premium.
I think you had alternatives in how you handled this. You could have attempted to negotiate this with the lender. Afterall, their costs go up if the seller stays in the house beyond a foreclosure. OR, you could have negotiated with the seller. Are you really believing that after not making enough payments to be foreclosed on that they have absolutely no money? You could have delayed your closing and possession so that the seller could save the money.
You could also have verified the amount that the seller claimed to need with the landlord. It seems to me that that would have been a natural question when the landlord called you.
Bottomline is that there were alternatives?.none of which needed to involve the title company. It seems to me that you took the easy way?..and then compounded it with some fairly obvious mistakes. And just to restate, it now appears that you are rationalizing.
So that you know?.I?ve made a number of these types of errors myself?..ones that had me questioning my own truthfulness. The decision I?ve made is that when confronted with this type of choice?..I?d rather try to negotiate the issues out with the other party. That feels better to me personally. You?ll have to make your own choice?.and perhaps that?s why this issue was presented to you in this fashion. One of the key principles in negotiation is ?don?t be attached to the outcome??..being attached seems to me to generally be the thing that leads all of us in directions which we then have to rationalize.
JPiper
Re: Meet me in St. Louie…and a Lecture from my Title Guy? (long) - Posted by Jim IL
Posted by Jim IL on May 02, 2000 at 13:29:59:
Stacy,
Seems to me that the title rep is merely reacting to the uproar over all the recent scams to defraud lenders etc.
As long as your deal is on the “up and up”, don’t sweat what he says.
As long as you are not trying to “not diclose” any info to a lender to OBTAIN a loan on the home, then there should be no problem.
I can only see one thing someone may bring up when the argument/issue over whether or not your “on the side” loan to the sellers comes up.
IF you were NOT buying there home, would you STILL be loaning them the money?
Probably not, right?
So, the loan is tied to the deal after all, just not in writing.
Be careful, get this thing closed, and move on.
That would be my plan.
Good luck and let us know how it all goes for you,
Jim IL
Re: Meet me in St. Louie…and a Lecture from my Title Guy? (long) - Posted by TRandle
Posted by TRandle on May 02, 2000 at 08:36:29:
Hey Stacy,
So, what do the various documents say? As long as you are not making misrepresentations, either verbally or orally, where’s the problem?
Re: Meet me in St. Louie…and a Lecture from my Title Guy? (long) - Posted by ScottE
Posted by ScottE on May 02, 2000 at 08:32:26:
Stacy,
Re: the money you loaned the sellers, you stated “My idea was to keep this transaction private, between me and the sellers. But for a reason that’s not important, I had to tell my title rep about it.”
Why did you have to tell your title rep about this? Your transaction with the sellers was no more his business than if you were operating a payday advance loan shop. Your loan to them is by your definition UNSECURED and not tied to the real estate.
Just my opinion…
Good luck
Scott
Hey, Stacy… - Posted by George(OH)
Posted by George(OH) on May 02, 2000 at 07:27:32:
…you know how “green” I am - green as in newbie - but I have to ask because I have similar concerns.
What exactly is your title guy’s concern? It seems to me that he is not exactly worried about any law breaking or criminal acts, but more with protecting his reputation and that of his company. Like you said, you are not obligated to divulge your MO, so where is the problem? I am only commenting on this because I often wonder how I will be perceived by members of the RE community who are not used to creative transactions, especially seeing that my deals typically will not fit the norm.
I guess what I’d do if I were you would be continue dealing with this guy, but at the same time start developing a relationship with a couple more title co’s. That way, if this guy “flakes” out on you, you’ll be a step ahead.
Just a newbies $.02,
George(OH)
Re: Lecture from my friend, Jim? - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 02, 2000 at 17:31:11:
Jim-
I was hoping you’d reply. Thanks. I certainly can’t disagree with your comments. Just for clarity, I never talked to the landlord. A mistake, regardless. But the total money I agreed to provide the sellers remains the same, with $1000 less after close. So I escaped any repercussions (this time).
You clarified my title rep’s position. You are right, he knows a hundred ways fraudulent investors can get him in trouble, so he has to always be on the lookout.
There’s no paperwork I have to sign about side deals. But if it shows-up later in this deal or a future one, I would certainly disclose the side agreement. I have neither written nor said anything directly about side-deals. I agree that no deal is worth lying about.
Actually, in the short sale requirements documentation sent to me from the second mortgage holder, it doesn’t state that seller must get zero. It was in a phone conversation with the short sale rep, where I asked her for some tips for getting the short sale approved. I don’t think she was stating a requirement, but was instead giving me a tip.
Do I believe they have no money? In this case, I really do. You’d have to know their story, I guess. But your point is well taken. The last preforclosure I did, I assumed the sellers had some money laying around.
About being too attached to the outcome…well, I really don’t think so. If this deal went South, I’d be OK with it. But then again, if I can solve the problems that pop-up without getting into trouble, I’d rather not let it go.
I think the real issue is this. It’s my own ignorance. I’ve given money before close several times in the past. I’ve been burned, only once, when the deal didn’t close. OK, I knew the risk. But I didn’t know, in this particular case, there was any more legal risk than any other deal. Now I know what to watch for. And you’ve given me some great ideas about how to work-around the problem through negotiations and due diligence when I encounter it in the future.
I think I’ve learned more with this deal than my last five, combined. Thanks again for excellent, honest feedback. I wonder what “lessons” are in store on my next deal. (smile)
Stacy
Re: Yeah, but… - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 02, 2000 at 13:49:00:
Hi Jim-
Thanks for the reply. Yes, I agree that the promissory note is tied to the “deal”, but it cannot affect the title of the property. The contract states that if the sale closes, they do not pay me back. So, the note goes away. If the deal doesn’t close, I’ll have no ownership interest in the property, and this won’t affect title. It turns into an unsecured loan, just as they could get from several other sources, such as one of those payday loan companies (as mentioned in another post). Surely, my title rep would have no problem if the sellers went and got one of those loans without telling him.
Anyway, I know this will come-up again and again when dealing with pre-forclosures. This is not the first time I have had to give money before closing, and it won’t be the last. Unless someone has a better idea, I’ll continue to get a promissory note signed when I have to do this. I’ll have to just be sure to keep it private.
Make sense? No? Yes?
Stacy
Re: Meet me in St. Louie…and a Lecture from my Title Guy? (long) - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 02, 2000 at 13:14:22:
Hi guy-
The second motgage holder requires a “Short Sale Package” to be sent before they’ll consider the request. Within this package, they require a copy of the sales contract. My sales contract shows the sellers getting zero dollars at close. I think this is not a misrepresentation, since in relation to the official closing, they are in fact getting zero dollars. I never told the mortgage company that I was not giving the sellers any money. I’m not telling them anything except what’s in the package.
As mentioned below, my agreement on the side has no “legal” tie to the property, except that if the deal doesn’t close, they agree to pay me back (in the promissory note).
I don’t know…what do you think? Am I rationalizing?
Stacy
Re: Why I had to disclose (long again…sorry) - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 02, 2000 at 13:00:20:
Hi Scott-
Long story, that’s why I didn’t go into it. But since you asked…
The sellers were trying to get into a rental house, and had been turned-down by several landlords because of their poor credit history. They finally found a one that would work with them, but she needed deposit money to hold it for them. They didn’t have the deposit money, but told her that they were due to get money after they sold their house. I hadn’t agreed to give them money before the close, at this point. The landlord wanted some assurance that their house was really going to get sold, so I told them to have the landlord call my title rep.
Turns-out the landlord has worked with my title rep for years. She called him and got verification that the house is getting sold. But, she also asked him to verify that the sellers were getting enough money from the sale to put into the rental. My title rep didn’t really remember, on such short notice, that the sellers are getting zero dollars (on paper, in the contract). He told her that they will be getting enough to cover the rental. By the way…HIS mistake, not mine.
So, yesterday, as he’s flipping through my file, he pulled-out a paper that I hadn’t seen, and made a comment like, “Oh, you don’t need to see this. It’s between me and the sellers.” Say, what?! I immediately started to question him. I want to know everything…especially since I’m the one walking this deal through the lenders and stopping the foreclosure. He said, “It isn’t bad…it has to do with the sellers getting their money when we close.” SAY, WHAT?! These sellers better not be getting a penny from you at close! I’ve already paid them a significant amount, and more will be coming from me PRIVATELY when we close. So, to get him to disclose what was going on, I had to show him the documents I had from when I gave the sellers their money. That’s when the whole “debate” started. He was also upset that he had misled the landlord, and was going to call her back to correct his information.
I told him, “It doesn’t matter. The sellers are already moved into her property, and she’s got her money, so what possible difference does it make that they won’t be getting money at close?”
And it got worse from there…
By the way, I found out from that “secret paper” that the amount of money my sellers told me they needed to get into the rental was $1000 more than they actually needed. I should have called the landlord to verify this number. It really doesn’t matter, though. They’ll have the amount I gave them subtracted from the total amount I agreed to give them after closing (on the side). But, I hate being lied to.
By the way, Scott. I agree that this private cash is not tied to the real estate, so why all the fuss? He didn’t go for that argument. I really don’t think he was making sense. But, if he wants to lose business based on feelings instead of facts, there’s nothing I can do about that.
Stacy
Re: Hey, Stacy… - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 02, 2000 at 13:21:16:
Hi George-
I really think his concern is the “appearance” of deception. He’s the branch manager at the tiltle company, and wants to be extremely careful of setting up the company for a future law suit. In his mind, if anyone ends up unhappy with the way this deal went down, they’ll go after the title/escrow company, along with anyone else they can bring down. I can understand being careful. But I think, in this case, he really shouldn’t be concerned.
I like your idea of developing another relationship, just in case.
Thanks-
Stacy
Re: Yeah, but… - Posted by Jim IL
Posted by Jim IL on May 02, 2000 at 14:27:46:
Makes complete sense to me.