Can you say foreclosure?

Posted March 22nd, 2008 by Joe Kaiser

Dear Rob,

What do you think of the new law and the effect it will have on doing foreclosure rescues?

Here’s your reply to a caller on the radio a couple weeks back about this very thing . . .

badhairday.jpg

Ummm, I don’t agree that it’s going to prevent people from leasing back . . . ya know . . . handing over their homes and then leasing them back . . .— Attorney General Robert M. McKenna
KUOW Radio, March 9, 2008

“Handing over their homes?”

You just so don’t get it . . .


Who will write the checks?

Of late, I’ve heard you on the radio doing the foreclosure rescue scam public service announcement (for lack of a better term), touting the new law your office has seen fit to create.

I’m glad to see you taking credit so there won’t be any doubt about who to blame when foreclosure sales in Washington go through the roof.

By labeling all real estate investors as evil, your office is unable to fairly and rationally look at the role we investors play. Instead of seeing the value we bring to the table, you create laws that completely eliminate us from being seated at that table.

And by not being able to participate, homeowners in trouble will not have the option of doing business with an investor and homes that might otherwise have been spared will be forever lost at auction.


The Perfect Storm

Who will write the checks that stop foreclosure?

Not us. You’ve made it impossible.

You’ve created the foreclosure “perfect storm” scenario and you’ve put homeowners at risk of foreclosure on a course directly in its path.

With foreclosures at an all time high (and heading higher), and with investors out of the marketplace, foreclosure rates won’t just trend up; they’ll soar.


House Bill 2791

It’s amazing, frankly, reviewing this new law, House Bill 2791.

The thing is so ridiculously one-sided it’s as though the drafters had one thing and one thing only on their minds – kill all the investors. Well, congratulations, Rob, you’ve succeeded. It’ll be interesting to see how it plays out.


Rescues are out

Investors can no longer “rescue” people in foreclosure. Though not outlawed, it’s entirely impractical to do so.

Why?

Well, there’s the 82% thing and more importantly, the way your office has seen fit to impose it.

If I buy someone’s home and allow them to stay, giving them a lease and an option to buy it back from me, when that transaction ends, no matter how or when it ends, I have to pay him 82% of the value of the property.

So what happens if he doesn’t pay the agreed rent and I evict them?

Actually, that won’t be a problem because evicting someone from a home they once owned, one I acquired when they were in foreclosure, won’t happen. The former owner need merely claim I acquired the property through a “distressed home conveyance” and the new law imposes an “automatic stay of the action.”

Who’d do a sale/lease-option if you couldn’t evict?

No one I know.

Under the new law, in order to remove the non-paying former owner, an actual foreclosure suit must be brought.


Level playing field?

With any other eviction type suit, if the tenant wants to fight it, he’s required to pay the rent into court. Seems only fair.

Apparently, that’s asking too much because with the new law, the tenant “shall not be required to escrow any money pending trial when a material question of fact exists as to whether the plaintiff acquired title from the defendant directly or indirectly through a distressed home conveyance.”

Fair?

Ridiculously unfair, which is the intent of this whole new foreclosure law. It’s beyond “anti-investor,” it’s nothing short of investorcide, and worse, it’s done purposely.


The least of the problem

And what about the tenant who voluntarily leaves?

Get out your checkbook.

With the new law, a tenant can break his lease and instantly be entitled to a check equal to 82% of the actual value of the property.

Yes, Rob, you read that right. When the tenant vacates, he’s owed a check (presumably, on the spot). That means he can simply say, “I’m out of here, now give me my money,” and the investor has no option but to pay.

Does that make sense to you?

No, I mean in the real world where foreclosures actually happen.

Apparently so, and therein my point is made . . . this thing is insanity and you can’t even see it.


Forget rescues

In Washington, before you can do a deal with someone in foreclosure who will be sticking around, you must first have the property appraised.

What if foreclosure is like, tomorrow?

You’d better get a fast appraiser.

Did anyone from your office, Rob, bother to check out the turn around time on appraisals? It’s probably not what it once was, but it ain’t tomorrow, either.


The ability to repay

Before I can perform a rescue, with this new law I must also determine whether or not the homeowner can pay me back, including paying the monthly lease payments.

Here’s the new law . . .

An evaluation of a distressed homeowner’s reasonable ability to pay includes debt to income ratios, fair market value of the distressed home, and the distressed homeowner’s payment and credit history. There is a rebuttable presumption that the distressed home purchaser has not verified a distressed homeowner’s reasonable ability to pay if the distressed home purchaser has not obtained documentation of assets, liabilities, and income, other than an undocumented statement, of the distressed homeowner;

I’m an investor. I don’t have sophisticated credit and debt ratio models to allow me to accurately predict who will pay and who won’t. Huge, multi-national mortgage lenders with those kinds of tools can’t figure it out, and I’m now supposed to do so prior to stopping someone’s foreclosure?

How?

No idea.

I can make a reasonable guess, but what good would that do with rescue-rescue attorneys looking for anything to make their cases against us stick? And if foreclosure is tomorrow, how am I supposed to get financials and credit reports and all that other stuff with no time left?

Obviously, I’m not. You’ve made it impossible. You’ve put everyone with little time left at risk. HB 2791 doesn’t help them a twit. In the real world, it’s the final nail in their coffin.

Did no one tell you that people in foreclosure often call with just a day or two to spare? Did you not take that into consideration when creating this law?

And, with that, another one bites the dust.


Attorney Schmorney

What if the guy’s got his own attorney and agrees it’s a fair deal and wants to go ahead and save his home, even though there isn’t time to address all the requirements the new law forces on the owner and investor?

Too bad.

There’s no opting out.

Yes, even if you have an attorney, even if you want to take my deal, if we don’t dot every “i” and cross every “t,” that deal can’t happen.

Here’s the law . . .

Any waiver by a homeowner of the provisions of this chapter is void and unenforceable as contrary to public policy.

Your right to freely contract?

Not in Washington, pal. We’re from the AG’s office and we know what’s best for you. So, stop your whining and get that U-Haul loaded.


Penalties

When you have foreclosure rescue-rescue attorneys on the prowl, doing foreclosure deals with people who want to stay is tricky enough, particularly when you can’t evict, have to write them a check for 82% of value at the drop of a hat, have to have appraisals, have to perform income-to-debt calculations with certifiable documentation, and whatever else this new law imposes.

Who’d do a deal under those terms?

Again, no one I know.

But if some unknowing investor did, and didn’t get the point type right on his docs or didn’t understand that doing business with someone not in foreclosure but who might be in foreclosure four months from now makes him subject to the many and onerous provisions of the new law, what’s the penalty?

Investors, you’ll be happy to know that while the court may double or even triple the damages the Melissas are able to “prove,” those damages may be increased but . . .

. . . shall not exceed one hundred thousand dollars.

Good to know.


Fools are us

No investor in his or her right mind would do a deal like this when the new law takes effect. Doing so would be nothing short of financial suicide.

But, the law doesn’t stop with just rescues.

Turns out that doing ANY deal with someone “in danger of foreclosure” (“the homeowner has a good faith belief that he or she is likely to default on the mortgage within the upcoming four months due to a lack of funds . . .” I kid you not.) puts you squarely in the cross hairs.


Clueless in Seattle

Crazy stuff?

Not in the Office of the Washington State Attorney General where this sort of reasoning is considered perfectly normal.

Investors, get ready, the foreclosures will be arriving by the boatload in just another few months, and we can all thank Rob.

In the arena,

Joe Kaiser


5 Responses to: “Can you say foreclosure?”

  1. BikerJim responds:
    Posted: March 26th, 2008 at 10:42 pm

    Joe,
    I read this law, and your take on it.
    We have a law like this in our state, we cannot lease back to people in foreclosure, or close to it.
    Same thing in several other states, like Illinois, Ohio, Maryland, etc.

    And all pushed by AG’s……..crazy stuff.

    Funny how the states with these laws, seem to be hurting the most, with this foreclosure mess.

    Bottom line, we buy, sellers must leave, and then rent something smaller, not as nice, from us, at higher rent, because they are a risk.

    That’s the bright side……….

    Too bad you cannot buy the note on the AG’s house and hope he defaults……..even a little.

    Keep up the fight, and hopefully others will get on board and help stop the madness from spreading.
    Sadly, many laws will be changing as a result of this, all over the place.

    Thanks for the interpretation of your bill there, it’s fairly clear and worthy of being passed on to many.

    Take care,
    Jim

  2. loya responds:
    Posted: March 26th, 2008 at 10:59 pm

    This law will drive more foreclosures to the court house steps. And more homeowners out on the streets. Nice Rob…………

    Could this law be unconstitutional——taking away my right to sell to anyone I want to? hmmmmmmmmm.

  3. Warner responds:
    Posted: March 28th, 2008 at 12:13 pm

    Unbelievable….but knowing you Joe…you’ll find a workaround somewhere in those crazy laws…then again as you say…Rob may have finally put the nail in the coffin for distressed homeowners who now will have no where to turn…

  4. Todd responds:
    Posted: March 29th, 2008 at 9:06 pm

    I thought about this for a while……. If foreclosure go through the roof in Washington, and investors are unable to aid in this problem until after the sale….. wouldn’t lenders be more willing to discount this bad paper, (or discount prices of REO’s as inventory increases) knowing that in almost “EVERY” case it “WILL” go to sale. This would create a cleaner opportunity for investors to buy, and the AG can’t say $–t!!! He in fact, made it so. Once the blood runs in the streets for a while, a lot of these lenders will be willing to play ball again……. but may decide to decrease on the lending side, as they have very little exit strategy if the loan goes bad.

    I also agree that this new law looks unconstitutional, it basically states that a citizen’s right to sell to whomever they choose has been eliminated…… way to much control for me.

  5. bruce responds:
    Posted: March 30th, 2008 at 7:18 pm

    Joe, this is good info to inform people about. In Illinois we have some of these provisions. All I can say is, it’s BAD LAW.

    Now, as folks go into or near foreclosure, they must move out. That’s the bottom line. They are forced to uproot their family much sooner and with much more certainty.

    NO investor I know, and I know quite a few, will touch these deals now. The 82% of appraised value is another insanity that only government fools would legislate into law. Just the idea that the government we pay for with our tax dollars now tells us WHAT WE CAN EARN is so crazy I can’t tell you.

    You can tell by the language of these bills in Minn. and IL that the main objective/first priority was to “squash” the little investor, not aid the homeowner. The resentment of government bureaucrats is what fuels this kind of law.

    In such dire financial times, state governments should be ENCOURAGING investors to come in and take over these properties before they all revert to the lenders and create blighted neighborhoods. Instead, the public gets this purported “help”.$%^#

    Whats the bible quote? … “Forgive them Lord, For They Know Not What They Do.”


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