The Foreclosure Golden Rule

Posted March 31st, 2008 by Joe Kaiser

I don't think the AG's office thought that deep on it, and I'm guessing math isn't their strong suit, anyway.

Dear Rob,

We foreclosure investors have one simple rule we absolutely cannot break. It’s so important to those of us serious about the foreclosure business we consider it nothing short of sacred.

It’s our “golden rule,” and it goes like this . . .

Don’t f*ck it up!— The Foreclosure Golden Rule

While there are lots of other rules investors must follow to insure their success, this one is head and shoulders about all others.

Why?

Investors know that when dealing in foreclosures, you f*ck it up and someone loses a home.


There are consequences

AAG David Huey recalls when Hector and his wife were at foreclosure’s doorstep in December, 2006, and how she called to ask your staff to get out of our way so I could save their home.

David and former AAG Cheryl Kringle and their supervisor all decided Hector’s family was better off losing the home and refused to help.

In doing so, your staff broke the golden rule. They f*cked it up, and someone almost lost their home (almost being the key word here . . . put it on my tab).


There are consequences

The Golden Rule is based on the principle of “cause and effect.”

What your office does has consequences, and doing anything to the foreclosure ecosystem where homes are in the balance must be carefully considered before being acted upon.

HB2791 is anything but “carefuly considered.”

This isn’t something we can afford to have your office get wrong, Rob. You do, and people lose their homes.


The at risk owner

As an investor, it’s vital I’m able to help save homes from foreclosure, especially when the sale is only a day or two away. But, with the passage of HB2791, I’d have to tell the owner my hands are tied.

Here’s how that conversation goes . . .

Me: I’m sorry, but the new foreclosure law the Office of the Washington State Attorney General created says I can’t help you and you’ll probably have to lose your home to foreclosure.

He: What? I have to lose my home? No way, have plenty of equity.

Me: I know you do, and I’d love to be able to partner up, pay off the foreclosure, and together you and I co-own the property so your family can stay.

He: Well, that sounds good to me, let’s do it.

Me: Here’s the problem. According to the new law, I have to pay you 82% of its value once the dust settles.

He: But I’m not asking you to pay that much. Heck, if you’re willing to let me stay, I’d take half and call it good.

Me: Doesn’t matter, the law says I have no choice.

He: But don’t I have some say in what works for me?

Me: Not in this state you don’t.

He: You know, with the current market, the declining values, and typical closing costs and commissions, I don’t think I’d net 82% if I list it and get a full price offer.

Me: I don’t think the AG’s office thought that deep on it, and I’m guessing math isn’t their strong suit, anyway.

He: Okay, if we can figure out a fair price, can we do a deal?

Me: Maybe, we’d have to get the property appraised first.

He: But we don’t need an appraisal. We know it’s got plenty of equity!

Me: Yeah, I’m sure it does, but it’s now a requirement.

He: There’s no time for that sort of thing. I have till 4:30 tomorrow to get this thing paid.

Me: We’d better hustle then.

He: Okay, I can get it appraised. I know a guy who owes me a favor and I’ll have an appraisal in my hands by noon tomorrow. Can you loan me the $425 he charges?

Me: Sorry, but the new law forbids me to give you any money in advance as an inducement to get you to take my deal.

He: But I’m not asking for an inducement, I’m asking for a loan so I can pay the appraiser.

Me: In court they’ll call that an inducement, I promise you.

He: Never mind, I’ll figure something out and get it done.

Me: Great, that’s a good start. Now, I’ll need to get you qualified and check your credit, bill paying history, assets, debts, and your current income. Just to be on the safe side, I should probably get a couple year’s worth of tax returns, too.

He: WFT for?!?!? I’m not asking you for a loan. I’m selling you my property.

Me: Again, it’s the new law. It says if you’re going to stay and rent the place or possibly buy it back from me down the road, I have to first prove you can afford it.

He: But I’m in foreclosure now. I have no credit and my debts are out of this world.

Me: So, I guess you don’t qualify, huh?

He: No, no, no. With this new job I’m back on my feet. In another year or two, tops, I’ll be looking good. I’ve got an idea . . . how about I just write you a letter that states I can afford to pay whatever we agree to.

Me: Sorry, the law says we can’t do that. It says if I haven’t checked you out using the actual documents needed to do a legitimate qualification, I’ve broken the law.

He: Well, that’s great if we had the time, but we don’t. I lose my home tomorrow!

Me: Like I said, we’d better hustle. Get me what you can, we’ll do our best, I guess.

He: Geez! This is nuts. Anything else I need to know?

Me: Yeah, we’ll have to open escrow, and now.

He: Can’t I just give you a deed and we go down and record it? That’ll save us time and escrow fees.

Me: No, unfortunately, with the new law I can’t accept a deed from you. “Kitchen table” closing aren’t possible any more, even if it’s the only way to save your home.

He: That’s the craziest thing I’ve ever heard.

Me: Don’t sweat it. I have an escrow gal who can get it done quickly, maybe. I’ll set it up for noon tomorrow since we only have the afternoon.

He: Noon works for me, but I’ll need you to run a notary out to my job site because my crew is jammed up and I’ve got to be there all day.

Me: Ugh, small problem. The new law says you have to personally show up at the escrow office. Mobile notaries are no longer permitted.

He: What? Why the hell not?!?!?

Me: They’re afraid investors will close their own transactions and homeowners will get tricked into signing deeds when they think they’re signing loans.

He: Hasn’t that been a problem forever, anyway, and don’t they have the right to turn around and sue dishonest investors like that?

Me: Sure, I guess, but this law is supposed to curb that sort of transacting. I suspect dishonest investors, being dishonest investors, will just ignore the new law as they’ve ignored the old ones and keep right on doing what they’ve always done.

He: You’re right about that. Okay, I’ll get the appraisal done and my financials together as best I can. You get the paperwork put together and get escrow set up for noon. I’ll figure out a way to get away from the job and be there to sign, no matter what. I cannot lose my home!

Me: Just make sure your wife comes with you to sign.

He: Errrr, she’s been in California for the last week or so, helping out. Some sort of flu that’s knocked her mom off her feet. But, not to worry, I’ve got her power-of-attorney and will sign for her.

Me: Ugh, minor detail. The new law says powers-of-attorney may not be used to close foreclosure transactions.

He: You’re kidding, right?

Me: Hey, we’re the government and we’re here to protect you.

He: I can’t use a valid power-of-attorney and now I lose my home?

Me: What can I say?

He: Could we email the docs to her today? That way, she’d be able to overnight the originals back and we’d have them in the morning.

Me: Makes sense to me. Unfortunately, the new law doesn’t allow for that. She has to be physically present at the closing. No exceptions allowed.

He: Screw all of this! Let’s just meet at my attorney’s office tomorrow and let him take care of it. I don’t need the new law looking out for me. I’ll have my attorney put together a waiver that says you and I are free to deal directly and we’ll get it done that way.

Me: That sounds good, but it’s not possible. The new law says you’re not free to opt out of it, even if you and your attorney say you want to. It’s what they call a “violation of public policy.” Apparently, that’s more important than you being able to save your home.

He: This can’t be happening, Joe. You cannot be serious about all this new law stuff.

Me: I kid you not.

He: So, since my wife isn’t here to sign and since the law won’t let me use her power-of-attorney, and since even my lawyer can’t get me out of this, we’re sunk?

Me: Pretty much screwed.

He: Joe, on my word, I promise if you do this deal for me and save our home, I won’t turn around and sue you, no matter what, and I’ll put that in writing.

Me: We do this deal and you put that in writing and when it hits the fan and some rescue-rescue attorney shows up, she’ll be asking for triple damages as well as the $100k bonus damages the new law gives you, and that agreement becomes “bad faith” Exhibit A.

He: This is crazy . . . I just want to save my home . . . I have plenty of equity . . . and now because of this stupid law I can’t?

Me: I’m sorry, but no, you can’t. The Office of the Washington State Attorney General has made certain of that. But, if it makes you feel any better, they’re convinced it’s for your own good.

He: Gee, I feel much better now knowing they’re looking out for me. Hey, isn’t there some kind of federal law that prevents them from doing this to me?

Me: Yeah, it’s called the Constitution.


Cause and effect

Causes?

  • Requiring an arbitrary “82% of value” purchase price in any market, much less one as uncertain as the current market, means you’ve f*cked it up.
  • Requiring an expensive, time-wasting appraisal where none is otherwise needed means you’ve f*cked it up.
  • Requiring the owner to be proven creditworthy where it is impossible to make such a determination that satisfies any meaningful criteria means you’ve f*cked it up.
  • Requiring a costly, slow escrow process and not allowing fast, efficient kitchen table closings or mobile notary signings, even when there’s no viable alternative, means you’ve f*cked it up.
  • Requiring owners to physically attend closings and not allowing them to use email or overnight mail or faxes or whatever else to take care of the signing means you’ve f*cked it up.
  • Banning the use of valid powers-of-attorney, especially when no other manner will suffice, means you’ve f*cked it up.

Effect?

This new law gets in the way of people trying to save their homes. With foreclosure bearing down, the last thing they need is a law that makes the task of saving their home that much more difficult.

Does Washington State really need a law that says people in foreclosure lose their right to freely contract?

No, it does not.

Yet that’s exactly what you’ve done. You haven’t helped these people at all. You haven’t protected them or saved their equity. In reality, all you’ve done is strip them of their rights.

And the effect?

Someone loses a home. No, make that thousands of someones lose their homes.


Minnesota 2.0

You don’t casually lob mortar shells into the foreclosure ecosystem and hope that’ll somehow fix the problem (which, frankly, I remain unconvinced is a problem).

Before making any changes, the foreclosure system should be looked at with careful consideration. The dynamics that come into play should be thoroughly understood before taking even a single step forward.

Any changes impacting that ecosystem should then be applied thoughtfully and deftly, with only the lightest possible touches. These changes, once engaged, should be regularly reviewed to confirm the law is effective and is delivering the hoped for results.

Or, you could do what your office did and just drop a big bomb on it.

These draconian, anti-investor measures will have a huge impact on folks in foreclosure who no longer are free to contract. They will pay the price of your office’s ill-conceived rush to get a foreclosure law with your name on it on the books.

Rob, your office broke the only rule that really matters in the foreclosure business, the golden rule . . . you f*cked it up.

In the arena,

Joe Kaiser


7 Responses to: “The Foreclosure Golden Rule”

  1. mike_mn responds:
    Posted: March 31st, 2008 at 5:59 am

    I understand your take is about rescuing people from foreclosure, but if the Wash law is similar to the MN law, then it doesn’t keep you from buying the property at 1 dollar, as long as the seller moves out. Then, in effect, it is the simple case of a seller selling and a buyer buying. In this case, you are not saving the seller, but you are still able to purchase for profit if you can get the seller out the door.

  2. Joe Kaiser responds:
    Posted: March 31st, 2008 at 7:05 am

    Mike,

    I’m in the business of rescuing people. It’s what I like to do and I shouldn’t have to stop unless I choose to stop.

    Likewise, people in foreclosure who want to stay should have the right to say “I want to keep my home and do a deal with Joe.” Now, they can’t unless they jump through all kinds of hoops that more likely than not, will cause them to lose their home.

    As to the $1 as long as they move out . . . not in this state. More to follow.

  3. David Alexander responds:
    Posted: March 31st, 2008 at 3:28 pm

    If I remember right NAR is behind of alot of this nonsense… with lobbyists and all….

    But, to kill contract law and real estate law all in one fell swoop… wow!… crazy stupid stuff….

    Maybe some class action lawsuits will start getting filed from homeowners who are losing or lost their homes to repeal this kinda stuff….

    Aterall they are looking for some fall guys… maybe this time as they point the finger… at investors… the ball gets shot back into their court…

  4. Mark responds:
    Posted: March 31st, 2008 at 7:23 pm

    Joe, Is this the new law or the proposed new law? What can we all do to stop it?

  5. USA TODAY responds:
    Posted: March 31st, 2008 at 8:07 pm

    Does this pertain to county tax foreclosures, or just mortgage foreclosures.

    What if a property isn’t in foreclosure, do you still have to pay 82% of value. If they are going to discriminate against investors, they should demand this is the due process for all property bought and sold through the mls.

    They don’t understand how the game is played, unfortunately.

    Our rights as citizens to make decisions are being taken away. It’s sad, really.

  6. Joe Kaiser responds:
    Posted: March 31st, 2008 at 8:52 pm

    It’s the new law the AG’s office has foisted upon us, presumable signed into law today, effective June 2008.

    It deals with both mortgage and tax foreclosures and therein strips away the rights of people in foreclosure who no longer are free to contract to save their home.

    It places undue burden on the very people who need to be unburdened, as if dealing with their foreclosure isn’t enough of a problem without the AG meddling into their affairs and causing them grief.

    Mark my words . . . it’ll come back to haunt them in a very big way – Minnesota 2.0.

  7. Davido responds:
    Posted: April 1st, 2008 at 12:33 pm

    Joe, this post, “The foreclosure golden Rule” provided an excellent, easy to understand discription of the problems inherent in Washington State’s new law, HB2971. Well done. Thank you.


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