Investors Rejoice

Posted April 30th, 2008 by Joe Kaiser

And, don't forget, I can't in any way allow you to buy it back. That's just not possible, thanks to the new law.

Dear Rob,

With the new law about to come into play, I think it’s time I get back into the mortgage foreclosure business.

Since you’ve made foreclosure rescues impossible, you’ve also opened the foreclosure floodgates, and that spells opportunity.

What’s the play?

I’m going with “The AG made me do it.”


How it works

John and Mary have a house in foreclosure. It’s worth around $200k, and they owe about $120k, with $10k of that the back payments and foreclosure costs.

And, they want to stay.

Since a sale – lease/option (SLOP) deal is out of the question, I’m going with the sale – lease ONLY deal. It works like this . . .

John, Mary, I’d love to be able to stop your foreclosure, rent the house back to you AND give you the chance to buy it from me in the future . . . but I can’t.

The Attorney General’s Office has created a new law that effectively bans that sort of transaction, and I don’t want to be the guy who rattles their cage.

But, here’s what I can do. I’ll buy it from you for what you owe, and I’ll let you rent it back from me for whatever you think is fair. If you’re able to cover the payments, that’s great. But if not, I’m willing to do whatever you need to make sure it’s affordable.

At the end of the year we’ll take a look and see if that deal still makes sense, but I can’t promise you more than the one year lease.

And, don’t forget, I can’t in any way allow you to buy it back. That’s just not possible, thanks to the new law. It’s a straight one year lease and does not give you any ownership rights, now or ever. Whatever equity you have becomes my equity the moment we do this deal.

If that works, I can get it handled today. I know it’s probably not what you’d hoped for, and if someone else has offered you a better deal, take it. But this is what I can do, and I guarantee I can get it done. What do you say?


Fair deal?

What do John and Mary say?

11 times out of 10, they say, “where do I sign?”

Is it fair?

Completely.

Do you understand why?

Probably not, and I’m pretty much done explaining it to you. But, I’ll tell you this much . . . allowing people to stay in their homes is an extraordinary service.

People will pay a premium to avoid having to move, and rightly so, all things considered (it turns out to be a bargain).

The risks of doing this deal for me and other investors are off the charts (you need only review the Foreclosure White Paper for confirmation of the risks), so it doesn’t come cheap (I’d need a 40 or 50% discount to even consider it).

But, if they’ve got the equity and want to stay, I can make that happen with a sale – lease ONLY deal.


Inapplicable

So, investors formerly doing the sale – lease/option rescue deals today need only say “sorry, but because of the new law, I can’t give you an option to buy it back,” and HB 2791’s “distressed property conveyance” statutes don’t come into play.

And, that 82% to the seller thing?

Doesn’t apply.

Having to essentially perform the role of underwriter to determine if the owner qualifies?

Not needed.

Giving the owner a five day cancellation window?

Nice, but not a requirement.


Wanna Stays

Just about every seller with equity who’d do the sale – lease/option deal will do the sale – lease ONLY deal, and Jim Sugarman won’t know what to think.

I don’t mean to pick on Jim, but he clearly has no idea what he’s talking about when he says . . .

sugarman.png

The only reason someone would sell their house for no money is because they were promised the opportunity to buy it back.— AAG James Sugarman
Consumer Protection Division

Don’t bet on it, Jim.

The reason people do these deals is NOT because they have the opportunity to buy back their homes; they do them because they don’t want to move.


Investors Rejoice

Thanks to HB 2791, smart investors in Washington doing foreclosure rescue deals will no longer offer at-risk property owners options to repurchase their homes.

Because of the new law, investors have the opportunity to make even better deals for themselves. And, I’m sure once they figure this out, investors throughout the state will be thrilled.

Who’s harmed?

Not me or my cronies, lackeys and worthless investor friends, but you may want to ask those homeowners who might otherwise have been able to buy back their homes because that ain’t gonna happen now.


Sophisticated?

What Eric said . . .

ericdunn.jpg

. . . HB 2791, if signed by Governor Gregoire, would give Washington homeowners the nation’s strongest, most sophisticated protection against foreclosure scams.— Eric Dunn
staff Attorney at Northwest Justice Project

Really, the nation’s most sophisticated protection against foreclosure scams?

And the incredibly unsophisticated method to avoid it altogether is to stop offering owners in foreclosure the right to buy back their homes?

I’m not sure that makes a lot of sense, Rob, but if you say so.

In the arena,

Joe Kaiser


6 Responses to: “Investors Rejoice”

  1. DaveD responds:
    Posted: April 30th, 2008 at 6:40 am

    What? The investor actually comes out better?

    I’m guessing Ignacia Ramirez is going to really be confused now. This can’t be what s(he) had in mind! After all, “government people” (who aren’t going to have a financial interest in this stuff) just wanted to help. Darn it!

    Notwithstanding the extraordinary service, Keeping the homeowner in the house was always a messy deal anyway… with that half-a-loaf being better than none thingy.

    It’s always nice to simplify the business process when we can, don’t you think? Folks losing their home need to stay somewhere. Might as well be in our new home. After all, they already know it inside and out.

    How ironic, but the kind of stuff that happens when the “government people” step on their own d*ck looking out for us consumers.

  2. Joe Kaiser responds:
    Posted: April 30th, 2008 at 8:43 am

    Investors can justify their no-option rescue offers by citing the new law. In doing so, those offers are instantly validated and with few other options, likely accepted by folks facing the loss of their home.

    “The AG made me do it,” isn’t just me poking fun, it’s the new reality for investors in the state of Washington.

  3. Vlad responds:
    Posted: April 30th, 2008 at 8:46 am

    Joe,

    This post alone shows why you are where you are!

    My hat off to you for quickly figuring out how to make the lemonade. Lemons, turns out, are supplied free of charge by the State of Washington…

  4. Joe Kaiser responds:
    Posted: April 30th, 2008 at 8:49 am

    Vlad, why I am where I am is not any place you’d want to be.

    Your comment is enlightening in ways you can’t imagine, and, you’re exactly right on all accounts, darn you. ;-)

    Joe

  5. Bruce responds:
    Posted: April 30th, 2008 at 12:08 pm

    The cast of characters this government employs is simply hysterical…

    It’s like the Keystone Kops were put in charge of foreclosure laws in WA state.

    Actually, this should come as no surprise to those of us who’ve dealt with guv folks. Deep down inside they KNOW they can’t ‘fix’ the looming massive foreclosure problem…so, they will go after the handful of dishonest investors. The Guv solution? Eliminate ALL lease backs with option to buy property back.

    Does this actually HELP the property owner in peril? NO. They’ve just been denied one more option and potential benefit – BY GOVERNMENT MANDATE!!!!!….the guv has actually made their situation WORSE. ….and these fools go to sleep at night feeling good about what they just did. (when they should be ashamed)

    Sometimes I feel like the world is completely upside down.

  6. DaveD responds:
    Posted: April 30th, 2008 at 12:52 pm

    It’s a shame. Used to be when you were able to leave them in the house, you could overlook all kinds of subsequent non-payment and non-compliance issues the tenant-owner had… and they always had issues… because he still had equity to burn. Not so anymore with with you owning it outright. That debt you will have against the house still has to get serviced somehow.

    Which means the new tenant (old owner) lives much closer to the peril of getting tossed if his life continues to be a mess. Chalk up another win for the law of unintended consequences, courtesy of Rob.


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