Brett Richman's Blog

Hey Blogsters,

I don't often use exact examples from my professional life to make my point through my blog (I don't want to compromise my clients' confidentiality) but, I feel that this topic/experience is important enough to illustrate my frustrations. 

A few months ago, I was driving through the neighborhood looking for possible development opportunities for myself and business partner.  I came across a huge duplex, in an ideal neighborhood.  Although, the house was not being actively marketed for sale, the construction work on the property had obviously been halted months ago.  So, I decided to do some further research on the property and get in touch with the owner to see if he would be willing to entertain offers.  So, after working with my magical broker's tool box, and making a few emails and calls, I was able to setup a meeting with myself, my business partner, the potential seller, and his attorney.  After an hour or so in the meeting, we were able to sketch out a rough deal for the property at $217,000 (it still needed about $100,000 worth of renovations).  We were still hammering out the details before finalizing the agreed upon Purchase Agreement.  After a week or so of going back and forth, the seller walked away and not so politely suggested that we go play in traffic.  He insisted on making our full deposit amount ($10,000) non-refundable.  He said that this was the cost of waking "the sleeping giant", in this case is second mortgagee (that's right I forgot to mention that he hadn't made any mortgage payments in over a year).  So, the deal was on life support at that time, and I moved it to the back burner while carefully monitoring the Civil Sheriff's website waiting to see the address pop up on the sale sheet as the inevitable foreclosure hammer was bound to fall at any time.  About a month later it popped up on the sale list, with a writ amount of $176,000.  I said to myself, "Brett you may have just saved yourself $41,000!  So, like I often do, I attended the auction, cashier's checks in pocket, ready to buy this property.  The bidding opened at $176,000, and I promptly proceeded to bid.  It became apparent that the only person bidding against me was the attorney representing the seizing creditor.  I bid up to $220,000 before I put the brakes on.  After the auction concluded, won by the creditor, I proceeded to speak with the bank's representative who was the sole bidder other than myself.  He told me that he was authorized to bid up to $309,000, the total outstanding balance of the first mortgage including all penalties, fines, and fees.  So, the deal was once again on it's death bed.  But, I knew in the back of my head that the property now eventually will be placed on the open market, and that I would have one more chance to buy it.  A month goes by.  Then the property pops up on the MLS, get this, now listed at $168,000!  Once again, I start thinking how my patience has been rewarded, and now I am in position to save even more money, right?  Wrong.  My partner and I made a full price offer, less than 24 hours after the property came on the market.  I hear from the agent the next morning, and he tells me that my offer was received but, there are two other offers.  As many of you probably know, it is standard REO procedure at that point to reject all offers and request that everyone comes back with their "highest and best offer".  So, we pumped our offer up $10,000 above list price, and we still got rejected.  Presumably to an even higher offer, with less contingencies.  Although, it still has not closed, I am very curious to see the final closing price.  

To sum up my frustrations:

The bank could have had $217,000 before incurring any foreclosure costs or proceedings.  They could have had $220,000 at auction, free and clear.  And then, after four months they decide to list it at $168,000?  In this world of massive foreclosure, and bank consolidation into behemoths that are unreachable by phone, I wonder if the left hand and the right hand even know of eachother's existence any more.  BOA may be the worst offender but, regardless you don't have to be a Harvard economist to spot the problems in this deal.  This case is not unique.  It's just another sad example of (bailed out) banks being insured and taking the biggest losses possible to cheat the tax payer. 

Share some of your horror stories with me, and perhaps together we can make sense of it all.

Please allow me to vent.

Today I have been setting up showings for a buyer client of mine, for tomorrow.  She wanted to see six properties all within close proximity.  So I called six listing agents.  Of the six, four of the listings listed a different phone number for appointments, other than the agent's cell phone number.  Of those four, every single one went to voice mail, and an hour later I am still yet to hear back.  In fact, the only agent who picked up the phone at all was Eric Bouler, an blogging superstar in my area.  Kudos to you Eric. 

God Bless America, our Troops and our Veterans! 

Let's bring our men and women home safely to their families as soon as we can.  Remember, even if you don't support the wars, it is important to support our troops.  There are no political affiliations in a fox hole.  This is the time for America to truly be united.  A great big "thank you" goes out to all of our men and women in uniform both at home and abroad working daily for our freedom.

Real Estate’s Double D’s and Overexposure

What does the beach, photography, and Real Estate all have in common?  In all 3 it is unfortunate to be overexposed.  But, unlike bad pictures and sun poisoning, being overexposed in your real estate career can leave you not just burned but broke.  Allow me to explain.  For all agents and brokers, there are TWO major areas of liability that always requires your utmost attention; Deposits and Disclosures.  Together I call them the Double D’s of real estate.  Without actually researching the statistics, I would think that it’s safe to say that 90% of all lawsuits involving Realtors are linked to one of these two issues.

Deposits:
Accordingly, each state has differing laws regarding the time line for the depositing of clients’ funds into the broker’s escrow account.  It is imperative that agents and brokers follow the letter of the law in their particular state.  However, a simple rule to live by is to hand over escrow deposits immediately to your broker.  And brokers, you should immediately (on the next business day) deposit escrow funds into your designated escrow account.  Extreme care should be exercised when handling the actual certified funds.  Checks should never be put in the position where they could, even by the most remote possibility be eaten by the dog, fly out of the car window, get burned in a wildfire, or any other set of circumstances where the funds will be lost, stolen, or damaged.  Commingling of escrow funds and personal or operational funds is a big “NO NO”.  Brokers should never, ever, ever use clients’ money for any purpose other than fulfilling their legal obligation regarding the transaction for which the deposit was made.  Abide by these practices and you will avoid long costly legal disputes.  Court cases and arbitration regarding deposits you will surely lose because, as a licensee you are held to the highest standards of care for clients’ money, and nobody has sympathy for a broker misappropriating the hard earned funds of Jon and Jane Q. Homebuyer.  

Disclosures:

This blog post should actually be named “The 5 D’s and Overexposure”, and the extra 3 D’s would be Disclose, Disclose, and Disclose.   The latent and obvious defects of a property being sold MUST be disclosed, all of them.  The easiest lawsuit to avoid is a suit, suing the seller or listing agent/broker for non-disclosure of known defects.  Sellers and agents must treat the property disclosures like an IRS audit.  Lay it all out on the table because, in the end the truth has a way of coming out whether you like it or not.  You must make full disclosure of defects.  I mean, FULL DISCLOSURE!!!  It’s very simple; it doesn’t matter if your house is infested with termites, falling off the foundation, and was built on a nuclear waste site.  If, you disclose it NOW then, it won’t come back to haunt you LATER.  Make sure to list all defects, deficiencies, and major repairs.  Once both sides have signed off on the property disclosure, the buyer surrenders their right to sue based on any of those defects both latent and readily apparent.  Sellers and agents can only be sued if they had known, or should have known about a defect not disclosed to the seller at or before the Act of Sale.  

So, keep your Double D’s (and other parts of your anatomy) covered and never overexposed.  

The Best Alternative Real Estate Investments in this Crazy World We Are Living In

Let’s face it, we are living in some crazy times.  Even if we are some of the lucky few, who are fortunate enough to live in a safe corner of the world, the worldwide economy, politics, and local real estate markets can still wreak havoc on our personal wealth and investment strategies.  Lately it seems, the talking heads on TV tell us that the “American Dream” of home ownership is dead, and we all give up on the dream as if it never existed.  But, I’m here to tell you, that it still exists!   I will not get into the condition of local real estate markets because most of them are in pretty bad shape right now.   Instead, I want to highlight the two best alternative real estate investments available to the public and real estate professionals alike:

1.       Tax Liens. Not a new concept--I know.  But, it may be time to reevaluate the financial viability of this type of investment. The main incentive here is that an investment in the tax liability of another person’s property is a safe haven for your money in these trying times.  In today’s economic conditions, where mutual funds and the money markets combined couldn’t net 5% per annum, tax liens pay significantly higher rates.  In my area, (it varies from state to state) if I buy someone’s tax liability at auction, it pays a return of 5% initially, and 1% EVERY MONTH afterwards.   That’s a 16% return in the first year alone! Pretty good huh?  Additionally, unlike stocks and mutual funds, this investment is backed by the underlying property.  For example, in Louisiana, there is a three year period in which the owner of a property can come back to pay off the taxes, plus interest, to keep their property.  If they do not come back to pay the taxes, you own a property for pennies on the dollar (remember to calculate carrying costs in your analysis of the properties)!  If they do pay off the taxes, you made a great return on investment, and you should pat yourself on the back for being so fiscally savvy.  

2.        Auctioned Properties.  Also not a new concept, however, this country’s new real estate market has changed the game a little bit.  Let me explain.  It used to be that only the worst properties owned by the most delinquent owners would ever make it to the auction block, but that is not the case anymore.  We all know that there are plenty of people who are in houses that they can’t afford.  Everyday we hear about more foreclosures and homeowners abandoning their properties. In fact, in this new economy that we live in, it is not unusual to find many beautiful expensive homes auctioned off on the sheriff’s steps.  In this way, it is essential to keep your eyes on the list of properties that are going to auction over the next several weeks.  Most properties slated for auction will be halted prior to its first auction attempt, at least.  But the key is to be persistent.  Follow the properties that you like, get your certified funds ready and hope for the best.  Properties usually start at 2/3 of the appraised value, so the bargains are out there, I promise!

Now I’ve let you in on a couple of my secrets to keep making money in real estate in today’s economy.  GOOD LUCK!