Buy a House … Go to Jail!


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More than a dozen states have now enacted laws restricting what you can say to homeowners who have homes somewhere in the foreclosure procedure. If you don’t follow the strict requirements, you are looking at large penalties and even jail time.

I’m concerned because I see so many people now promoting foreclosure seminars with “make millions in your spare time” promises. Without a doubt, there is a lot of money waiting to be made in the foreclosure market, but it needs to be done legally or you risk everything you already have. At a minimum, there are five minimum requirements that you should follow if you’re buying foreclosure properties.

Intelligent Investment — or Illegal Activity?

On December 8th, I posted “Before You Attend a Foreclosure Investment Workshop” with some warnings. That advice is never more true than right now. Make sure you’re not getting a canned seminar and manual out of a box when you attend the seminar. Do they presenters understand the law in your home state?

At the very least, make sure they cover these five minimum requirements:

ALL AGREEMENTS MUST BE IN WRITING

Document everything with a contract and clear disclosures. The disclosures must state that the owner is losing his property, his equity, and his right to any proceeds from the home. Some investors have been known to offer vague promises to sellers for a right to future proceeds, or the right to repurchase. (Or maybe it’s a case of that’s what the homeowner wanted to hear.) Either way, document every agreement in writing so there is no later misunderstanding.

EXPLAIN EVERYTHING CLEARLY

Explain everything in the agreement, point by point. If the seller doesn’t understand, don’t proceed until they do.

DON’T OFFER THE SELLER A RIGHT TO REPURCHASE

Many states are moving to make seller lease-backs illegal. Even if it is legal in your home state, it’s almost always a subject of later controversy. Avoid a legal hassle and just avoid the whole issue completely.

GIVE A PERIOD OF RESCISSION

Many states require a period of 3 – 10 days for rescission in contracts. In other words, the seller can change their mind with no penalty during that time. If your state doesn’t have a mandatory period, give them 3 days anyway. It’ll go a long ways in case of later court action.

KNOW THE LAWS IN YOUR STATE

More and more states are enacting laws regarding ‘foreclosure consultants.” The definition of foreclosure consultants is very broad, so don’t assume this doesn’t apply to you if you’re buying foreclosure and preforeclosure properties. In fact, it probably does apply to you.

California just jumped on the bandwagon with some strict rules and restrictions on foreclosure consultants. I’ll post about that tomorrow.

The foreclosure market is getting a lot of government scrutiny right now. If you’re currently investing in foreclosures and pre-foreclosures or are planning to, make sure you have good advisors on your team. We’re glad to help you assess the viability of the program you’re using, as well as the tax consequences. Give Richard a call at 602.258.0700 Ext 5 or drop us an email at CPA@TaxLoopholes.com.

Please feel free to forward this article on to anyone you know who is currently investing in foreclosures or is considering attending a foreclosure seminar. There is money to be made, without a doubt, but there is also a lot of risk here if you do it wrong or get bad advice.



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