Is this a matter of ethics?

Question

So I have a neighbor who knows I am beginning to become very interested in and taking action to acquire real estate.  We were having a conversation last week and she mentioned she works for a large financial institution calling home owners who are 30, 60, 90 days late on their mortgages and potentially facing foreclosure.  My partner and I are ethical and want to keep our business straight-line but is this a connection I should take advantage of?  If not, I'm cool with that but I have to admit, asking her for assistance is tempting.  Please help?

Tom Mole · Answer

@Micah Brown, the determination of how ethical something is, is what they call the "smell test". In this case, you're talking about people about to start the foreclosure process. Given the current political climate I'd be very careful about getting the "smell" on me of taking advantage off people who've fallen on hard times. You could end up explaining to a judge how what you did was ethical and in the best interests of the homeowner.

I'd like to know more about why your neighbor is so interested in providing you sensitive information like that. Does she hope to profit in some way? Perhaps she's figuring that you could buy some of these owners out and get them off her companies books. Maybe it would be better for her to put you in contact with someone in financial institution that would be able to let you purchase some of the NPN (nonperforming notes) stock at a discount. THAT would be ethical. In fact, I'd like to have someone like that living next door to me and I'd reward her generously.

As of this post, IMHO, it would be unethical to take her help until you know more about what's in it for her. Your ethic sense is protecting you. Respect it! You feel uncomfortable with this as it is, so resolve it until you are comfortable. You need to know that what you're doing is ethical, then you'll be at ease. Ask more questions, don't just give up. This could be a blessing or a curse, but you won't know until you ask more questions. Here's the biggest question to resolve honestly:

• Would contacting the people she offers you help them more than it helps you, your neighbor or her company?

When you get the answer to that you'll know whether it's ethical or not.

Happy New Year!!

Dion DePaoli · Answer

I am happy the OP poised this thread in the manner in which they did.  Ethics, unfortunately often take a back seat. I would be cautious in getting involved in this as more times than not these companies are right at the edge of the line if not over in terms of what they can legally be doing to "help".  As Joel points out there is drastic differences in delinquent and default.  Telling a Borrower that you can save them from foreclosure can get you in trouble.  That is because you really can not.  I know it is romantic to think otherwise but you buying a property is not really "helping".  Further, more often than not, this is a licensed activity.  A RMLO license is need to deal with a borrower and their mortgagee unless you are family or legal counsel.  It is not clear what exactly the neighbor does.  Calling delinquent or defaulted borrowers is not unethical in and of itself.  However, what is said or implied to the borrower is the issue.  If the call is on the straight and narrow it may just be something like asking the borrower if they want to sell and then being a principal buyer.  A real estate license is needed to arrange sales to you from distressed homeowners unless the neighbor's company is taking a principal role.  Likely not enough room with upside down mortgages to pile on multiple principal parties.  In terms of her liability of disclosure, it's hard to understand without further detail if there is some type of breach or disclosure issue.  Does she work in loss mitigation for a mortgage servicing company?  Well, she is likely in violation of company policy meant to protect privacy of the borrower if she shares certain information with you.   Will any of that implicate you?  Again, doesn't seem to be enough information in the thread.  If you provide a little more detail to what you think you can get or she can provide, perhaps more direction can be given regarding the idea.

Micah Brown · Answer

@Tom Mole  awesome advice as well.  I love BiggerPockets.  I spoke to her and she didn't mention wanting anything in return but it is my nature to generously take care of those around me.  I would be super willing to compensate her whether she passes me a deal or puts me in touch with someone who knew about any NPN.  I will approach it cautiously and ethically.  Going to court or taking advantage of someone in distress is not what my team and I are about.  I know what being poor or long-term broke is and can do to a family.  I am not about that life.  My sincerest efforts are to profit but to also be an asset to those I encounter.   When I see her again, I will follow up and post the progress.  Happy New Year to you as well.

Micah Brown · Answer

Thank you for your advice Joel.  I appreciate the education.

Micah Brown · Answer

I considered the probability of that also.  That is exactly what I am not trying to do.

Joel Owens · Answer

Typically homeowners that are 30,60,90 days late ARE NOT motivated to sell. They are looking for a loan workout etc. with their lender.

There are free services provided by HUD for loan counseling.

Usually it's when property owners get further down the road to defaulting is when they think of selling as a last alternative ( facing bankruptcy, short sale, deed in lieu, foreclosure, etc. ).

At 30,60 days out they are usually talking to the customer service department or collections for servicing the loan and not loss mitigation.

Occasionally you might find a motivated seller at early default but not that often. This is especially true in states with a judicial process that takes a bank a very long time to foreclose versus a non-judicial state that moves faster.

What you target for real estate investing depends on if you are trying to wholesale properties, rehab and flip for resale, or buy and hold as rentals.

Don Harris · Answer

@Micah Brown She would probably be putting her job at risk by sharing such information with you. She may be putting her employer at risk by doing so as well. IMHO you and her would be better served by originating your leads via a distinctly different method.

Is this a matter of ethics?

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