MARYLAND INVESTORS - Pre foreclosure laws

[Mike Goikhberg]

Any experienced investors from the maryland area care to weigh in on the issue of marketing to pre-foreclosures in baltimore? I read the regulations stating that you must be a certified foreclosure consultant if you are goign to be doing ANY dealings with the bank on behalf of the homeowner. However, an experienced developer/investor I spoke with at one meet up was not aware of any issues with marketing to these individuals. Also, what exactly does it take to get the "foreclosure consultant" cert??

[Russell Brazil]

Contact the office of the commissioner of financial regulation for  information on obtaining the license. If you do not have the license and advertise to those in preforeclosure, I believe the penalties are $5,000 per advertisement (think each direct mail piece) and up to 3 years in prison.

Pretty much no one messes with preforeclosures in Maryland because of this.

[Mike Goikhberg]

wow, well tha's that then...thanks!!

[Malcolm Lawson]

I know in Maryland only short sale negotiators can talk to a bank on the home owners behalf but I do know agents in my brokerage who still get short sale's listings and then hire short sale negotiators to work with them and the bank.  Perhaps the agents who are advertising to pre-forclosures have done something similar?  

[Malcolm Lawson]

I know in Maryland only short sale negotiators can talk to a bank on the home owners behalf but I do know agents in my brokerage who still get short sale's listings and then hire short sale negotiators to work with them and the bank.  Perhaps the agents who are advertising to pre-forclosures have done something similar?  

[Ned Carey]

@Mike Goikhberg if you are a foreclosure consultant you cannot buy the property yourself. Basically MD has made it illegal to buy a property from a homeowner in pre foreclosure, Unless you buy it through an agent.

This was a poorly written law. It was pushed through for political reasons. It is deliberately vague so that it can be used in a discriminatory way. Any investor in MD would be wise to avoid pre-foreclosure properties that are not listed properties.

[Nina Daniel]

Hi Ned, so if an investor works with an agent in Maryland, and the listed that property for sale, the investor can buy it without triggering legal issues, correct? There're thousands of pre-foreclosures in MD, and many investors work with them, how do they avoid being prosecuted or penalized?  Please explain.

[Ned Carey]

@Nina Daniel it is a complex law. I will do my best to explain but I am not an attorney. 

The law was intended to protect homeowners in pre-foreclosure from being taken advantage of by investors. The basics of the law says that if you put yourself out there as someone who is going to help someone in pre-foreclosure in any way, then you are a "foreclosure consultant" If you are a  foreclosure consultant, you cannot buy a property you are acting as a consultant on.

Also if you are buying a property you cannot do any negotiating for the benefit of the seller - Contacting the bank for example. 

If you are buying a property that is listed with an agent generally you are safe. If you are marketing directly to homeowners you are at risk. Also the law only applies to homeowner occupied properties. 

There're thousands of pre-foreclosures in MD, and many investors work with them, how do they avoid being prosecuted or penalized?

Many do so because they are ignorant of the law and avoid prosecution by being lucky. 

The simplest and best policy most knowledgeable investors take is simply don't market to those in pre-foreclosure.

The law has been changed over time. The above applied when I researched it deeply several years ago. It is a relatively new law so many aspects of it have not been challenged or clarified by the court.

[Russell Brazil]

I'll add a quick point to add on to @Ned Carey's thoughts.  You can say send direct mail pieces to an entire mail route, and if it goes to someone who is in preforeclosure-....that is not considered marketing to someone in pre-foreclosure.  Your marketing can not target those individuals in your marketing, or target that situation. 

You can not put things in your advertisements such as "Stop Foreclosure." Putting something like that in an advertisement (Unless you are a Foreclosure Consultant) is a direct violation of the law....and I do see those signs in the roadways all over the place. Those guys are playing with fire.

Im not a lawyer, no legal advice given, but there is simply plenty of deals out there to not worry about this niche. Focus else ware to stay out of trouble.

[Mike Goikhberg]

I was at a MAREIA meetup last week and the two individuals leading the meetup, both experienced investors, said they actually go as far as to pre-screen their leads on the phone by asking if they're current on their mortgage payments. And, if they're not current, then these two investors avoid working with them entirely. So that goes even a step further than just not putting "stop foreclosure" in the marketing. As Ned said, it seems it's not very clear cut and how we deal with it will depend on how much risk we want to take.

[Nina Daniel]

Thank you @Ned Carey, Russell and Mike! It just seems so wrong to completely rule investors out of the picture when homeowners are unable to make payments and are definitely losing their home to foreclosure.  There must be a way of banks and investors working together so the banks will get their money back and the investors will end up with a distressed property to rehab, acquired at a discount.  It seems PHIPA is not protecting anything since homebuyers who cannot make payments WILL lose their home, and I haven't heard of a bank protecting their equity, all they do is assume their equity by slapping fees and penalties on them so the banks are violating the law as well, they're not protecting the homeowner but rather hurting them.  And in the end, it costs the bank a ton of money to hire attorneys and deal with foreclosures when they're not even in the housing business. So weird.  Thank you all!

[Toris Diggs]

Why would they do this though ? Its only happening in 4 or 5 states... Maryland, North Carolina, Texas, and Illinois... It just really really dont make any sense so who do we have to talk to or get contact to get this dumb law changed?

[Ned Carey]

@Toris Diggs These kind of laws get passed when politics comes ahead of common sense.  The problem is there are lot of liberal advocates out there pushing for these kinds of laws, Most investors don't want to take the time to get involved. 

There are some investor groups starting to form to give us a voice. Check out Landlord 411 and there a is The Small Developers Collective. Both of these organizations are focused on helping the MD small investor have a voice. 

Some of the local investing groups will send out an email when an issue comes up they have concern about. Showing up at hearings can really make a difference. 

Many very bad laws are proposed every year. One was if you own a muti unit building and you have parking,YOU are responsible if a car gets damaged!. Every year there are new lead paint bills and anti landlord bills. This year they proposed to make it illegal for you to keep a copy of a Social Security card or drivers license!

[Brian Pendergraft]

The Protection of Homeowners in Foreclosure Act (PHIFA) is written so broadly that almost anyone who offers services to people facing foreclosure becomes a foreclosure consultant (even me as a legal service provider!).   You are a foreclosure consultant the moment you communicate to a homeowner that you can:

• Stop, delay, avoid, set aside, void, or delay foreclosure.
• Obtain forbearance or exercise the right of forbearance.
• Help the homeowner obtain a loan
• Purchase or obtain an offer to purchase a home within 20 days of an advertised docketed or foreclosure sale.
• Arranging or facilitating the sale of the home to another party as an alternative to foreclosure.
• For more see Md. Real Property Code § 7–301.

Chances are if you're marketing to pre-foreclosures you are already a foreclosure consultant.

What Foreclosure Consultants Must (and must not) do under PHIFA

• Provide a "foreclosure consulting contract" that outlines the scope of work to be provided for the homeowner.  (It must be in a certain format).
• Cannot receive ANY compensation until after all services outlined in the contract have been performed.
• Cannot acquire an interest in the property or help family members acquire an interest.
• Can only be compensated with money. (No securities in interest or personal property).
• Forbidden From "foreclosure rescue transactions".
• For more see MD Real Property Code Md. Real Property Code § 7–307.

Also, there is a limit to how much Foreclosure Consultants can get paid.

Disclaimer - Legal information not legal advice for legal advice contact a licensed real estate attorney in your area. The following post is meant to help readers better understand PHIFA but not to teach them how to be foreclosure consultants.  This is not everything in PHIFA.   Pelanties for violating PHIFA are stiff speak with an attorney before dealing with foreclosures or pre-foreclosures.

[Debra Irvine]

So let me make sure I understand this. Me as an wholeseller can not get a home that is in pre-foreclosure under contract? But if its's within 30 days I can put it under contract? Is that correct.

[Joshua Epps]

@Ned Carey when you say law only Allie to homeowner occupied properties ! So if it’s an absentee owner and this house is being foreclosed on we can market to them ?

[Ned Carey]

@Joshua Epps Yes the law only applies to owner occupants. Not owner occupied properties do not come under the law.

I am not an attorney and the law could have changed but I doubt it.  

[Jaime S.]

Good morning all,

I came across a property in Prince George's County that is in pre-foreclosure. I believe that I am not able to contact the owner directly for a wholesale deal (still a little foggy about that). Am I able to contact the home owner about a subject to deal as I am interested in the property to move in to? Any help would be appreciated. 

[Nancy Sewell]

Hi!  I tried to use the link to read the whole law but it's broken - have there been any changes to the law?  As an investor am I still unable to reach out via phone or direct mail to people in pre-foreclosure?  Thanks!  Nancy

[Brenda Douglas]

Omg. Thanks for the question and responses. I just finalized a letter to target pre foreclosures. Wow😳 

I guess I have to make them come to me 🤔

[Brenda Douglas]

Quote from @Russell Brazil:

I'll add a quick point to add on to @Ned Carey's thoughts.  You can say send direct mail pieces to an entire mail route, and if it goes to someone who is in preforeclosure-....that is not considered marketing to someone in pre-foreclosure.  Your marketing can not target those individuals in your marketing, or target that situation. 

You can not put things in your advertisements such as "Stop Foreclosure." Putting something like that in an advertisement (Unless you are a Foreclosure Consultant) is a direct violation of the law....and I do see those signs in the roadways all over the place. Those guys are playing with fire.

Im not a lawyer, no legal advice given, but there is simply plenty of deals out there to not worry about this niche. Focus else ware to stay out of trouble.

 Thanks for the work around @Russell