Beware Brokers Promising Sunshine and Guarantees

[Steve Hodgdon]

ust had dinner with an experienced note investor. Told me a story of a fairly well known broker/investor who sold him a contract for deed claiming asset value $70k. paid 35k. Note was current. Immediately went into default.

As he was hiring attorney for eviction, started getting big utility bills, fines from St Louis, then a warrant for failing to pay utility bills which had been accumulating. Seller KNEW this.

House was abandoned. flooded basement. 2500 water bill.

He was lucky he had just been introduced to a local flipper. Sold property to flipper for $25k on 2 year I/O 10% note.

total loss $8000 on a $35k investment.

COUNTER PARTY RISK is primary. NEVER TRUST the valuation the seller gives.

I have several personal stories that are like this. Why don't we ever check references? We're lazy, too trusting, greedy, forget past bad deals too quickly. Just takes a little time to dig through county records.

Seller promised to buy it back if there was a default. Of course that didn't happen. And isn't that creating a security anyway? My contract gives me the right, but not obligation to buy back @ 90% or make payments. I'm more concerned about reputation and honesty than quick profit. Still, it's only happened once. 

Anybody want to share their due diligence steps on sellers? I've bought from "big players" and have had the same misrepresentation problems as small brokers.