All Forum Posts by: Lee Allen

It may work differently in every state but if an Investor buys the property at the auction and then turns around and sells the property to a new buyer they have to get a foreclosure redemption bond (Surety bond) to cover the difference between the purchase amount and the sale amount.

If the previous owner wants the property back during the redemption phase they initiate a lawsuit to redeem the property. The judge will decide what repairs the investor made was necessary repairs. There are some things that judges have been resistant to reimbursing the investor. I have had a judge tell me directly that he doesn't allow things like $50,000 landscaping where the investor puts in a new swimming pool and hot tub because these are not necessary repairs but are luxury items. If the investor decided to gilded the walls in gold instead of painting them then this would not be reimbursable since it is not a necessary repair. There have been cases where a master bedroom luxury suite is not reimbursable.

If the investor bought the property for $50,000 and then did $100,000 in repairs and upgrades and sold the property to a new owner for $300,000 the original owner would have to initiate a redemption lawsuit. If the judge says that the property can be redeemed for $100,000 by the original owner because $50,000 of the investor's repairs were not necessary (ie Put in a pool) then what happens is the surety bond kicks in and pays off the new buyer's mortgage and then initiates a lawsuit against the investor to get their money back. The investor owes this money back to the surety company because he signed an indemnity letter to get the foreclosure bond.

The new buyer will be out for things like moving expenses and custom made drapes because those were not related to the sale of the property. The new buyer knew they were buying a foreclosed property during the redemption period and this was a risk they took.

As an investor, you should realize that the owner that lost the property basically lost everything. If you are going to make over $100,000 of profit for 4 months of work and the original owner gets nothing then this is bad karma and it is only a matter of time before it catches up with you. If you are a Christian you can think of it as a tithe and give alms to the poor.

It is almost impossible to buy all the redemption rights to a property. Every junior lien holder has a right of redemption. Every owner also has a redemption right and if they were married the person that they married to also has a right of redemption. In the case of the death of the owner then all heirs of the estate and the executor of the state also have a right of redemption and the IRS can have a right of redemption if the owner owed taxes.

There is also a certain priority given if two people try to redeem the property. Owners and Mortgagers have the highest right of redemption then followed by heirs and lastly followed by junior lien holders.

In the vast majority of foreclosures probably around 99%, there is never a redemption because there was no equity in the property. The few that do redeem are usually an investor that has money and there is a sizable amount of equity in the property.

In Alabama, there are multiple people who can redeem the property. The property owner and even their spouse have the rights, any junior lien holder, The IRS, children, and heirs of a deceased owner. If two parties try to redeem the property the mortgagor and debtor have first priority for redeeming the property.

https://codes.findlaw.com/al/title-6-civil-practic...

https://activerain.com/blogsview/2583285/buying-a-...

Most mortgages require a foreclosure redemption bond on properties that are still in the redemption period. I learned the foreclosure redemption bond is a surety bond. What a surety bond does is insure the title and bank but not the investor that bought the property or the at the foreclosure sale nor does it cover the person the bought the property from the investor. They basically make the investor indemnify them for any losses they take. So if the investor sold the house for $300K and the courts ruled that the property and repairs could be redeemed for $200K the surety bond steps in and pays $100K to make the bank whole on its loan. They then go after the investor for $100K and they will sue and get a judgment against the investor if he doesn't pay up. Once they get a judgment it causes a lien on all the investor's properties that is in his name plus it can go on his personal credit report if he bought the property in his name and not an LLC.

The majority of foreclosed properties are never redeemed.

Does anyone have any experience with foreclosure redemption? I have an opportunity where a house went to foreclosure after the owner died and the children didn't do anything with the property. There was only $70K owed on the mortgage and an investor bought it at auction for $130k and did about $70k of work to it and is now selling the property for $330K. In my state judges will allow the investor to recover what they paid for the house and the repairs but won't allow the investor to make his $130k of profit. Also, judges won't allow for unnecessary things like landscaping, pools, hot tubs, etc.

The owners have been approached by other investors to buy their redemption rights for $20k. The guy who bought the property said that he doesn't believe that redemption rights can be sold to other investors and that the owners couldn't get a loan and is unwilling to give the previous owners anything.

If the owners can't assign their redemption rights I know I know that the owners can easily bring in a cash buyer that will be their financing partner, redeem the property for $200K and then sign over the property for $20K.

One landlord that had over 100 units told me that he had seen about everything in his 30 years of being a landlord.

His best advice was to screen your tenants properly. When he shows the property to a potential tenant if they start bad mouthing the property in any way he tells them that he enjoys having happy tenants but he can tell that this guy wouldn't be happy here and since he only rents to happy tenants then he must decline them.

He also said that the first few months are very critical and that you must train your tenants properly. You let them know upfront that there is never an excuse for late rent. If you allow them to pay late then they will call you whenever they have money issues to let you know they will be late. Then they start paying a month behind and it just goes downhill from there. You have to be strict and tell them that the rent is due 5 days before the first of the month. After the first of the month it is considered late and there will be a $20 penalty added. He also lets the tenants know that on the 10th of the month the owner has an attorney file the eviction paperwork and if they pay after that date they will owe for attorney fees which are about $300.

Another way to do this is by offering a discounted rent for on-time payment. If you want to collect $1000 in rent just price your property rent at $1100 but as long as they pay by the first of the month then you will discount it to $1000. If they go past the 1st they then owe $1100 plus a $20 late fee and every 10 days after that they will be charged an additional $20.

So if they pay on the 1st it cost them $1000. If they pay on the 3rd of the month it will cost them $1120 and if they pay on the 15 of the month it will cost them $1140. Almost everyone pays on the 1st because they want to $100 discount.

Never let the renter know you are the owner of the property because they think that if they are friendly with you then they can pay late. Own your properties in an LLC or Trust and you are not the actual owner of the property. Always tell them you are the property manager and the owner doesn't allow late rent. You can then be their friends but at the same time not be the "bad landlord" that wants to be paid on time.

My answer was based on the original question of whether you need a license to be a wholesaler because you are acting as a middleman. I was not talking about IRS rules or tax law.

The main difference between a broker and a wholesaler is that the broker never is a principal of the transaction.

As a wholesaler you take title to the property or note for a period of time and then you sell it to another buyer and receive a profit.

Would it be illegal for an investor to buy a house and then sell it 3 years later for a profit? No, because he is a principal of the transaction.

The only difference between the transactions is that you may have owned the property or note for 5 minutes and the other guy owned it for 3 years.

It Depends on the transaction....

If you are the listing agent and you have a listing contract with the house owner then it is your fiduciary duty to try to get the seller the best price.

If you are a buyers agent they you work for the buyer and you have no fiduciary duty to the seller.

As an Investor you probably have a company that you do your transactions in. If this company goes to the home owner and gets an option to buy the property and the contract says that you have the right to market it in any way and on the MLS then your company is the seller and you would owe a fiduciary duty to it to get it the best price.

As an agent you represent the person or company that you have a contract with.

Although you don't owe a fiduciary duty to the home owner you must still perform your job ethically and you should disclose everything in writing. Let the owner know that you intend to make a profit by either purchasing the house or selling it to another person. If they have a problem with that just explain that you have to make a profit or that there isn't anything in the deal for you so you would have to pass and go to another deal.

We have had wholesalers come to our REIA group for about 8 years so far and I think that only one property has been sold there in that time.

We have had 4 Homevestor fail in our town and a new one opened up. He announced at our club 2 years ago that he would wholesale houses to any of our members at $2000 over cost and he still hasn't even sold one in our club.

Only about 20 of our members in my local REIA are active real estate investors. We used to have about 250 members but we are now down to about 100 members.

Most of the members that are active real estate investors run their own ads in the newspaper and get their own leads.

Sometimes I wonder if the reason that Gurus promote going to local REIA groups is that they know that they have a larger audience to sell to.