All Forum Posts by: Joseph B. Davisson

I ran into this problem years ago with a duplex. I believe it is called the "two Kitchens rule". I went from lender to lender and each promised me they could make the loan but each (I went through 3 before I was convinced) "discovered" this odd rule preventing them from making the loan. Most loan officers simply aren't aware and will assure you they can make the loan, but in the end, they cant. Google "Texas two kitchens rule lending law" and you will get relevant links. I never found a way around it and was stuck paying PMI for years.

In Texas, there is no absolute preclusion against an attorney acting as attorney and broker in the same transaction.  An attorney can act as a broker and an attorney in the same transaction provided:

1.) attorney can protect his client's legal interests even if attorney loses the commission should the transaction fail to close, and

2.) attorney discloses the conflict of interest to the client, and

3.) the client consents to the attorney acting as broker and attorney

  In the original scenario, advising the seller not to sell at 1/5 market value, and helping him get a better deal is certainly not an ethical violation.  It is good advice and guidance.  I would question a client's capacity if they came to me considering a sale for "pennies on dollar".  That is part of our job.  Also part of our job is to protect our clients from doing stupid stuff.  In the vast majority of circumstances, this would qualify as stupid. The same applies if my client was going to enter into a  finance arrangement at an interest rate far greater than what I know he could get from one of my banking clients.  I am going to put this client in touch with one of my banking clients when I know they will give him a better deal.  I am not going to ignore ways to protect my client and his assets.  

Also, you might want to double check the TRELA because attorneys are exempt form much of it. Brokers can't split commission with an attorney and an attorney can't sponsor salespeople, but otherwise, mostly exempt.

"An attorney's financial benefit cannot cloud his professional judgment." <-This is a poor support for this preclusion.

An attorney acting as a broker, who is motivated to close a transaction in order to get paid a commission is the same unethical attorney motivated to drag out his legal services and run up a bunch of hours in the course of advising their client whether the deal closed or not.  

I am an investor, broker, and attorney in Texas. Disclosure is the name of the game when you have a license. Use the Information about brokerage services form, disclose that you are a broker in the contract, and don't enter into the listing agreement until after the wholesale transaction has closed. You should be OK. At issue is the conflict between the fiduciary relationship between agent/broker and client, and the adversarial relationship between parties to a transaction. You can confuse this situation even further by partnering with a client or loaning them money on an investment property. Good luck. 

* forgive my grammar-I'm trying to get out of the office quickly....

Escrow officer: Yes bonus is a part of the compensation structure but my experience is that is based on dollar volume and number of closings so it is paid throughout the year and not a year end type of bonus.  You usually know where you are as far as an expectation of income.  Dont let that scare you.  If you want to be an investor, you have to be comfortable with eating what you kill and the same applies to closing escrow.  Deals are going to blow-up-it happens. As far as the career leading a different direction, I should have been more specific.  While being an expert witness is one direction it could lead, I was really suggesting that it is portable skill set in that you can go to any market and work as a closer.  Of course the skills do translate to other business like banking.  One good thing is that an escrow officer and an investor rely on the same contacts: agents and investors as a source of business and opportunities. 

Fee Attorney: I cant think of anyone in Austin off the top of my head, but generally the more entrepreneurial fee attorneys (the ones that will write wraps or subject to deals and work with wholesalers) will probably be your best bet.  Stay away from the high-end retail storefronts that do high volume residential transactions where the buyer and seller have agents and there is a big bank lender funding most transactions.  They do "retail" type of transactions.  You want to go where the action is.  Look for someone small investors use.  This is going to be the best opportunity for information and contacts you can actually use.

In the past 20 years I have seen the most successful investors/agents/attorneys have the same thing in common: LOW OVERHEAD.  You don't need a fancy office and new furniture.  You need overhead that will allow you to live/travel/play comfortably and survive/thrive in the lean times.  Your clients wont care if you are in a C+ building and its hard to get a bargain on real estate when you pull up in an $85,000 car.  (not to mention that many of the best opportunities are in areas where you don't want to be driving a nice car).  

Do your homework and locate a good fee attorney (or escrow officer who closes for a fee attorney) in your market and go ask them questions.  Better yet, bring them a deal to close or send them a referral.  

3 options: 

1) Escrow officer/closer for a title company.  The JD is not necessary but it helps.  As a closer, you get to see lots of deals cross your desk and see who is lending and what the terms are. You also see where investors are buying and what type of property they are buying.  I don't think there is any better behind the scenes data for a potential investor who wants to see lots of deals without practicing law.  Build client base by building relationships with real estate agents, brokers, and investors.  As a male (as your name implies) you may be able to exploit some gender bias due to most closers being female, however, my experience has been that generally women are often more effective closers due to their natural ability to multitask.  Having the skill set to close transactions is something you can take anywhere and have a career as a closer.  This work is susceptible to market dips- when there are no deals, you don't earn as much because income is often dependent on a bonus structure based on volume.

2) Appraiser.  You will learn how to value property and in turn be able to spot bargains and opportunities.  This type of work requires you to work on your own most of the time and therefore you don't get the personal contact that many successful investors use to locate and lock-down good deals.  Again, the JD is not necessary but probably helps.

Both of these options combined with your JD make you appealing as an  expert witness.  If you have the right experience and market yourself with your JD, you could make a very nice living as an expert witness giving testimony as to escrow processes, and appraisals.  While not consistent (unless you are very popular) you would likely make enough to have the time to locate deals on the side.

3) Work for a fee attorney for a title company is a good opportunity.  It is not really the typical law firm job with billable minimums (at least mine is not).  It is more deal oriented and a lot of flat rate document preparation.  You get to see all the deals an escrow officer sees, and you prepare many of the closing documents while maintaining the option of doing other real estate related legal work like lease/contract reviews, foreclosures, evictions, commercial loan documentation, entity formation for investors, and you can throw in some asset sales for small businesses and small business contract matters.  

Due to the contact with active investors, being a fee attorney also opens the door for hard money lending and buying selling notes.  The best part is that it is rather insulated from the swings of the real estate market.  In good times you are busy because people are borrowing and buying and in the bad times you are busy because people are negotiating loan workouts, liquidations, and foreclosures.  Keep in mind that a fee attorney has to see transactions through 2 very distinct lenses: 1) you sell (title) insurance and need to evaluate risk that can /should be insured against or avoided but at the same time 2) investing is all about taking risks based on the potential return.  You have to be able to separate your personal risk tolerance from the insurability of a particular transaction in which you are on the side of the insurer and not a party.

GOOD LUCK.

This is a question for your banker. Because an LLC is a pass through entity for tax purposes (unless structured otherwise) the bank will likely require the members to be present to open the account. Most banks wont open an account unless it can be traced back to a live human who is ultimately responsible ( usually a principal-Member rather than a manager of the LLC). Recently I've even had trouble opening an escrow account for disputed funds I was holding as an attorney. One bank required a social security number and signature from one of the parties to the dispute despite the fact that the funds do not necessarily belong a particular party until the dispute is settled. Another bank was willing to open with a social and merely an email stating that party's desire to have the account opened.

Your initial offer (deposit + 2 months rent) sounds perfectly reasonable. The tenant merely giving notice probably does not end their obligation under the lease but practically speaking this comes down to economics.  

1.  How long will it take you to lease to a new tenant?

2.  How much will it cost to make ready and lease?

3.  How much are your actual damages? (in excess of the deposit)

3.  How much will it cost you to pursue these tenants for damages? (legal fees and your time)

These tenants are betting that you will quickly find a replacement tenant and the cost to lease will be less than the 2 months rent you offered to let them pay as a penalty taking into consideration the cost to collect from them even if the cost to lease exceeds the 2 months rent amount.  They are probably right. Get started locating a new tenant right away.  

Call Troy Corman at T2 Real Estate.  He lives in the area and is active in the market.  They are in high demand and not cheep.  

Ask your title company for a "run sheet" or some list of recorded documents related to the property.  It may take some time to decipher if you are not familiar with determining lien priority or identifying the types of recordings.  This will give you some idea of what liens are on a property without getting a full title commitment/binder.  Don't forget to look for IRS debt owed by the owner.  IRS liens are not always recorded in the deed records with other liens.

While the idea of extinguishing all liens on a property upon a tax sale and gaining title free and clear is exciting, the reality is that many of the properties posted for tax sale either (1) do not have any equity (they are not worth what is owed in taxes),  (2) they never actually get to auction because a lender pays the taxes to protect their position (usually failure to pay taxes is default under a deed of trust or mortgage) (3) bidders at the auction bid the property to a wholesale or retail amount thus eliminating the potential profit.  This is not to say that there are never bargains to be had, but practically speaking, if the lender does not want to protect their position, you must ask yourself why-why has the lender abandoned this collateral?  Be able to answer this question before you bid. You might discover that a lien-holder is dead, has moved and did not have notice of the sale, is in bankruptcy, or simply does not care.  If they are alive and well and received notice, pay attention.  Call them and ask what they are going to do and why. Further, there are often rights of redemption (different states = different rules and different property types- homestead/non-homestead = different rules).  Also, you may have difficulty insuring title on a property until the redemption period has expired.  Often the best bargains are negotiated before the auction and involve a discounted payoff of the existing liens.  All the rules are state specific and there is a wealth of information available on the subject.  Just examine the information critically.  It always sounds better on paper in theory that it actually is.  Also-Don't buy sight unseen judging value from the tax rolls or property condition from satellite photos or google street view.  I have seen many times where the improvement on property has burned to the ground between the time the property is posted and the auction, or barrels of who-knows-what have been stored/dumped/spilled on the property.