For those of you who are Real Estate Agents or Loan Brokers interested in diving into our incredibly lucrative and gratifying work of pre-foreclosure investing, I know you have a few questions on your mind. There are many questions that come to me daily from my Licensee clients. So let’s cover your most common concerns, so you can get going in your foreclosure investing business now!
“Can I become a foreclosure investor without conflicting with my local real estate laws or department of real estate code of ethics?â€
Answer: YES, BUT…
When you hold a Real Estate License (Agent or Broker) you will now have double the laws to abide by. Not only must you conform to your States Foreclosure Laws (Click here to find yours) but you must also conform to your State’s Depart of Real Estate rules, regulations and codes of ethics. To find out what your Department of Real Estate Rules and Regulations are, just search your State Government’s website. (ei. California’s Department of Real Estate website is http://www.dre.ca.gov/)
Plus to keep up to date, you’ll need to review any pending legislation or new civil codes passed in your state. A good place to find out what’s happening is in our Legal Corner columns HERE
“When I buy a foreclosure for my own investment and act as a Principal (no commissions were paid) do I have to include my Broker in the transaction?â€
Answer: MAYBE… I am sure when you were hired as an Agent; your Broker had you sign an independent contractor agreement. In that agreement is where you will find what you can and cannot do, relating to personal investments. Some Brokers allow you to buy for your own account and not collect a commission, and not owe them a commission. Other Brokers require you to pay them whether it’s for your own account or not. So if you are not sure, review your agreement with your Brokers and then talk to them! Your Broker has the answer to this question.
“What contract do I use when buying a home in foreclosure for my own account?â€
Answer: DEPARTMENT OF REAL ESTATE, BUT… Make sure you use the right forms! I know in California, our Civil Code 1695 regulates exactly what our contracts to owners in default must say and how it must be printed (down to the font size)! When you are a non-licensee, as explained in my May 2000 article “Which Contracts to Use When†you would use our Equity Purchase and Notice of Cancellation Forms (2 pages) as provided in your Six Steps to Mastering Foreclosures homestudy course.
But when you are a California licensee, you must use the the California Association of Real Estate’s Equity Purchase Agreement (11 pages) and Civil Code 1695 Disclosures (2 pages). (Which would you guess the owner would rather use – the 2 page contract or the 13 page contract?)
“If the best Option for an Owner in Default is to list their home with an Agent now should I take the listing, or refer it to another Agent?â€
Answer: REFER IT OUT. You should NEVER collect a fee in any way when you are offering to help owners in foreclosure. If you’re not sure why, read about California’s Foreclosure Consultant Law HERE
Next – do some soul searching. What do you want to be? Which hat do you want to wear? A person who lists and sells houses in default for a commission OR a person who buys houses from owners in default? Then pick your hat. Whatever you choose, you stick to that hat and refer out all the remaining real estate related business. Because if you try to list and then buy the house if you’re listing doesn’t sell, here is how it will look:
- You took the listing and priced it high, knowing it wouldn’t sell.
- Now you came in to buy the house for significantly less than your offer price at the end (you planned the whole thing from the beginning).
- He accepts your offer then has second thoughts about your character and original intent. What were your motives? How can you prove them? How would you feel if you were in his shoes?
Probably awful – so don’t do it! And that goes the same for referring your deals to family, where it is obvious you are trying to hide that you are lining your own pockets. Stay away from all conflict of interest issues and you will have a very clean, happy buying business. Do not fret about the 6% commissions you didn’t make… when you are making 15% profits you will be thankful for choosing the right hat!
“If the best Option for an Owner in Default was to get a new loan, should I broker the loan myself or refer the opportunity to another Loan Broker?â€
Answer: REFER IT OUT. Same as above – stay away from all conflict of interest issues. Let your friendly loan broker make the 1% on the loan, so the owners can keep their houses. Down the road if they get in trouble again, you will be the one they call for help. You will always be the good guy who referred them the lender who helped them keep their house. You have positioned yourself as their source for help and they will come back to you again and again. You must look to the future, as your business will grow with more and more referrals over time. Patience is king!
“If I refer deals to another Agent or Loan Broker, should I collect a Referral fee?â€
Answer: NO. I hope you get it now.
“Do I need a Real Estate License to Buy Foreclosures?â€
Answer: NO AND… make sure you read this month’s Legal Corner article “Do You Need a License to Flip Real Estate?†to get up to speed on current real estate licensing issues. Don’t pay attention to the agents out there that think having a license gives them an edge to their foreclosure investing. Most have been trained to buy at market value and bank on future appreciation. They have a lot to learn about the foreclosure investing business, and they will not learn it in their DRE Continuing Education courses.
Now, you have the rest of the story…
Until next month, Happy Investing!
The foregoing has been prepared for informational purposes only and does not constitute legal advice.
The information is summary in nature and does not address any particular situation.
Readers should not act upon this information but should instead seek professional legal advice.
