Lease Back To Seller In Minnesota?
You get a call and a seller needs you to purchase their home. But they love the house and have a great story. They want to do a lease option on the house so that they can stay.
If the house is in Minnesota you need to read this before you do it. I know that you will be fair with the people but thanks to some bad apples the state AG will not be on your side if the deal goes bad.
Equity StrippingAttorney General Hatch offers warning[ Edited by lacashman on Date 04/24/2004 ]
You might want to check out partial interest deals. Joe Kaiser has a course on it.
Tom
I have never been in a position where I have gave a seller the option to stay. I usually talk to them along the lines of SELLING.
That said I have heard from other investors that a good rule of thumb is to never allow the seller-t/b to have more than 20% equity in the property.
You should definatly consult your attorney as he/she is the only qualified individual to give you advise. GOOD LUCK
There have been some court decisions around the country to effect that a Purchase from owner, then letting owner stay, with option to repurchase for much higher price, was in reality, only a sham transaction trying to disguise a usurious loan, at an illegal interest rate.
Those court decisions ruled that those deals were invalid and the seller/lessor was NOT entitled to get his higher price from renter, and renter was able to get the house back.
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On 2004-04-25 13:57, tbelknap wrote:
You might want to check out partial interest deals. Joe Kaiser has a course on it.
Tom
Why? I would never allow a seller to become a tennat. If they can't pay the mortgage how will they pay me. Besides they will always think that THEY own the house. I posted this to show how stupid this idea is.
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You should definatly consult your attorney as he/she is the only qualified individual to give you advise. GOOD LUCK
I have no plans to ever get involved with one of these deals.
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Why? I would never allow a seller to become a tennat. If they can't pay the mortgage how will they pay me. Besides they will always think that THEY own the house. I posted this to show how stupid this idea is.
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I am sure that every person in foreclosure will never again be able to afford those payments.
The truth of the matter is that there are some people that have fallen on tough times but have been able to turn things around. Meaning they are able to make the payments because they may have found a new job. They may not be able to make up the back payments but they are able to make their current mortgage payments.
Seems like Joe Kaiser does this alot and makes plenty of profit from it. There is more risk but also more profit. Doing more due diligence does pay off like checking to see if they have turned things around.
Also, I never said to rent it back to them. I said to purchase a partial interest in the property.
I am sure you know better then Kaiser does. He has only been working foreclosures for 20 years.
If I remember correclty, the problem with Grant Holding is that the lied and cheated the people to give the property away. An example I read about was: "Sign here, this is for the lease..." ie: no disclosure, nothing. people that do things incorrectly, make it more challenging for all the people who do it correctly....
Just my 2 cents
tbelknap,
I know who Joe Kaiser is. He is a very sharp guy. The key to why I will not do a deal of this kind is in your post. I do not want more risk.
If I want to increase my ROI by increasing my risk I would put more cash in the stock market.
If you are willing to take the risk for the higher return I wish you well. The person who was mentioned at the link is a slime ball. But they have put the Minnesota court firmly in the other corner. That is not odds that I want to go up against.
I have two questions for you.
How will you know that the seller has turned things around?
How will you know that they had a real problem in the first place and were not just living large? Livin large is a hard habit to break.
:-( The Minnesota AG does appear to be doing the right thing.
We as investors need to put everything in writing, and be fair with anyone we deal with. If there is an opportunity to get the building with that much equity and you give the customer 60 days to go (v. only 30) and give them even a mere 6-10% of their equity, you are at bankruptcy courts' framework of fairness. There is no dishonesty and you hve a govt based model you follow. Mike Hatch will be less likely to go after you. Plus the people he is after have done this 95 times!
"I have two questions for you.
How will you know that the seller has turned things around? "
Same ways banks check to see if their applicant can perform.
"How will you know that they had a real problem in the first place and were not just living large? Livin large is a hard habit to break. "
I am not sure what you mean by living large.
I just keep hearing people regurgitate "If they can't pay the mortgage how will they pay me." I have been working the foreclosure market for quite awhile. In that time I have listened to many and I mean many problems. I hear how people have turned their situation around and I have heard people that have not. So when I see these types of statements regurgitated, like so many like to do on these forums, it cracks me up. It makes me wonder if these people have worked the foreclosure market at all or is just saying the same thing alot of others say.
I can't tell you the number of investors that do leasebacks. You have to know the laws when doing those.
I don't think these investors are stupid like you say. Maybe they just know something you don't.
One major way of reducing your risk is by treating people fair. The way you would like to be treated.
Good Luck
[ Edited by tbelknap on Date 04/26/2004 ][ Edited by tbelknap on Date 04/26/2004 ]
As a last option, I've done sale and leasebacks w/ exclusive option to repurchase... and have always been upfront with the involved parties. I explain that the SLB is a second chance, but that there will be no third chance.
I did my first one in 1979. I've NEVER had a SLB that resulted in the Seller/Tenant being able to exercise the option to repurchase.
But, they all ended up OK because we were straighforward, and realistic.
My Dad owned a used car lot he sold cars to people who could not get a loan from a bank so I have some exoperince dealing with people with very bad credit.
Most of my experince was repoing cars.
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On 2004-04-26 12:01, tbelknap wrote:
"I have two questions for you.
How will you know that the seller has turned things around? "
Same ways banks check to see if their applicant can perform.
The way that the bank does this is by pulling a credit report and calling to verifiy that they have a job making what they say. But you already know that they have screwed up credit so your reply does not show that you have shown the person has turned things around.
The advantage my dad had he knew most of his customers. And most had job loss ect that had messed up there credit. But were hard working people.
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"How will you know that they had a real problem in the first place and were not just living large? Livin large is a hard habit to break. "
I am not sure what you mean by living large.
Spending more money than they make. Driving a nice car, big screen TV ect.
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I just keep hearing people regurgitate "If they can't pay the mortgage how will they pay me." I have been working the foreclosure market for quite awhile. In that time I have listened to many and I mean many problems. I hear how people have turned their situation around and I have heard people that have not. So when I see these types of statements regurgitated, like so many like to do on these forums, it cracks me up. It makes me wonder if these people have worked the foreclosure market at all or is just saying the same thing alot of others say.
There is a reason why this question is asked. If your not asking it before you get into one of these deals then you have the blinders on.
After my Dad had been in the car business for a few years he was still amased that he would still hear new strories. Get used to it. If you belive most of them you will be broke in a very short time.
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I can't tell you the number of investors that do leasebacks. You have to know the laws when doing those.
I know one who did them at one time. He is no longer in the RE business. Now he has bad credit. He did not use a lawer.
I know a few that do them but they use a lawer for everything. Lots of discloures and other CYA.
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I don't think these investors are stupid like you say. Maybe they just know something you don't.
One thing that is for sure they are taking a lot more risk than me. If they understand that and have it priced into deal and they can handle no cash flow while the deal is tied up in the courts then no problem.
Can you handle no cash flow for several months?
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One major way of reducing your risk is by treating people fair. The way you would like to be treated.
My Dad treated all of his customers fair but he was still in court on a regular basis.
"The way that the bank does this is by pulling a credit report and calling to verifiy that they have a job making what they say. But you already know that they have screwed up credit so your reply does not show that you have shown the person has turned things around. "
This is not the only way. What about bank statements, check stubs etc.
Thanks for the great story about your dad.
There are ways to limit your risk, one being get paid going into the transaction. Another is a ton of cya letters.
I am just tired of hearing the same things regurgitate again and again.
Your right it is a stupid idea so everyone should not do it. They will never be able to make the payments.
It was great debating this with you lacashman but since we are pretty stuck in our ways I agree to disagree.
Take Care,
Tom
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This is not the only way. What about bank statements, check stubs etc.
That can work, but they can also be faked. One thing done by banks ect is to look the company up in the phone directory. Make sure the addresse and number match then call.
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Thanks for the great story about your dad.
Your welcome perhaps these experinces have made me way to jaded when it comes to a story.
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There are ways to limit your risk, one being get paid going into the transaction. Another is a ton of cya letters.
If someone goes this route they will need big time CYA.
Since these are pre-foreclosure deals I would be courious as to how you would get paid going in.
If I could get paid going in then the risk would be lowered to an aceptable level. If you can show me how to get paid on the front then I will change my opinion.
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I am just tired of hearing the same things regurgitate again and again.
I can relate to that.
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Your right it is a stupid idea so everyone should not do it. They will never be able to make the payments.
I can see where some will be very happy to stay in the home and will pay on time and all will end well.
But I also see that some will be happy to stay in the home then they will hire a lawyer and say that you were a shark out to steal there home.
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It was great debating this with you lacashman but since we are pretty stuck in our ways I agree to disagree.
We don't always have to agree. I find that I learn more when in serious debate. Nothing like haveing to defend your position to make you look it over very carefully. When you look carefully you may see something that you have not seen before.
Lacashman, you seem to be a nice guy and I did enjoyed the debate.
I wanted to say this so everyone can read it. I do expect things to go wrong. I believe the majority of them will go right but am not disillusioned.
I am about to sign one up and should make about 60k going in.
As for getting paid going in...
I can't let everyone know all of my secrets.
I am sure someone will write a course on it someday. LOL.
Take Care,
Tom
p.s. I will most definately be portrayed as a shark until the court sees my CYA docs. Some of them will be handwritten by the homeowners. That way they can't say they didn't see it when signing.