State Approved Real Estate Contracts – Scrutinize Every Detail

A rage that has been going on for some time is the purchase of Homeowners Association (HOA) liens at the foreclosure auction.  Up until the last five years HOAs seldom used the foreclosure process to collect back fees and assessments.   Because most units continued to pay these expenses the HOAs managed to make ends meet and simply sat out the consequences.

I was asked to be an expert witness and to appear before the presidents of a group of condo associations with almost 1,000 units.  Their attorneys asked me to relate to these presidents how to overcome the issue of homeowner defaults.  These defaults had become financially burdensome on the other unit owners.  What was happening was these homeowners were also in pre-foreclosure with their mortgage lender.  In most cases the homeowners had simply abandoned their property.

I have to say that there was a lot of squabbling between everyone at the conference.  The attorneys were especially trying to justify why they talked the presidents into foreclosing and taking title to the abandoned condos.   In the "good old days" condo HOAs often had a "right of first refusal" to purchase units that were being sold.   The concept was that for sales that were too low in price the HOA would purchase the property.  That was if they could find a buyer for a higher price.  This process worked in a rising market.  When the market declined it was a free-for-all.

Here is the rest of the story – unwitting investors bid at foreclosure auctions on HOA liens thinking the foreclosure action "extinguishes" the mortgage on the property.  This is true in tax deed sales.  However, in foreclosure sales the mortgage is a senior lien that remains in place.  So an unsuspecting buyer can win a condo, townhouse or villa at the foreclosure auction and get on title in the public record.  Most unfortunately though the mortgage holder will move to foreclose him out at some unknown time in the future.

In the past three or so years some savvy investors have been scarfing up HOA foreclosures.  The investors are then renting these properties out to unsuspecting tenants.  Eventually the party ends with the tenant getting notice he is being evicted and he has to move asap.  The newest strategy of these investors is to advertise the property for sale at ½ the price of a similar FMV unit.  Again, unknowing investors rush in.  In some cases it is disclosed that the mortgage foreclosure is pending, but not in all cases.  The tipoff is the seller will only transfer title using a Quitclaim Deed.  This type of deed transfers all the liability to the new investor buyer.

But here is why I wrote this article – a Student sent me a contract that looks "out of the ordinary" compared to a normal Board of Realtor's® Contract.  It appeared that the font was slightly different.  As I reviewed it, the Student was correct.  The listing agent had taken a PDF Editor program and carefully edited certain clauses that were very onerous to the buyer.  These contract changes were so onerous that the buyer would have no recourse for non-disclosure of material defects of the property (specifically the chain of title defects that were present).

It's not a criminal matter to make alterations to a contract.  These are done all the time between buyers and sellers by striking through and then writing in new parameters that both parties initial.  But I am very uncomfortable with agents or investors taking the giant step of editing a contract that was approved by the state BAR and Board of Realtors®.  These changes include subtracting and then adding language that is very onerous to either a buyer or seller.

In summary, unfortunately the editing will possibly hold up in court as it is in black and white.  This brings me back to having an attorney shadow your closings or make certain you read whatever you sign.  By the way, if a buyer or seller explains to you what a clause means and it's not very clear in the contract, expect the unexpected.  That may mean a grievous financial loss.  Make no assumptions.change your life mentoring click button j 300x236 1

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.

State Approved Real Estate Contracts – Scrutinize Every Detail

A rage that has been going on for some time is the purchase of Homeowners Association (HOA) liens at the foreclosure auction.  Up until the last five years HOAs seldom used the foreclosure process to collect back fees and assessments.   Because most units continued to pay these expenses the HOAs managed to make ends meet and simply sat out the consequences.

I was asked to be an expert witness and to appear before the presidents of a group of condo associations with almost 1,000 units.  Their attorneys asked me to relate to these presidents how to overcome the issue of homeowner defaults.  These defaults had become financially burdensome on the other unit owners.  What was happening was these homeowners were also in pre-foreclosure with their mortgage lender.  In most cases the homeowners had simply abandoned their property.

I have to say that there was a lot of squabbling between everyone at the conference.  The attorneys were especially trying to justify why they talked the presidents into foreclosing and taking title to the abandoned condos.   In the "good old days" condo HOAs often had a "right of first refusal" to purchase units that were being sold.   The concept was that for sales that were too low in price the HOA would purchase the property.  That was if they could find a buyer for a higher price.  This process worked in a rising market.  When the market declined it was a free-for-all.

Here is the rest of the story – unwitting investors bid at foreclosure auctions on HOA liens thinking the foreclosure action "extinguishes" the mortgage on the property.  This is true in tax deed sales.  However, in foreclosure sales the mortgage is a senior lien that remains in place.  So an unsuspecting buyer can win a condo, townhouse or villa at the foreclosure auction and get on title in the public record.  Most unfortunately though the mortgage holder will move to foreclose him out at some unknown time in the future.

In the past three or so years some savvy investors have been scarfing up HOA foreclosures.  The investors are then renting these properties out to unsuspecting tenants.  Eventually the party ends with the tenant getting notice he is being evicted and he has to move asap.  The newest strategy of these investors is to advertise the property for sale at ½ the price of a similar FMV unit.  Again, unknowing investors rush in.  In some cases it is disclosed that the mortgage foreclosure is pending, but not in all cases.  The tipoff is the seller will only transfer title using a Quitclaim Deed.  This type of deed transfers all the liability to the new investor buyer.

But here is why I wrote this article – a Student sent me a contract that looks "out of the ordinary" compared to a normal Board of Realtor's® Contract.  It appeared that the font was slightly different.  As I reviewed it, the Student was correct.  The listing agent had taken a PDF Editor program and carefully edited certain clauses that were very onerous to the buyer.  These contract changes were so onerous that the buyer would have no recourse for non-disclosure of material defects of the property (specifically the chain of title defects that were present).

It's not a criminal matter to make alterations to a contract.  These are done all the time between buyers and sellers by striking through and then writing in new parameters that both parties initial.  But I am very uncomfortable with agents or investors taking the giant step of editing a contract that was approved by the state BAR and Board of Realtors®.  These changes include subtracting and then adding language that is very onerous to either a buyer or seller.

In summary, unfortunately the editing will possibly hold up in court as it is in black and white.  This brings me back to having an attorney shadow your closings or make certain you read whatever you sign.  By the way, if a buyer or seller explains to you what a clause means and it's not very clear in the contract, expect the unexpected.  That may mean a grievous financial loss.  Make no assumptions.change your life mentoring click button j 300x236 1

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

Frequently Asked Questions

1. What Should I Do If a Seller Ghosts Me?

If you feel you have been ghosted, act decisively and quickly. If you have tried texting and calling, it's time to drive by the seller's location. I always take the recorded Notice of Interest or Memorandum of Contract to leave, so the seller knows it exists. Go by at a time when you know they will be there and don't be confrontational, just get the facts.

In our experience with new investors, the chances of losing a deal with no contract is likely over 85%. Verbal commitments do not apply in contract law; get everything in writing, especially contract changes.

Different 'gurus' have different opinions, but our experience is finding motivated sellers and then a buyer for your deal. Ideally, you should be finding motivated buyers from day one, so you are ready when you find a seller. Buyers are easier to find as you can see at https://davedinkel.com/products/

Prevention only comes about by thinking a Black Hat wholesaler will be coming after your deal. First, educate the seller that an unscrupulous investor may come by and illegally offer more money, have the seller sign your "Notice to Homeowner," stating that he understands he cannot accept another offer.

There is nothing illegal about changing their mind, it is called seller remorse and occurs about 25% of the time. However, if they have signed your contract, it can't be cancelled for any reason unless acceptable to the investor/buyer.

If price is an objection, you need to find out how important it is to sell fast and for cash. If the seller isn't under a time constraint, has a money issue, or has a personal dilemma, he may not agree to the price you need. Offer to help move and build it into your price before you make your offer. However, never give the seller money; only pay the moving company, and only after closing (escrow with a closing agent). If fear is the seller's issue, break it down into what the real problem is and answer their objections one at a time.

You can get to the root of motivation for a seller by asking a few questions. First, "Why are you selling?", "How soon can you close?", and Are you ready to sign an AGREEMENT today, if not, what do I have to do to make you comfortable?'. The answers to these questions will determine the truth about your seller's motivations.

The best times to involve your attorney in your deals are to have him review your contracting, review the signed contracts from the seller and end buyer, have him open escrow and start the title work, negotiate with city or counties for lien reductions or mortgage payoffs with lenders, and to close the transactions." Your attorney is not the adversary; it's the opposing party's attorney who is a deal killer, and having your attorney allows him to help overcome this obstacle.

The key to successful prospecting and bringing back deals that didn't close is to follow up until the property is transferred in the public record. Some of our deals have been where the seller came back to us months and years later because they felt comfortable with us and not the other "pushy" investors who contacted them.

Your contract's most important clauses are inspection period (as long as possible), when the EMD must be deposited if at all, your ability to access the property, any added clauses specific to the property that will protect you against seller claims later that were verbal only.

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.