The
Division of Real Estate is seeing an uptick in cases involving two types of
cases involving long-term home ownership: Wholesaling/Assigning Transactions
and Distressed Rescue Transactions.
Wholesaling/Assigning Transactions
Investors
and real estate brokers are targeting people with home ownership of over 20
years. This targeting translates to people over the age of 50 who are close to
paying down their mortgage and holding equity in their property. The investor
will offer the following:
- Cash transaction;
- A quick sale closing with no
inspection; and
- You can leave behind any items
you don’t want.
The
problems begin when the homeowner is elderly, alone, and doesn’t know the true
market value of their property:
- They may have purchased their
property over 20 years ago for $50,000, $100,000, or maybe $200,000.
- That same property now could
have a market value of $300,000, $400,000 or even $500,000.
- The idea that they purchased
the property 20 years ago for $120,000 and are now being offered $220,000
sounds appealing to these homeowners – their mortgage might be paid off
and they will make $100,000 – sounds good right?
- They don’t realize that an
investor or real estate broker who knows the true market value of the
property may be taking advantage of them by actively misleading the
homeowner as to the true market value.
The
problems arise when the investor or real estate broker:
- Drives down the property value
in the seller’s mind by showing them comparable properties that aren’t
really comparable.
- Talks to the homeowner about
all of the deferred maintenance that the property needs (which may or may
not be true).
- Allows the homeowner to leave
items behind (What is that “convenience” worth - the costs of renting a
dumpster, hiring two-three workers for a day to unload your house? Is it
worth a homeowner giving up $20,000 - $50,000 - $100,000 – or more of
their equity?)
- Fails to tell the homeowner
that they are actively marketing the property for market value and that
the investor or real estate broker plans to assign their rights in their
contract with the homeowner to another investor/buyer.
- Fails to tell the homeowner
that they intend to make a profit by accomplishing an assignment of the
contract.
- Fails to tell the homeowner
when the contract is assigned to a different investor/buyer.
Investigated Case Example
Below is an
example of a case that we investigated where the broker involved in the deal
was referred criminally and her real estate license was revoked.
The victim
had the misfortune of being on her front porch when an “investor” and his real
estate partner approached her and told her they used to live in the
neighborhood and wanted to move back.
They
figured out her weaknesses and used them against her.
- After “working” on her for a
few days, the investor and real estate agent had a meeting with her that
lasted hours. At the end of the meeting they had talked her into a
purchase price of $200,000 for a property she didn’t even plan on selling.
- At the same time, they had
already assigned the contract to a second investor for $300,000 – with the
agreement that the second investor would pay a $100,000 assignment fee to
the original investor and real estate broker.
- The second investor sold the
property to a third investor for $360,000 two weeks after the closing.
- Finally, the third investor
held the property for eight months and sold it for $520,000.
That wouldn’t
happen to any of us right? Think again. This type of thing can happen to
anyone – young, old, rich, poor, no education, or highly educated. The
reason it works is because people who perpetrate fraud are good at what they do
– separating you from your
money.
- Unfortunately, some of our
victims became victims because they responded to an unsolicited mailer,
phone call, or knock on the door. Once the “investor” makes contact
with someone, they start “working” on them. They are professionals at getting
close and gaining trust.
- They are charming and know how
to obtain information about you that will help in their dealings with
you. In just a few short conversations they will find out private
information about you and then use it against you.
Things to Keep In Mind
- Be wary if someone approaches
you about something you weren’t even thinking about doing.
- If you want to sell your
property, you should contact someone you have been referred to by family,
friends, or do research on real estate brokers working in your neighborhood.
- Go to our website and see if
the person has a real estate license and if they have any disciplinary
history – dora.colorado.gov/dre
- Go to the City and County of
Denver website to check on neighborhood sales – denvergov.org
- Click Search Property
Information, then enter your address and click Search. In the Results
link click on your address where there are various tabs and click on Neighborhood
Sales.
- If you have a hard time with
technology, you can always ask friends or family members to help you
navigate the web to do some research about property values in your area.
If you do
find yourself entertaining an offer from an unsolicited investor:
- Ask to obtain, and keep, a list
of the comparable property sales in your neighborhood the investor used to
come up with their purchase price offer.
- Always keep someone else in the
loop – your children, good friends, or someone you trust.
- Always know that you can seek
legal advice – in the end, it might be worth the money you spend on a
consultation with an attorney.
- Review the contract closely to
see if it is assignable. Inquire into why it is assignable, for
instance: to whom it is assigned and why, and how much the new buyer is
paying the original buyer - AKA – an assignment fee.
- Do not sign an assignable
contract until you have had the opportunity to investigate the true value
of your property and the legal implications with an attorney.
- Take responsibility for being
informed about the value of your property and the contracts that you
are considering signing.
Distressed Rescue
Transactions
Investors
and real estate brokers are approaching distressed homeowners (those behind in
their payments, facing foreclosure, or experiencing a medical issue). They
offer the homeowner an “out” by agreeing to make the mortgage payments for
them.
Problems
arise when the investor does not explain how this will be accomplished. The
unscrupulous investor will:
- Have the homeowner sign a Quit
Claim Deed in which the homeowner signs over their ownership in the
property.
- Fail to explain to the
homeowner that they, the homeowner, are still responsible for the
mortgage.
- Fail to warn the homeowner that
they could be violating their “due on sale clause” with their lender.
The
homeowner is usually elderly or part of an at-risk population (English isn’t
their first language, disability of some kind, etc.).
The
Division advises the following when it comes to these types of rescue
transactions:
- Don’t sign any documents or a
deed to anyone until you have had a chance to talk with your lender and an
attorney about your mortgage obligations and your legal rights.
- Colorado has a Foreclosure
Protection Act that affords you certain rights when you are financially
distressed.
- It’s best to take proactive
steps when you first start having financial problems, and here are some
resources that you can contact:
- Colorado Housing Connects –
1-844-926-6632
- Colorado Foreclosure Hotline –
1-877-601-HOPE (4673)
- Colorado Bar Association
“Find-a-Lawyer” – 303-860-1115
- Colorado Legal Services –
303-837-1313
Disability Law Colorado (Formerly The Legal
Center for People with Disabilities and Older People) – 303-722-0720
