Real Estate Investing Tactics

Yesterday, I was on the phone with a private investor. They are one of several who were tentatively interested in a fund we were putting together for 2010. Then things changed and we decided to put the fund on hold. But, I stay in touch with those who showed interest, because we will put the fund together, eventually.

We were talking about several deals they were looking at and one of them looked really promising. They were sharing how the discussion had gone back and forth with the property buyer this private investor had contacted. Initially, the buyer wanted the investor to send a check for the full amount of the expected loan to them and "the lawyer types will work out the paper work." Fortunately, the private investor said they would feel much better sending, even wiring, the money to the closing attorney would be drawing up all of the paper work. The buyer put the investor in contact with the "person handling the closing". Then all sorts of warning bells went off.

The investor asked the typical time it took to get the documents recorded and originals to the investor. The "lawyer" said the recording would take a couple of days but, the original documents would be kept in their office for safe keeping but copies would be sent to the investor should they need to enforce their rights.

THAT is a problem.

See, without original documents, with original signatures, you can't enforce your rights. Courts frown on "copies" unless they are certified. For example, a certified copy of the mortgage documents from the public records in the court house might be acceptable to the court if the originals were lost and reasonable effort had been expended to find them. The county clerk would certify the copies to be an accurate representation of what is recorded in the public record.

It is also very common for the scam artists to provide "copies" to multiple investors who all think they are making a first position loan. Without the originals, they often all find out they all loaned on the same house long after the scam artist has disappeared with their money.

I reminded this investor be very careful. Get copies of the documents to be signed at closing BEFORE closing and BEFORE transmitting the money. REQUIRE the return address for use by the county clerk after recording the note and mortgage is the INVESTORs address, not the attorney's and certainly not the buyer. REQUIRE all funds be held in the escrow account until the documents have been recorded and the investor has the originals, with OBVIOUS original signatures of the borrowers and notary in hand.

I suggested they might also want to make sure the lawyer is in good standing and doesn't have a history of "problems" in this area.

This morning, I got an email...

"Deal's off. The lawyer is really a paralegal. They balked at sending me docs before closing and said the law required them to hold the originals. I am contacting the bar to file a complaint and get this shut down.

"Thank you for keeping me from making a $500,000 plus dollar mistake!"

"By the way, please get your fund going!"

Not a problem, happy to help.