Legal Matters

This area is designed to inform you on interesting news within the Subject to, or Creative Real estate world. If you have news you would like to share, please send in your info and we will review it. If it is something everyone should be made aware of we will place it here.

TEXAS

Sub2:
There is a new state law that will go into effect January 2008. It basically states that you can only do a Sub2 if you get title insurance. This is really not an issue since you should be able to find a title company willing to do so any way. Here is the bill for your reading pleasure >

Lease Option:
Here is an insert of an article from one of my mentors, Bill Broncheck about Bill 629 that came into law in 2006. Bill is an attorney from Colorado and is my source for info on breaking down the legal jargon.

This bill is an amendment to an earlier law passed in 2001 that regulated installment land contracts. The current law calls these "executory contracts" and requires certain disclosures, most of which are not big deal. However, the penalties for non-compliance are SUBSTANTIAL and bear no relationship to the supposed harm the consumers would bear if the disclosures are not followed. It's basically a windfall for buyers who find a good lawyer to hammer a technicality that most investors are not aware of.

SB 629 takes it up a notch classifying lease/options as "executory contracts", the same as land contracts. This is DEADLY for investors who want to keep the tax benefits ownership when selling on lease/option and taking advantage of capital gains rates. If Texas calls a lease/option an executory contract, it makes it a SALE, thus having a negative tax impact on the seller who may want to defer his gains through a 1031 exchange when the tenant exercises his option to purchase.

And, we're just getting started...

The bill further disallows an investor from selling a property by lease/option OR land contract if the seller has an underlying loan on the property without that lender's written permission. Since few, if any, investors have free and clear properties, this would effective ELIMINATE the process of buying a property, financing it, then reselling on a lease/option or land contract.

This is BAD because it hurts not just investors but ANYONE who has a house that they want to move. Builders often sell properties on a "rent-to-own" basis, and now will be prohibited from doing so if there is underlying financing on the property. What if you do a fix-and-flip, but are unable to resell the property for cash? Maybe the lease/option would be the solution so you can cover your mortgage payments while still getting a sale... It won't be possible in Texas if this bill passes.

And, it gets WORSE!

SB 629 states that you cannot sell a property under an executory contract unless you have title to the property. That means you cannot do a sandwich lease/option in Texas - PERIOD.

The bill also has a bunch of disclosures and regulations on lease/options, none of which are objectionable.

check out more articles from Bill at: http://www.legalwiz.com/Public/FreeArticles/index.cfm

CALIFORINA

Foreclosure:
Code 1695- Is basically a cooling off law. It gives the person in foreclosure a five day period where they can cancel the contract with the buyer. It is best to come to an agreement on the purchase, have them sign the Notice for California Law document and then not bother them for the five days. For the entire law click here >

This law, or a hybrid of it, is becoming more popular in other states like CO, IL and ML.One of the most important things to remember is that you are not a "Foreclosure Expert" or "Consultant". You are a Real Estate Investor. If you think claiming to be an expert or and consultant is going to help make your potential client "feel" like you have more authority than you do, just so you can get the deal, it will only bite you in the end. That type of attitude is exactly why these laws get passed. Because investors, in an effort to get the deal, try to come off as more than they are and claim things that they shouldn't.

NORTH CAROLINA

North Carolina has been attempting to "outlaw" subject to deals for a while now. Luckily none have passed. Here is a look at the, as yet, un approved bill. Click here to read the bill >