There is no way around it, if you are a real estate investor you will get sued. Real estate investors are often vilified as sharks and bottom feeders that prey on the misfortunes of the little old lady who didn’t know what was going on. Yes there are bad apples in every industry but it doesn’t mean that the whole orchard is poisoned. If anything, it is real estate investors who increase value of neighborhood properties by taking homes nobody wants, fixing them up, and substantially increasing their value. Yet special interest groups and “do-gooders” don’t see it that way, instead they focus on the profit real estate investors make rather then the good we do. If you are a real estate investor there are three things certain in life, death, taxes, and getting sued.
After buying and selling over 500 properties in a 5 year span, there is something that I see time and time again. When you save a distressed homeowner, you are their hero at the closing, but quickly turn into the bad guy as soon as that first person comes along and tells them they got taken advantage of, even if it isn’t true. Investors are then shaken down by free legal service that, of course, believes every word that this distressed homeowner is saying. I have learned that these distressed homeowners will say anything and everything to keep their home, even if it means lying. If you tell a lie for long enough, you come to believe it yourself, which is exactly what happens to distressed homeowners after years of litigation.
First, when you get sued, you want to fight on the principle that you are right and they are lying, even though you will quickly realize that the legal system is not about right or wrong, but how much your lawyer will take from you. While you are fighting this, the distressed homeowner will be enjoying free rent, free legal service, and free press, and you are left with nothing but a big legal bill. Let’s be honest here, even if you win (like I have), you lose. The system is unfair, but I have now accepted it as part of doing business. As a result, I would like to offer you some wise words of wisdom.
1) Never keep the distressed homeowners in their home via a land contract or lease option: Many states have passed draconian laws that actually outlaw or restrict how much money you can make even you do a lease option with a homeowner in foreclosure. Not only do these laws end up hurting the people they intend to protect, they are also unconstitutional and in violation of the freedom of contract contained in the 14th amendment. The problem is that most real estate investors are lone wolves and unlike Realtors who have a mega-lobbying machine, no one is willing to undertake the massive cash needed for lobbying, or willing to sue all the way to the Supreme Court.
2) Video tape the last 10 minutes of your closing: I am probably one of the only ones in the country who videotapes the last part of his real estate closings. You can have all the disclosures in the world saying what the transaction is, but in court, the distressed homeowner will complain he never read it or didn’t understand it. A picture is worth a thousand words and there is no bigger deterrent then telling opposing counsel that you have a video of how great you were and how they understood the entire transaction knowing exactly what was going on the entire time.
3) Get written and/or video testimonials: Often times during the closing there is a lot of waiting around for things to get done. I have used this opportunity to have the distressed homeowner write me a handwritten testimonial and/or get a flip video testimonial. These don’t only work as legal insurance against the possibility of getting sued; they also prove to be great testimonials for other homeowners and your marketing material.
4) Disclosure, Disclosure, Disclosure: When in doubt, disclosure. When it comes to real estate there is no gray area, just black or white. Sometimes the best deals you do are the ones you don’t do, so if your gut tells you it’s not right, trust it. More often than not you will be right.
5) If they are over 60 years old and in distress, walk away: Now, it may seem harsh, but even when you do everything by the book legally and ethically, no judge in the world will ever favor against a 60 year old woman when her house is the last thing keeping her alive. Attorneys end up working pro-bono, and you are instantly vilified and easily accused of taking advantage of them. Family members often step in (who were never around during times of hardship) and claim, “You shouldn’t have done this!” They cry fraud and you are the bad guy. So if you get a phone call from someone that is 60 years old and over in distress give them your competitions phone number.
Don’t let this scare you, in fact, it took me years to figure this out and I wish I had this kind of information handy. Real estate investing is still the best way to make a tremendous amount of money starting from scratch. Remember, a Wiseman learns from his mistakes, while a genius learns from other people’s mistakes. Incorporate these things in your business and you will be 97% ahead of your competition. Success is not a matter of chance, but a matter of choice, now go out there and make it happen playing the best game in the world…real estate.