The more banks, Realtors, and other industry professionals I speak to about “Mortgage Assignments or Subject to Fincancing”, the more common phase I hear is ” Foreclosure Rescue SCAM” . The reason they are saying this is because these types of transactions are PREDATORY in nature. The distressed homeowner is being presented a miracle solution with huge promises that cannot possibly be kept.
Many info marketers and their brainwashed “flock” say Mortgage Assignments / Subject to Financing is legal. I have some news for you…. That its not true. These info marketers keep saying to me “show me where the statute is that says Subject 2 investing is illegal”
Technically in many states you cannot show them a statute directly. The fact remains that many attorneys are now coming forward saying the Mortgage Assignment / Subject to Financing investing strategy is VERY problematic. Some attorneys have said (off the record) that if you only do one or two of these types of transactions and IF nothing goes wrong... you could probably stay under the radar. The attorneys did however STRESS that if you do this technique it should only be considered as a very short term strategy for three to four months. That is the only way they see that you won’t get caught!
The big issue everyone is worried about is:
What happens and who is responsible when the “new” buyer stops paying on the mortgage?
History has shown that 80% of sub-prime mortgages have gone sour. What makes the investor think the Mortgage Assignment Mortgage Assignment / Subject to Financing transaction wont go bad? If you have been in the real estate investing industry long enough, you already know that 70% of Lease /Options transactions in comparison also go bad or never cashed out!
Who is responsible when a mortgage assignment Mortgage Assignment / Subject to Financing goes bad?
Answer: It is the person who put the transaction together!!! It does not matter one iota if you have a CYA (Cover Your Ass) letter at all! The fact that the seller was offered a PREDATORY solution and probably was in duress at the time, they would probably sign anything.
I know you have been told by these guru’s that a CYA letter and perhaps along with some other fluff documentation is all you need. However in a standard real estate transaction there is no such requirement. This then becomes not only a complex transaction but now enters into the realm of a “scheme”. Don’t believe me yet? Send the bank the CYA letter and ask them to send you a confirmation on the terms of the CYA letter! They will NOT do it!
Lets move on to when the transaction breaks down. Let’s imagine you end up going to court and you have both ” Mr. Now Unhappy Seller” and “Mr. Now In Default Buyer” (who paid you 10K to get in the underwater property) in the same room.
You show up in the courtroom and you say to your attorney… No problem. I have my CYA letter with me, I have nothing to worry about..
Well the attorney is not going to let you present it !!! Knowledgeable real estate attorneys are saying that the actual CYA letter itself SHOWS INTENT to DEFRAUD! Not one attorney I spoke to would want this letter to appear into evidence as it is incriminating.
I would like to share with you part of a transcript in a court case where Subject 2 Fraud was on trial. Here is how it went (sic):
The Prosecutor asks on the witness stand:
Sir, am I correct in saying that you own the home, but you are not responsible for paying the mortgage?
You: Yes Sir, I have a “Cover your Asset” letter signed by the seller, stating that I do not have to pay or do I have any liability or responsibility to make payments
Prosecutor says to jury:
Do any of you own your home and don’t have to pay your mortgage payment? How about a car or credit card?
Everyone on the jury shakes heads their heads NO.
Prosecutor looks around to all of them and says: So how could this be? Do you see that this is a complicated scheme that is not standard in any real estate transaction?
At this point..
Case is pretty much won for the Prosecutor and rests.
Defendant gets convicted of Mail Fraud on multiple counts. Why? Every rent check RECEIVED is considered MAIL fraud since they came in the mail (even though they were deposited and paid to the bank) The defendant got 16 months in jail.
Here are two news stories you need to know about ..
The first one is regard to the a famous guru, “William Tingle” and who is the author of “Subject 2 Magic”
Bibb County Court Records Synopsis:
If you look at the divorce papers filed by Melinda Tingle (ex spouse) they are full of info. It appears that there are payments that had been made on houses that have been never applied to the debts, which is of course once again opens a legal nightmare. His ex-wife (Melinda) house is now in Foreclosure.
This proves that transactions can go bad even when the guru investor does a deal. What makes one think a new investor can do better having no experience and no cash reserves ?
NEXT EXAMPLE: Augusta GA.
This story below broke was in the Augusta Chronicle and has since had follow-up stories.
Regina Preetorius, and her mother Marie Champagne, who had already been convicted of mail fraud in the past and recently tried to pull this same private lender Ponzi scam in Atlanta:
Regina Preetorius, was a “sub to/lease-option” investor ( who ended up losing over 40 house to foreclosure and about $3.7 mil of private lender money). She lived in a $567K house and was using the private lender money for her own payments instead of the houses. She was basically selling security deeds.
Sue Reimer ( the attorney ) , got implicated in the story. Reimer Law firm was checked out and was found to be clean but Regina’s stench really hurt their business. The Reimers are good people and good attorneys but they deal with scumbags like Regina Preetorius (who has since moved away to New Mexico and is a Realtor there) and Justin Anderson who, ironically, ripped off a good friend of Karen Hanover’s!!!!
This is actually quite funny since Karen called out Justin by name as she told the story of how he ripped off a friend named Alicia in a failed condo conversion project. Karen called out Justin’s name in front of about 800 people at the event she did with DC Fawcett in Dallas and told everyone how he destroyed Alicia’s retirement.
That’s it for today! Next week I am going to bring you some audio interviews with people who went to jail for mail fraud in regards to both Subject 2 investing strategies.