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This Investor Would Go to Jail… | By: Multiple Speaker(s)

This Investor Would Go to Jail…
By Vena Jones-Cox

As you may be aware, unless you’ve been living under a rock somewhere, real estate entrepreneurs often come under fire for their bad behavior when dealing with buyers, sellers, tenants, and lenders.

Some deserve it: slumlords, people who defraud banks, wholesalers who take advantage of new investors, and other bad guys are the bane of our existence. Not only do they give the rest of us a generally bad reputation to overcome, but they also cause regulators and legislators to sit up and take notice—usually resulting in ham-handed, over-reaching laws that make it increasingly difficult for the rest of us to do business.

But every once in awhile, you hear about a situation that truly rocks you back on your heels and makes you wonder where the regulators are when you need them.

Here’s a perfect, and real-life example:

There’s a couple who bought a house in a nice, bread and butter neighborhood. They’ve got credit problems: the wife has fought a 5+ year battle with a chronic health problem; the husband has been out of work off and on since the recession began. They’ve fallen behind a few times, but they’ve always managed to scrape together the payments, including the late fees, and get caught up.

However, there’s a buyer who’s been actively buying up houses in this couple’s neighborhood. This buyer sent the couple a letter offering to buy their house, and the home owners called to see what this buyer was willing to do.

The buyer made an appointment with the couple, showed up, and spent more than 2 hours in this couple’s house using the most aggressive, heavy-handed negotiation technique I’ve ever heard of. The buyer told the couple the following:

That the buyer would pay $95,000 for the home. The couple paid $113,000 2 years ago, and still owes $105,000 (the down payment was made via the first time homebuyer tax credit). Now don’t get me wrong: I have no problem with a buyer offering a seller less than they paid for their home, or even less than what they owe. But in this case, the seller made it absolutely clear, early on, that they absolutely cannot sell at this price. Not only are they not motivated to move, but they don’t have the $10,000 they’d need to bring to closing to pay off their loan balance, nor the $8,000 they’d then owe the IRS to pay back the first time homebuyer tax credit that they used to make the down payment. Still, I see absolutely there’s nothing wrong with the buyer making the offer. What I see wrong is that the buyer then spent an additional 90 minutes apparently haranguing the owners to accept the offer, saying:
That the couple should take the buyer’s offer, right now, because they had overpaid for their home to begin with (this, despite the fact that the buyer had JUST paid $115,000 for the identical property next door) and that they would never, ever get a better offer because:
The buyer intended to tear down the properties on either side of the seller’s home, which would devalue their home and make it impossible to sell for even the $95,000 they were being offered that day
That the seller’s lender could, and in fact probably would, simply take the property away from the seller next time the seller became late in his payments, and that the lender would then sell the property to this buyer at the asking price
That seller would NOT need to repay the first time homebuyer tax credit—absolutely incorrect, and tax advice that the buyer had no business giving
Are you sick to your stomach yet? Because there’s more.

The seller finally made it clear to the buyer that they were neither willing nor able to sign a purchase and sale agreement for $95,000, and the buyer left.

But a week later, the homeowners looked out their window to find people wandering around their home taking pictures and notes. These people identified themselves as a demolition crew, hired by the buyer, who were there to figure out how to tear down the seller’s house, because it was on their demolition list. After standing in their own yard arguing with this crew about whether or not their house should be torn down, the owners finally convinced them to leave.

Now, seriously, what would you think of a colleague who used this sort of high-pressure scare tactic to acquire a property? What do you think the media would have to say about this? What do you imagine the local authorites would do?

Any investor who behaved this way would be subject to lawsuits, prosecution, and, in a more perfect world, public flogging. But here’s the kicker: the buyer who acted this way toward a homeowner wasn’t an investor: it WAS the local authorities.

This all happened in the past month to a couple to whome *I* sold this home, on land contract, 2 years ago.

The “buyer” is the local sewer district, who wants to buy the house because the sewers in the area aren’t adequate to control the stormwater sewers in the area, and they flood the basement of this and adjoining homes every 2-3 years.

The sewer district—which is administered by the county government—has purchased every property in the area except this one, and apparently at prices ranging from $14,000 to $20,000 MORE than they’ve offered my buyers.

So why is this couple, at least as evidenced by the story they’re telling, which I recounted above, being so abused by buyers who, let me point out, have no profit motive and aren’t even using their own money to purchase these properties?

My buyers, the homeowners, have a theory: they think that they’re being treated “like poor white trash” (their exact words) because they bought their home on land contract, rather than in a more conventional way.

I have a different theory: $95,000 happens to be exactly what the public record shows that I owe against the property, plus a few thousand in closing costs. I don’t think it’s a case of the sewer district trying to take advantage of a seller that they don’t think is very sophisticated; I think it’s a case of the sewer district trying to make sure that I, the evil investor, don’t make any money selling a property to the county.

What they appear to be missing in all of this is the following:
Neither I, nor my buyers, are particularly motivated to sell this property. I’m getting my payments; the buyers love the house. They should really consider taking real estate 101 , and paying attention the part about how you’re wasting your time when you try to make unmotivated sellers into motivated ones. In fact, I might give the entire sewer department a group discount for attending, since they also seem to be having trouble with the concept of comparable sales. And of private property in general.
Neither I nor the buyers are at all swayed by the “threat” that all the houses around this one will be torn down; in fact, my buyers’ response to this suggestion was, “Wow, so I’ll get a really huge yard that I won’t have to pay for?”
Even if I were willing to short the land contract balance by $10,000 to allow my buyers to sell (which I’m not), they’d be raving lunatics to accept an offer that would leave them in hock to the IRS for $8,000—which is exactly what would happen if they took this “deal”.
Making a 6’ tall redhead morally indignant is NOT a good strategy, ever, for any reason.
I’m not mad because I don’t get to sell the house. I already sold the house, I was happy with the deal before, and I’m happy with it now. I’m mad because an arm of my local government is treating people who don’t deserve it in a way that’s wrong, unfair, and that I could NEVER get away with, not that I’d want to.

So I’m arming up to tilt at this windmill. I’ve written letters to the county commissioners who oversee the sewer district and the trustees of the township in which the property is located. If this doesn’t get my buyers a more fair resolution, I’ll be talking to the local consumer reporters. I’ve designed a 4x4 bandit sign to go into the yard saying “We Deserve Better” and directing people to a website that will explain the situation and ask them to call and email the sewer district and the local politicians. And I’ll be very interested to see if this results in a spate of code violations or rejections of tax appeals.

Our government, at all levels, seems to have become very dismissive of and even abusive of its citizens. I guess when over half of us don’t pay taxes, don’t vote, and love our government handouts, there aren’t too many people out there who are willing to object. Be one.

Reprinted with permission of Vena Jones-Cox. To get more free articles and tips, subscribe at  (Akron Canton Real Estate Investors Association, Inc.) does not give legal, tax, economic, or investment advice. ACREIA disclaims all liability for the action or inaction taken or not taken as a result of communications from or to its members, officers, directors, employees and contractors. Each person should consult their own counsel, accountant and other advisors as to legal, tax, economic, investment, and related matters concerning Real Estate and other investments.   

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