Q: My brother lives in Monterey and he went to a seminar on how to make money in real estate. So far, the method seems to be working for him and I wanted to see what you thought. It works like this; you go to the county recorder’s office and check to see which houses have had notices of default filed against them and are in danger of being foreclosed upon. You then investigate and get an idea of how much is owed. If the amount owed is significantly less than the market value of the property, you approach the homeowner and offer to purchase the house for the amount owed and then to allow the homeowner to live there as a tenant. This sounds like a good way to make money nowadays. Have you heard of this? Should I hire a real estate attorney to help me if I get involved?
A: Well, I’ve certainly heard of it and it appears this scheme is raising its ugly head again with the recovering real estate market. Frankly, it’s just a twist on a very old scam I’ve written about in the past.
At least before the big recession, anybody who couldn’t sleep and turned on late night television has seen people offering seminars and mail order information on how to get rich in real estate.
The speaker is always strolling out of some mansion with waterfalls and an Olympic-size swimming pool telling you how broke he was 18 months ago but now that this is all his and could be yours too if you’ll buy what he’s selling.
Your brother-in-law has just bought into the latest version of the product.
You have the program accurately described, but only halfway. The whole idea behind getting rich quick in real estate is to turn and burn the properties.
Here’s how it really works:
Like you said, you identify someone who is in financial trouble and who has a ton of equity in the house, preferably, someone who has lived in the home a long, long time.
You then offer to be their guardian angel by paying off the lender and letting the homeowner-turned-tenant rent the property for a reasonable rate on a month-to-month basis.
Overjoyed at the prospect of being able to stay in their home and getting the foreclosure notices to go away, they agree, and contracts are quickly drawn up.
At this point you, the buyer, can either pay cash or get a low-interest, short-term loan with which to acquire the property. Once the deal is done and the property is yours, you take the next step and you notify your tenant that you are tripling the rent.
The one thing you’re sure of is that the tenant can’t make the rent payments. After all, that’s why their mortgage was in default in the first place.
When the tenant doesn’t pay, you throw them out on the street and sell the property at market value. If the seller had $100,000 in equity when you purchased the property, you would realize that much profit in only four or five months.
Frankly – and from what I understand, these seminars hint at the fact but don’t come out and say it – your most likely victims are senior citizens who have owned their home for a long time, have very low mortgages, but because of health problems or the death of a spouse have fallen behind in their payments.
An added advantage is that many seniors are ignorant when it comes to real estate matters and are easily hoodwinked.
Frankly, though not always technically illegal, anyone who would choose to make a living in this fashion was morally bankrupt long before they paid their money to go to a seminar, and any attorney who would knowingly assist in this scam should have his license to practice law torn up.
The good news for seniors is that this practice may constitute felony elder abuse if practiced against senior citizens.
Anyone who suspects a senior is being preyed upon by one of these vultures should report the matter to the local Adult Protective Services.
So to answer your question, that’s what I think!
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like to have answered in this column you can contact him at [email protected]