Posted by John Behle on October 12, 2002 at 14:38:56:
In Reply to: Legal pitfalls of John's wrap resale strategy posted by WA on October 09, 2002 at 21:31:24:
The loan would more likely be construed as either usurious or taking advantage of a seller than actually taking title. Taking title is important. Giving it back to a flakey former owner is questionable.
There are advantages to a lease option. Taking title and just giving a lease back to the seller is many times preferable to giving them title back.
The older I get the more the less hassles I want. They can cause you problems with a lease option, but at least it may not get dragged into a bankruptcy as easy. I think the odds of someone contruing and proving a usurious loan from a lease option are very, very high. If that is a concern, look at trusts or other vehicles. It's usually best to split off the lease and option. The lease may be to the previous owner, but the option is in a different name or entity.
The world changes day to day and over time the realities of the inclinations of people do too. Bankruptcy used to be something people would avoid and many would be thankful that you helped them keep their property. Today they are bombarded with bankruptcy ads so often it's lost it's sour flavor to most. Instead of being a legitimate way for someone to have a new start, it's a manipulative tool.
So.... People are much more likely to do a bankruptcy in today's market and if they have any reservations, some un-ethical, immoral bankruptcy attorney will con them into sacrificing their integrity. They can and will take out a bankruptcy quickly, lie about the amount owed to stall, set hearing after hearing that they then back off from the day before and dozens of tricks. Some go into bankruptcy, withdraw, enter in again, withdraw, etc. They can stall for months - even years. Believe me, Sam Slick from the firm of "Dilly, Dallie, Stall and Dolittle" will show them how to delay paying you. That's ok, if you don't need the money and like agravation. Otherwise, it's just not fun.
Picture these "poor victims" as drivers for a moment and their house as a car. They wreck the car. You pay to fix it and then give it back to them. What's the likely result? .....Right.
In that scenario, you would make the greatest profits with a towing company and body repair shop, not being the ones paying for their poor driving.
In real estate, they crash their house so to speak, you fix it and give it back to them and they will likely crash it again. Years ago, they might have looked at you like the Lone Ranger that saved them. Now you're just the next guy with a mask that came to hurt the poor victims. Instead of being a good guy and helping people that really need it, the pendulum has swung and you are the next sucker for them to abuse or person to be construed as a crook - no matter how honest and ethical you might be.
So, basically, the world has changed. I'm not into giving a seller back title any more. I'm very leary of selling to them and prefer NOT to. I've even gone as far as to try to re-educate people on how to "drive better" as far as their finances, etc.
A Man convinced against his will is of the same opinion still.
People don't change unless they really, really, really want to and finances is more a reflection of what is going on inside than of circumstances and opportunity.
Brings to mind a "bum" we tried to help in Canada many years ago. We bought the "story" he had to tell, umped in, sobered him up, fed him, put him up in a hotel for the night and set up a job for him the next day. The next morning???? You guessed it, he was long gone. OK - yes, I was naive, it was many years ago.
Not as many years ago I was in a train terminal in Chicago I believe. Bought into the story of how the guy hadn't eaten in two or three hundred years. Felt pretty good about things as I stood there in line, bought him a Big Mac and went off to eat my lunch. As I walked out - there was the Big Mac he had just thrown in the trash.
People can change, but we have to be aware that it isn't about opportunity or circumstances and stand clear enough that we are not a part of their NEXT circumstance.
So, you asked about the legal pitfalls and I hope I addressed that, but wanted to share a little bit of a differing point of view as to strategy. I describe techniques sometimes in articles, but it isn't about the most creative or the best sounding technique all the time. It has to be carefully weighed against the circumstances. So, re-selling to the previous owner on a wrap can be used at times, but has to be weighed against the growing risk of future problems that bankruptcy attorneys and others help create.