Boomer’s Blog

An escalating trend of state legislatures regulating real estate investors who work as foreclosure consultants to help homeowners stave off foreclosure is taking many in our industry by storm.

Distressed Properties and Investors
In attempts to protect desperate homeowners, lawmakers have mandated consumer protections and fines for investors who violate the law. In many instances, these ongoing attempts to restrict real estate investors’ business practices are redefining the distressed property playing field .

With a growing number of real estate entrepreneurs using the Internet and other electronic resources to invest in markets outside of their home states, those who are using short sale, pre-foreclosure, and similar types of transaction strategies to invest in distressed properties should be vigilant in monitoring changes in state laws.

States Collecting Fines and Penalties
Last year, the National Conference of State Legislatures (NCSL) reported that a dozen states had taken steps to actively regulate foreclosure transactions. These states include California, Colorado, Georgia, Illinois, Indiana, Maryland, Minnesota, Missouri, Nevada, New Hampshire, New York and Rhode Island.

This year, more states have either considered or passed new laws geared to protect the interests of distressed homeowners and  penalize real estate investors who fail to comply with the law. These laws impose greater regulation on investors than some of the earlier legislation enacted in other states.

Lawmakers in Oregon and Washington have expanded their regulatory scopes by passing comprehensive laws that regulate lending practices and place restrictions on  property transaction as well as the contract between  investors (or real estate agents) and the sellers.

More Regulation Ahead
According to the National Association of Responsible Home Rebuilders and Investors (NARHRI), a Washington D.C.-based lobbying group for residential real estate investors, recent scrutiny of the industry by lawmakers and other policymakers is setting the stage for broader regulation in the future.

Because many states have assembled task forces to scrutinize business practices surrounding foreclosure and predatory lending, NARHRI predicts that ongoing legislative efforts will continue to target real estate investors by increasing restrictions on foreclosure consultants and their multifaceted business practices – especially with regards to equity-based and lease-back to owner transactions.

Look for ongoing coverage of this important trend here. Has increased regulation affected your business? Are you interested in seeing more posts like this one? Please drop us a line and tell us what you think.

As a growing number of homeowners dangle over foreclosure’s jagged edge, many lenders have historically been slow to approve short sale deals, but there are signs that they’re changing their ways.

The short sale is a long-standing investment technique that can benefit buyers, lenders and homeowners alike. According to the National Association of Realtors (NAR), Short sales currently account for about 18 percent of overall home sales. But as the housing market continues to stall, some major lenders and loan servicers are streamlining their processes for accepting short sale deals, and this may make short sales a more viable option for investors than it has been in the recent past.

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On March 20, the blog discussed a recent article from Fortune magazine I think is essential reading for REI investors seeking build their businesses while so many others seem to be failing. The title of the story begs the question: “How bad is the mortgage crisis going to get?”

The answers from Princeton economist Paul Krugman are chilling, and they echo my sentiments that things are going to get much worse for the economy before they get better. Krugman has predicted that the crisis that began when subprime lending spiraled out of control, is likely to result in an average property value drop of 25 percent for homeowners. The domino-effect is expected to continue leveling markets — and the economy — until 2010.

Folks, I made some bold statements in Q4, 2007 that included my prediction that a major Wall Street firm other than Goldman Sacs would fail. At the time, I suggested that Bear Stearns, Merrill Lynch, UBS or Lehman Brothers were all prime candidates for disaster.

And as I write, the Wall Street Journal reports that Fed staff are literally on-site at Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Bear Stearns, which consented to be sold to J.P. Morgan Chase in a deal brokered by the Fed in March.

Each of these brokerages has borrowed from the Fed since it opened its temporary lending program last month in hopes of preventing another Bear Stearns style bloodletting on Wall Street — and the fall-out that would likely permeate the greater economy. These efforts represent the first time that the Fed has supported loans to entities other than banks since the Great Depression. (For details on the Fed’s temporary program that was deployed in March to provide emergency cash to ailing security firms, see yesterday’s post: “Fed Defends Bear Loans, Supplies Cash Tourniquets.”)

The U.S. Senate wants answers about how all this turmoil has happened, and a bipartisan alliance has asked the General Accounting Office (GAO) office to review the SEC’s enforcement program.

All this leads me to believe that at least one more Wall Street monolith will hit the pavement this year. But that doesn’t mean that real estate investors have to hit the ground, too.

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