Expert: Lori Frankfort - 11/8/2010

Question
Dear Lori,
I am planning to purchase a few pre-foreclosure homes in the Los Angeles area. My intention is to contact the home owners directly and pay with cash. I do not have a real estate agent license but was told by some people that I would need a license or a representative with a real estate broker license to contact the home owner, but so far after researching everywhere on the Internet I have not found a good and conclusive answer to these questions. My first method of contact to the home owner will be via cover letter through US Postal service and in it will explicitly contain information that I am not a broker or agent of any kind, just a lone individual investor. Questions that I was wondering if you could help out are:
1.   Do I need a real estate agent or broker to buy the property from the home owner, especially since I am paying cash for the entire transaction? (I am planning to use an Escrow company to facilitate the closing of the property).
2.   Are there any rules that prohibit me from soliciting the home owner of a pre-foreclosure home?

Thank you and look forward to your advice.


Answer
Ty,

Let me first say that I think you should consult a Real Estate Attorney for a proper answer to these questions, just so you're safe.

It is my understanding that the laws regarding the contacts only apply to licensed individuals.  That would mean that nothing is preventing you from contacting and commencing a sale with a homeowner in distress.  

Have you done this previously?  It's a great idea in theory, but it's going to be difficult to find a homeowner in preforeclosure that has any equity, and thus the ability to sell the home without being underwater.  I would advise that when you do find a potential Seller, prior to entering into a contract you need a title company to run a Preliminary Title Report as well as a 9A report to verify all liens.  

I previously solicited preforeclosures, but the majority of homeowners in distress are under the false impression that a miracle will happen that prevents them from needing to move.  If you were going to offer a rent-back situation you might have more luck.  I'm not sure if that was your intention, or if flipping was your goal.

Another point to keep in mind (if you intend to sell quickly) is that Fannie Mae is cracking down on giving loans to home buyers for houses they consider recently flipped.  I had a client that was one week from closing with Wells Fargo run into this road block.  The bank discovered that the house had sold within the previous 6 months, it was triggered as a "flip" and a second appraisal was ordered.  The second appraisal was less than the purchase price, and the Buyers had to put down an additional $15,000 to close.  Because the house was almost at the 6 month mark they let it pass, but their typical guidelines are not to loan on anything that has the smell of an investment sale and a prior close within the past 6 months.  Again to clarify, this would affect any potential purchasers of your investments, not your original cash purchase.

I hope this information helps, please contact me if you make purchases and need a listing agent.  :)

Best,

Lori Frankfort
Broker Associate
Keller Williams Realty
818-279-8709