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Warning for Real Estate Investors: Three Northern California Real Estate Investors Convicted of Rigging Bids at Public Foreclosure Auctions

 

There are many pitfalls for real estate investors who purchase dIMG_1513istressed property.

In today’s market, good deals are getting harder to come by. With distressed property becoming a scarce resource and competition ever increasing, some real estate investors have resorted to illegal acts to boost their profit.

Investors should know that the Department of Justice as well as State Agencies are cracking down on fraudulent real estate practices.

Today, the Department of Justice announced that a federal jury convicted three real estate investors for their roles in a conspiracy to rig bids at public real estate foreclosure auctions held in Northern California.

This after a 3-week trial.

You can see the press release here.

Based upon the DOJ’s investigation – this was a large conspiracy “to rig bids to obtain hundreds of properties sold at foreclosure auctions. The conspirators designated the winning bidders to obtain selected properties at the public auctions, and negotiated payoffs among themselves in return for not competing. They then held second, private auctions at or near the courthouse steps where the public auctions were held, awarding the properties to conspirators who submitted the highest bids.”

 

What is particularly striking to me is that including today’s convictions the DOJ report that:

68 individuals have pleaded guilty or been convicted after trial as a result of the department’s ongoing antitrust investigations into bid rigging at public foreclosure auctions in Northern California.

 

Question for Real Estate Investors:

What type of unfair practices, including bid rigging, do you believe is going on in your state? What are you seeing foreclosure sales?

In Michigan the record numbers of foreclosed properties since 2008 has provided a market (albeit one that is slowing down) for flipping and rehabbing residential real estate.

This has also created opportunities for abuse and fraud.  The real estate legal landscape is complex enough, do yourselves a favor – follow the rules.

You don’t want to expose yourself to undue liability.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

 

Real Estate Law Update: Investors Purchasing at Foreclosure – Take Care in Handling Personal Property Left at the Property.

May 11, 2017 1 comment

Today I am posting about a Court of Appeals case decided on April 25, 2017  – Suzor v Kamlay 2016-07-22 13.10.20

Foreclosed Property = high risk/high reward.

Real estate investors are always wary of the many pitfalls when purchasing property at foreclosure.

I’ve previously posted on problems when someone is still occupying the Property after foreclosure.

The latest case talks about what happens if the holdover is no longer in the property – but has left personal belongings.

Should you take matters into your own hands and remove the stuff?

What liability does a purchaser have after foreclosure and the expiration of redemption if they remove any personal belongings?

FACTS:

  • Plaintiffs’ home was foreclosed on.
  • The property was sold at a sheriff’s sale.
  • Plaintiffs did not redeem the property.
  • Purchaser sued  and was given a judgment of possession and an order of eviction.
  • Purchaser hired defendant to secure and clean the property and remove any remaining personal property—a process commonly referred to as a “trash out.
  • Plaintiffs brought a claim for conversion, arguing that their attempts to get defendant to return the items of personal property he removed from the foreclosed property were to no avail
  • Defendant argued – I have immunity under the Anti-Lockout Statute, since I was operating pursuant to a Court Order.
  • Trial Court agreed.

 

Anti-Lockout Statute – MCL 600.2918 

Any landlord who has gone through the process of evicting a tenant knows that, in the residential leasing context, there are heightened duties of landlords, and heightened rights of tenants.  Tenants have the right not to have their possessory interest in the property interfered with, without the proper court procedure being complied with (Summary Proceeding Action in District Court).

 

Here, Defendant claimed he was shielded from liability under MCl 600.2918(3)(a) which provides

that “[a]n owner’s actions do not unlawfully interfere with a possessory interest if . . . [t]he owner acts pursuant to court order.” Id. page 2.

The Court of Appeals held though that such immunity only shields from liability if the parties have a landlord-tenant relationship.

“However, the parties to this case did not have a landlord-tenant relationship.”

Also, The Court noted that

“While an owner has the right to lawfully enter the premises and remove belongings left therein pursuant to court order, the owner does not have title over the property removed.” Id. page 4.

 

The Court of Appeals would have presumably reversed on this point, but held that the trial court essentially “got it right, but for the wrong reasons.”   The Plaintiffs failed to provide any evidence to prove their case – that the defendant when he removed the personal property converted them by failing to allow the Plaintiffs to recover the property, or otherwise “that a bailment existed”. Id.  page 4.

 

Conclusion:

A purchaser at foreclosure should be careful in handling the personal property leftover.

 

As the Court of Appeals noted – the purchaser is not shielded from liability under the Anti-Lockout Statute, since there is no landlord-tenant relationship.

Also, the owner may have purchased title to the real estate, but not to the personal property.

 

To avoid any unfounded claims by holdovers, it always makes sense after purchasing property at foreclosure, when there are any occupants present, to go through the lawful channels for a court proceeding to extinguish any possessory rights and to make sure any personal belongings are handled appropriately.

You don’t want to expose yourself to undue liability.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Real Estate Law Update: Investors: If you Intend to Redeem, Better Record that Deed.

January 5, 2015 1 comment

Happy New Year!

A brief Michigan Legislative Update that affects real estate investors. HB 5795  was passed into law on December 29, 2014 and given immediate effect. The law amends the redemption from foreclosure statute. MCL 600.3140.

See the legislative analysis of the House Bill here

Purchasing Property at (and after) Foreclosure.

Under the prior language, anyone “lawfully claiming from or under the mortgagor or the mortgagor’s heirs, executors, or administrators” could redeem the property from foreclosure.

This effectively meant that an investor who missed the foreclosure sale could contact the homeowner (or their personal representative, if deceased) and purchase a quitclaim deed that would transfer the homeowner’s “redemption rights” in the property.

“Redemption Rights” One Stick in the Bundle of Rights.

As every lawyer who sat through Property Law in first year Law School was taught, Property Rights are akin to a “bundle of sticks” – multiple rights within that bundle, including, complete ownership (fee simple) possession, contingent rights, mineral rights, air rights, etc…and in the case of a homeowner, a right of redemption.

A quitclaim deed transfers “whatever” rights the homeowner had at the time of the transfer. In the case of a homeowner after foreclosure, this typically means only “the right of redemption” since that is the only stick left in the bundle.

When Do you have a Right to Redeem as the Owner of a Redemption Right?

The result of HB 5795, it doesn’t preclude a homeowner from assigning their interest, but it puts the burden of the “grantee” (or real estate investor who purchased the rights) to record the deed prior to redemption.

The practical effect is that it places no duty on a purchaser at foreclosure, or the register of deeds, to accept payment, unless they are presented with a “recorded interest.”

What’s the Purpose for this Amendment?

For real estate investors who pick up properties at foreclosures, there is nothing that irks them more than another investor who approaches them a few months after foreclosure sale and informs that they own the right to redeem the property via a quitclaim deed, and they intend to redeem.

All the investor’s time and energy in due diligence to investigate properties worth picking up, not to mention the amount of cash that was needed to purchase the Property at the foreclosure sale – all gone to waste.  When the investor expected to either rehab and flip the property, or make it into a long term rental investment, what does the investor get in return? a nominal short term interest payment on their funds.

It isn’t surprising that an investor is not too happy when they get the call asking for a pay off from one “lawfully claiming under the mortgagor” Now, rightfully, the investor could search the Register of Deeds and see if a quitclaim deed had been recorded. If not, it arguably gives them grounds to refuse a pay off.

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com