What is up with Texas?
16. Feb, 2009 
4 Comments
I just got this email from a friend of mine who owns a HomeVestors franchise in Texas. They’re the “we buy ugly houses” guys.
This is pretty startling legislation if passed so it’s important that we real estate investors pay attention to what happens down in Texas.
If we’re forced to pay a minimum of 82% of FMV for rehabs I can guarantee there will be fewer investors rehabbing. Here’s the email…
New Foreclosure legislation will create problems
In an effort to protect homeowners from foreclosure rescue scams, the Texas Attorney General Greg Abbott is asking the Legislature to expand his authority to crack down on fraudulent practices under the Texas Deceptive Trade Practices Act. Sponsored by state Sen. Craig Estes, R-Wichita Falls, the foreclosure protection legislation is supposedly designed to curb growing problems with “scam artists” who prey on homeowners facing foreclosure.
So far so good, except the proposed legislation is so seriously flawed it will create more foreclosures, which is what we do not need in Texas.
If enacted, the law would require an investor to pay at least 82 percent of a home’s “fair market value” (FMV), and that just doesn’t make economic sense.
I have paid less than 82 percent of FMV for a distressed property on numerous occasions, and so have all of my more than 200 professionally-trained HomeVestors franchisees, as well as thousands of other real estate investors across the country. We are not scam artists, but this legislation would prevent us from purchasing properties. That would be a shame because we are responsible for revitalizing neighborhoods by purchasing properties that, often times, no one else will buy. We rehab the properties, put them back on the tax rolls and provide affordable housing for homeowners and tenants.
As real estate investors, we protect American neighborhoods by improving the quality of housing and the quality of life in the communities we serve. Since 1996, HomeVestors franchisees in Texas have purchased 12,406 houses and sold 10,420 of them—we have purchased almost 40,000 houses nationwide. Our franchisees are required to conduct business ethically and pay a fair price for properties. If we had to pay at least 82 percent of FMV we would not be able to buy most properties. Thus, more houses will sit empty and deteriorate. Neighborhood values will decrease. Vagrants will move into the houses. Crime statistics will increase in these neighborhoods. Eventually, lenders will be forced to take back houses, rehabilitate and sell them, but the homeowners protected by this legislation will still be left with no money and a foreclosure on their records! That’s a great disservice to Texas homeowners.
Here’s why requiring payment of at least 82 percent of FMV just doesn’t work. At HomeVestors, our model is to pay 60 percent of the retail value of a property, less repairs. For a $100,000 property that needs $25,000 of repairs, we would pay approximately $45,000. Our total investment, with numerous affiliated closing fees and expenses, would be approximately $89,250, leaving us a reasonable profit of $10,750 if all goes well. And in today’s economy, there are more surprises than not.
If $45,000 doesn’t sound like a fair price in exchange for a franchisee risking his money to acquire, repair and market a property, I can provide a long list of satisfied customers who gladly welcomed our cash offers. In many instances we saved them from foreclosure, dings on their credit scores, potential bankruptcy and more.
This proposed bill may protect Texans from unscrupulous foreclosure advisors and investors, but it will also create more problems for homeowners and communities. Stop Senate Bill 354. Tell the Attorney General that we’re all in favor of protecting Texans from scam artists, but we don’t want to prevent honest investors from rescuing ugly houses and enhancing our neighborhoods. If investors can’t buy houses in foreclosure and make a reasonable profit, they won’t buy them at all.
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To email Sen. Craig Estes yourself and express how YOU feel about this, here’s the link (it takes a minute to load):
http://www.senate.state.tx.us/75r/Senate/members/dist30/dist30.htm#form
Yikes! That sounds like serious trouble. I don’t like to see the government interfering in the free market. As an Economics major in school, I can tell you that that is RARELY a good idea.
I didn’t like it on the federal level with TARPS and the new “STIMULOUS” plan – “Pork-ulous” according to Rush Limbaugh.
And I don’t like the spector of that same type of mistake being perpetrated on a state level either.
In the end, it’s not the scam artists who suffer – they’ll find another way to prosper in the shadows. It’s the reputable investors and the distressed home owners who will be the unwitting victims of this legislation.
Emily
We need to read more on the legislation being proposed. I am from NY and we have something similar. It is called the Home Equity Theft Prevention Act (HETPA). It has the same 82% requirement as the proposed bill in Texas. In NY the HEPTA applies only if the investor is reselling or leasing the property back to the distressed seller. In other words if you are buying the property from the homeonwer in distress and you tell them that you will lease the property back to them (probably through a lease option) then you have to adhere to HETPA. Obviously this Act passed due to some investors that took advantage of the homeonwers and later evicted them from the property.
If, on the other hand, you purchase the property from a distressed seller and they move out to another property either yours or someone else’s, you can purchase the property at any agreed upon value, 45%, 50% of FMV.
In my humble opinion, I don’t like the idea of leaving the distressed sellers on the same property even w/o HETPA since it might be more headaches than what is worth.
In any case, this bill might be similar to the one enacted in NY. Not necessarily completely controlling the free market but protecting the homeonwer.
The proposed legislation in Texas is very onerous. There is similar legislation in NY, MD, SC, FL and now TX is proposed. CA has legislation that makes foreclosure investing harder than it should be. This is a movement that is sweeping the entire US.
In my view, this legislation is entirely unconstitutional. In five different places, the US Constitution expressly dictates that the government’s duty is to protect and to defend a citizens right to their life, liberty and property.
Yet, under the guise of consumer protection, our rights to contract are violated and we are treated as children by Big Brother. Our rights to do with our property as we see fit has long been under attack. Consumer protection, environmentalism and regional planning have long been used as straw men to strip US of our ability to utilize our property. This, to the benefit of increasing government control over US while still making US responsible for the land.
Fascism is defined as CONTROL of the means of production. We still own the asset so we feel obligated to take care of it. However, the government tells us to whom we can rent, government dictates the amount of rent in some areas, building inspectors, fire inspectors, etc. all impose their regulations upon US.
Now, in a nationwide movement, the effort is to regulate the sale of property. The effort is designed to eliminate the free market in property and to eliminate the free market mentality in the US. They are serious!
Those behind the movement are of the same mindset as those who created lead paint legislation in the 1990′s. I had the distinct pleasure of defeating the proposed bill in NYS. The bill was very unfair to landlords. My research showed that the lead poisoning was caused by lead based gasoline that settled on the ground on which children played, and not ingested paint chips, as was being maintained. As head of a large REIA, I warned legislators that if they passed the unfair legislation, holding landlords responsible for a tenants lead poisoning, that I would organize landlords and march outside of their law offices, telling their clients that they had voted to allow irresponsible tenants to confiscate their investment property and remove the best manner of providing for their posterity.
Thankfully, the lawmakers backed down. They were fearful that real estate investors, who have some money, would band together and actually go after the lawmakers.
See a blog back I wrote in May ’07 re the NYS law that regulates property sales. http://www.coachmitch.com/wp-admin/post.php?action=edit&post=30
Mitchell Goldstein – Coach Mitch
March saw that house prices increased for the first time since October 2007, however some are cautioning that investors should not be expect an immediate change in the market as lenders will be increasingly more cautious going forward. http://www.telegraph.co.uk/finance/personalfinance/investing/5119055/House-prices-Is-it-time-to-go-back-into-property.html