Maryland State Code 7-301

[dlmcgill]

Hello Everyone:

First: Is there anybody here that do deals in the state of Maryland?  Second:  How do you avoid breaking any of the laws stated in Maryland State Code 7-301 (Put in place to supposedly protect the homeowner.  But looks to me like they are protecting the financial institutions).  Seems to me that all investors will fall under the real estate consultant role as stated in the code???

dlmcgill

PS - if anyone has a real estate attorney that helps you to avoid breaking laws when doing deals (particular Sub2 deals).  Let me know.

[dlmcgill]

Are there NO real investors from Maryland here?

dlmcgill

[DannyTheGreat]

After googling  "Maryland State Code 7-301" all I found were things related to the Board of Education. Please provide a link to the laws you think everyones breaking.

[Dave T]

MD Code, Real Property, § 7-301 regards property in foreclosure.  While the preponderance of the language deals with helping the homeowner in foreclosure keep his house, the language that concerns me is directly related to those actions through which an investor may acquire title to the property in foreclosure.

For example, according to the MD Code, Real Property, § 7-301(1)(i), a foreclosure consultant

"Solicits or contacts a homeowner in writing, in person, or through any electronic or telecommunications medium and directly or indirectly makes a representation or offer to perform any service that the person represents will:  Stop, enjoin, delay, void, set aside, annul, stay, or postpone a foreclosure sale; or, purchase or obtain an option to purchase the homeowner's residence within 20 days of an advertised or docketed foreclosure sale; or, save the homeowner's residence from foreclosure."[/list]As I read this definition, even an owner-occupant buyer in an arms length transaction could be acting as a "foreclosure consultant" if the property is in foreclosure and no licensed real estate agent is involved.

MD Code, Real Property, § 7-301(2) establishes that a foreclosure consultant is also one who:

"Systematically contacts owners of property that court records or newspaper advertisements show are in foreclosure or in danger of foreclosure." [/list]If pre-foreclosure investing is your thing, I don't see how you avoid being a "foreclosure consultant" if you do the typical things investors do in working pre-foreclosures.

MD Code, Real Property, § 7-302 specifically exempts from these provisions a licensed real estate agent who contracts with the homeowner in foreclosure as long as the agent is acting under the authority of his license.  Exceptions are also allowed lawyers, creditors holding a lien secured by the property, lenders, credit unions, insurance companies, title insurers, and mortgage brokers acting under the authority of their license.

It would appear that a licensed real estate agent who buys a property in foreclosure for his/her own account is also acting as a foreclosure consultant.

If you continue reading the MD Code, Real Property, § 7-307(5) does not allow the foreclosure consultant to

"Acquire any interest, directly or indirectly, or by means of a subsidiary, affiliate, or corporation in which the foreclosure consultant or a member of the foreclosure consultant's immediate family is a primary stockholder, in a residence in foreclosure from a homeowner with whom the foreclosure consultant has contracted."[/list]If the foreclosure consultant does acquire the pre-foreclosure property, then doing so is a misdemeanor violation that carries a $10,000 fine.  It would appear that the homeowner in foreclosure can't sell his property FSBO at the 11th hour without having the buyer violate this section of the MD code.  

The question is how can an investor still acquire pre-foreclosure property without attaining foreclosure consultant status.  Here is my take:

First the DON"Ts

• Never offer to stop the foreclosure sale,
• never assist the homeowner in obtaining a forebearance or workout agreement,
• never offer or promise to save the homeowner's residence from foreclosure,
• never enter into an agreement to purchase the property if the sale will settle within 20 days of the foreclosure sale date,
• never offer to save the homeowner's credit from the foreclosure,
• never offer to purchase and leaseback to the seller,
• never give the seller an option to repurchase the property, and lastly,
• never use court records or newspaper advertisements to systematically screen for and to contact owners in default.

[/list]The only thing the investor can really do is offer to purchase the pre-foreclosure property in the same manner you would purchase from a FSBO or listed property from an owner who is not in default.  Contacting owners advertising as FSBO or as a motivated seller seems to be permitted as long as your approach avoids using the pending foreclosure

• to specifically identify the seller in default and to exclude FSBOs or motivated sellers who are not in default,
• to create urgency or
• to motivate the seller to accept your offer.

Just how this layman sees it.  Maybe an attorney will give us a more authoritative opinion.

In this discussion I used excerpts from the code for brevity.  Those interested in reading the full code, here is the link I used

 http://www.michie.com/maryland/lpext.dll?f=templates&fn=fs-main.htm&2.0

Expand 'Maryland Code".  Scroll down in the left frame, expand "more".  Select and double click on "Real Property" to bring this code section into the large frame on the right.  Select Title 7, then select 7-301, 7-302, and 7-307.

[dlmcgill]

Thanks for the clarification Dave.  This law in my opinion only helps the creditors and lenders.  The Maryland/DC Metro area is still a pretty hot market and the lenders know they can get there money at an auction sale.  Therefore, the lenders don't mind foreclosing on the homeowner (IMO).  

Situations like this really brings out the creative investing in all of us.  Seems that we will be limited to letters and ads reading only that 'I buy houses' or 'I am a motivated purchaser/buyer'.  Not so sure we in Maryland can use court foreclosing listings at all because it will appear to target people in foreclosure.  I welcome any and all ideas.  

dlmcgill

[DannyTheGreat]

About a year ago I bought a property from a foreclosure auction, thought everything was fine and I started rehab. The finishing touches were being put on when out of no where the former owner borrows money from her family and under her right of redemption, reclaims the property. I lost 45k in renovating the new owner's house. Ever since then I don't touch Maryland foreclosures.

There are sooooooo many other ways to buy properties at big discounts dlmcgill that foreclosures and pre-foreclosures make very little difference. At this point the only way I'd ever buy a foreclosure again is if I had the time or money to sit and wait until the redemption period expired.

It seems that if you want to go after pre foreclosures, send your real estate agent out to get an agreement for the property and then wholesale it to you. I prefer to stay far away from anything with the word foreclosure in it because of my lost deal.

[dlmcgill]

Hi DannyTheGreat:

The only problem with having a realtor do the deal is: If I interpreted the law correctly.  A licensed agent could do the deal but the homeowner would have to get at least 82% of the FMV from the sale.  Which would leave very little room for me to make money.

However, I would be very interested in knowing some other techniques besides targeting foreclosure and pre-foreclosures.  Please share.  

The reason I go after foreclosures/pre-foreclosures is because I can get the house with lots of equity left over.  In my market, if the homeowner can wait 2/3 months, they can sell their home on the open market for FMV+. Of course, it does not benefit me to buy at FMV (unless ARV is 50k above FMV and I can get a 10k discount on FMV).  I don't gamble on appreciation in this crazy market.  

I know that their are homeowner's that need to sell quick and they are not in foreclosure.  However, they will only offer small discounts from my experience.  And at an average house price of 450k, I can't afford to take that gamble.  

dlmcgill

[DannyTheGreat]

What's the condition of the properties you tend to look for?

Do you rehab to retail?
Rehab to rental?
Just rentals?
Lease op?
Wholesale?
etc.

Also if you don't mind, what part of MD are you in?

[dlmcgill]

Hi Danny:

Hope you don't mind me calling you Danny?  
I look for property with no more than 10-15k repair cost.
I look for both rehabs to rent as well as rehab to retail.  I don't rent for longer than 2 years.  1 year being ideal.  

I am in Prince George's county.  It's located right outside of Washington DC and about 45 minutes away from Baltimore.  

dlmcgill

[DannyTheGreat]

I certainly know where PG county is. Not sure how you find 450k SFR rentals though. I'll send you a PM with some MD specific info on where to find rehabs.

[dlmcgill]

Hi Danny:

Thanks for the info.  Can you send it to my email address?  For some reason, I cannot access my IM.

I don't really want this post to go in a different direction than the original topic.  But you are right, it's hard to rent 450k properties, which is why I don't buy rentals for that much.  For that much money, I look to re-sell if the equity is right.  450k is an average house price in PG county.  We have houses that span from the millions to as low as 250k (And 250k is low for this area).  

Townhomes and condos are renting for $2100/mo (Lease Options and straight rentals). in this area.  The average apartment rent in this area is $1000/mo. for one bedrooms.  You can get a cheaper apartment in a less desirable neighborhood and they don't have diswashers or patios   SFH can rent as high as $2800/mo.  That said, If I plan to rent a property, I look to have a mortgage far beneath these rents.  And then its gravy if I can get that much rent per month.  

dlmcgill

[dlmcgill]

Hi Danny:

Just figured out that PM means Private Message and not IM (Instant Message)  

dlmcgill

[DannyTheGreat]

That's correct, check yours.

[dlmcgill]

Hi Danny:

Great info!  Thanks.

dlmcgill

[michele66]

Hi dlmcgill,I bought a house in Maryland at a foreclosure auction in July 2006. I have a real estate attorney.I got him after I bought the house at the auction.The guy was still in the house and wasnt moving out.I found out the Maryland doesn't have a redemption period.Its on a case by case bases when you go to court.We are going to court this month.My attorney called and said we have a deal on the table.25K to walk away.Ill take 25K for sitting waiting to go to court for not even 3months!!!! This one just worked out that way.Thanks,Michele