SAFE Act Catches Lawyers By Surprise
Posted on | July 11, 2010 | No Comments
I have been writing and talking about the SAFE Act- which makes most land contracts in Indiana unlawful- for months now. I thought that I was the only lawyer in town who had heard of the new law. No one seemed to know about it.
That recently changed, as a wave of panic swept through the local real estate bar in recent weeks. And boy oh boy, are there some shocked and angry real estate lawyers out there. This is a horrible new law in that it makes it unlawful for many people to sell their own real estate on contract.
It has been such a rude awakening for so many lawyers that a Continuing Legal Education class was quickly organized for next Friday in a matter of weeks. Usually, CLE’s are planned months and months in advance.
Congratulations to those of you who listened to my teleclass on the SAFE Act or who read my blog. You knew about this crazy new law long before many real estate lawyers did.
If you want to learn more about the SAFE Act and the several new laws that have passed recently, register for the July 17 real estate class. Details are here.
You can also listen to the teleclass on this blog.
MATT TO SPEAK AT IMPORTANT REAL ESTATE CLASS
Posted on | July 10, 2010 | 1 Comment
2010 Real Estate Update: New Laws- New Strategies
“A Day of Essential Learning,” presented by
2009 and 2010 had more law change that effect investors than any other time period. Discover the top critical law changes that effect investors.
At this seminar, you will discover the top ten things real estate investors and landlords get sued for and why, if you aren’t careful, you will be sued too! Learn the Safe Act exemptions!! Unveil the how to turn tax $ into a valued investment!! Master the most critical changes to save you thousands!!Use these law changes to transform them into $$$ instead of liability.
When: Saturday, July 17, 2010
8am – 4pm
Where: George’s Neighborhood Grill, 6935 Lake Plaza (71St & Binford Ave.), Indianapolis
317-577-1600
Cost: $79 per person (spouses only $35 more!)
** Seating Limited to the First 40 Registrants **
REGISTER AT www.REIProfitCenter.com
Or call Selina at 317-526-6609.
Matt Speaks on Indiana’s new SAFE Act During TeleClass
Posted on | June 30, 2010 | 3 Comments
The Indiana SAFE Act regulates mortgage loan originators and mortgage transactions in Indiana, effective July 1, 2010. Surprisingly, it also regulates most land contract sales of residential properties. In this TeleClass, held on June 30, Matt talks about the new law and its wider implications. Listen in. . .
“MOST LAND CONTRACTS ARE NOW DEAD IN INDIANA”
Posted on | June 10, 2010 | 6 Comments
If you are engaging in any of these real estate transactions in Indiana, you should read this article-
● Selling residential property on land contract.
● Extending credit to any home purchaser.
In 2008, Congress passed and President George Bush signed into law the Housing and Economic Recovery Act, (Public Law 110-289) (HERA). HERA is designed to assist with the recovery and the revitalization of America’s residential housing market – from modernization of the Federal Housing Administration, to foreclosure prevention, to enhancing consumer protections. The SAFE Act is a key component of HERA.
The SAFE Act
The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators. The SAFE Act requires states to have licensing and registration systems by July 31, 2010. Indiana’s SAFE Act law was passed last year and goes into effect in June 2010. An easier-to-read version of the Indiana law appears in the Indiana Administrative Code.
You Need a License, If You Are a “Loan Originator”
You need a loan originator’s license, if you are a loan originator as defined by the new Indiana law enforcing the SAFE Act. In a sentence, anyone who offers or provides a residential mortgage loan or extends credit for a home purchase is deemed a loan originator and is required to get a license.
“Anyone who offers or provides a “residential mortgage loan,” such as a land contract, is a loan originator and is now required to get a license.
You Might Be a “Loan Originator”
The SAFE Act defines “loan originator” as “an individual who (1) takes a residential mortgage loan application; and (2) offers or negotiates terms of a residential mortgage loan for compensation or gain.” This definition is broadly interpreted. If you sell a residential property on credit, such as is the case under a land contract, YOU ARE A LOAN ORIGINATOR under the SAFE Act.
Exclusions
There are exceptions under the SAFE Act. Here are a few:
• Selling a home you previously occupied/lived in as your residence.
• Certain clerical and administrative tasks.
• Selling a home to an immediate relative, as defined by the statute.
• Selling commercial buildings, as defined by the statute.
• An attorney who negotiates terms of a residential mortgage loan with a prospective lender on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other mortgage loan originator or by an agent of such lender, mortgage broker, or other loan originator.
What Is a “Dwelling”
The SAFE Act’s definition of “residential mortgage loan” includes a loan secured by a consensual security interest on a “dwelling” and cross-references the definition of dwelling in section 103(v) of the Truth in Lending Act (TILA) (15 U.S.C. 1601 note). Regulation Z, which implements TILA, defines dwelling to mean “a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”
Conclusion.
Most small investors who sell residential property on land contract are now required to have a mortgage loan originator’s license. Obtaining a license is not easy, fast or cheap. As a result, most investor will no longer sell on land contract.
As always, feel free to contact this author for specific answers to your real estate investing and legal questions, or call for a consultation. Good luck and Happy Real Estate Investing.
Posted on | May 1, 2010 | No Comments
I started the Griffith Law Group to serve the needs of solopreneurs, entrepreneurs, small to medium sized business, and business owners. We also help real estate investors, builders, building trades, property managers and other real estate professionals.
We encourage you to sign up for our electronic newsletter, through which we share important business news and information about changes in the law that might impact your business or real estate interests. Learn more at www.IndyBizLaw.com.
Matthew A. Griffith, Attorney
Judge Joven Speaks to Landlords
Posted on | March 12, 2010 | 2 Comments
At the March 9, 2010, meeting of the Central Indiana Real Estate Investors Association (“CIREIA”), the Honorable James Joven, Lawrence Township Small Claims Court Judge, spoke for more than an hour on a wide range of issues that impact landlords and the use of his court. It was one of the most informative meetings I have ever attended at CIREIA. I really regret that we did not video-record Judge Joven’s presentation, as it was excellent.
This is actually the second time that Judge Joven has been a speaker at a CIREIA meeting. Several years ago, the Judge spoke about securities laws and how they impact investors, particularly investors who use money from other people to purchase or otherwise invest in real estate. At that time, Judge Joven had just resigned as Indiana’s Securities Commissioner.
At the March 9 meeting, Judge Joven answered questions about the eviction process, court rules, emergency evictions, collections, proceeding supplemental, court procedures, evidentiary requirements and, the use of attorneys for landlords, property management companies, etc., etc., etc. There were several very interesting questions asked at the meeting, including one concerning the ability of a landlord to terminate the lease based on an infestation of “bed bugs” caused by a tenant. After the meeting, I received the following related question-
QUESTION-
Hello Matt,
I have been advised to “Ask Matt” about an issue I have. Unfortunately I was not able to make Tuesday’s Cireia meeting to ask, so this is the next best.
Had a tenant who somehow invested my house with bed bugs. The exterminator has (we believe) successfully removed them, there have been no signs of them remaining. The tenant vacated without notice, so now to re-lease.
My question is this, do I need to, or required to inform the tenant prospect of the bed bugs? Personally I feel morally I should, but I was advised to ask legally.
Thank you for your time,
Robert
MATT’S ANSWER- I do not believe that you are required, as a landlord, to inform a tenant about conditions to a property that no longer exist. So, if a prior tenant housed a dangerous pet, such as a pit bull dog, I do not believe the landlord is required to notify a prospective tenant that there once was but is no longer a dangerous dog in the house. Similarly, I don’t believe that a landlord has a duty to inform a tenant that the hot water heater in the house was once broken, as long as the water heater has been fixed and is working today.
Keep in mind that there are certain statutes that require notice from a landlord to attend up certain conditions related to a leased property. Probably the best example is the requirement that a landlord provide certain disclosures to a prospective tenant regarding lead.
An interesting question I asked Judge Joven was whether he believed a landlord must notify a tenant or prospective tenant that a sex offender or sexual predator, as those terms are defined by Indiana law, lives in the same apartment building or in the neighborhood. The Judge and I agree that a landlord would not ordinarily have a duty to inform a tenant of a sex offender or sexual predator living nearby, unless that sex offender or sexual predator had threatened tenants living in the building. I do believe that landlord might have a duty to warn tenants of known threats of this nature. Separate from the legal duty is the moral duty. In all fairness, a sex offender or sexual predator living next door might pose a risk that I would feel morally obligated to share with tenants. Whether I allowed the tenants to terminate their lease as a result of these conditions is another matter. But I think I would advise the tenants that a sex offender or sexual predator lives nearby.
What would you do if you were such a landlord?
___________________________________________________
DISCLAIMER: Judge Joven is a personal friend of mine. We were college classmates, and I have had a friendship with him for more than 20 years. He is a great judge, a good legal thinker, a community leader and a fantastic family man. I wholeheartedly support the Judge and hope sincerely that he is reelected.
Ten Facts about Mortgage Debt Forgiveness
Posted on | March 9, 2010 | 1 Comment
My friend and mortgage consultant, Mickey Brooks, and I were talking this week about a client who needs to refinance her home. We got to talking about mortgage debt, tax sales and a variety of topics. Tax liability that can arise when a mortgage debt is forgiven came up briefly. Then, it came up in another conversation yesterday. And then a law partner sent me the following summary from the IRS. Clearly, this is an important topic, so I thought I’d share this excerpt from an IRS newsletter-
Ten Facts about Mortgage Debt Forgiveness
If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
- Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
- The limit is $1 million for a married person filing a separate return.
- You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
- To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
- Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
- Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
- If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
- Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
- If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
- Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Setting Up An Indiana LLC
Posted on | March 7, 2010 | No Comments
Question: “We formed an LLC a few years ago, but haven’t done anything with it. We do own properties and a business, but nothing is titled in the name of the LLC. There are several family members involved and our tax returns are a mess. Any advice on what we should be doing?”
Matt’s Answer: “Yes, I advise you to gather all your deeds, financial records and company records, and sit down with your business or real estate attorney, your CPA and your insurance agent. I have reviewed your company records, and can see that you’ve done essentially no planning. We need to develop a plan for you. You need an asset protection plan that includes some training and education on how to operate your LLC. You need to get better insurance on your properties, your business and the LLC members. You need to fix your company record book, which includes the drafting and completion of an Operating Agreement. And, that Operating Agreement should contain buy-sell provisions to address what I call the “Big D’s-” death, disability, marital divorce, dissolution of the entity, and disinterest by one or more members. You also need to fix certain accounting and tax irregularities, which flow from your failure to devise a plan.
Your meeting with your attorney should last one hour to two hours, and should include training and instruction on how to operate this business. Yes, it is a business. “Real Estate Investing” is a misnomer. It should be called “Real Estate Management” or “Real Estate Business.” You should apply basic business principles to your real estate business. Although I cannot explain in great detail here everything you need to do to correct the shortcomings of your operation, I can assure you that it is a fairly routine matter for an experienced real estate and business attorney. This is not difficult to correct, but you need to consult with professionals and implement a plan. Do not believe everything you’ve read in a book, on the Internet or in a seminar manual. And do not expect your CPA or insurance agent to fix your legal matters, as each of these three professionals has his or her own expertise and field of licensed competency. Go see all three- an attorney, a CPA and an insurance agent- and get your house in order as soon as possible. Within thirty days, you should have your real estate business matters in order.”
Landlording 101- Indiana’s 45-Day Letter Rules
Posted on | March 4, 2010 | 2 Comments
Question: ”What is the 45-day letter?”
Matt’s Answer: ”Indiana law requires a landlord to give a tenant an itemized list of damages and the balance, if any, of the security deposit to a tenant within 45 days after the landlord regains possession.”
Question: ”Is is the 45-day letter required in every leasing situation?”
Matt’s Answer: ”This law applies to residential leases, in which the landlord has collected a security deposit. Be aware that “security deposit” is broadly defined. A security deposit includes any monies beyond the next month’s rent. So, if you collect the first month’s rent, the last month’s rent and a security deposit, all those monies, except the first month’s rent, are included in the security deposit.”
Question: ”Does the 45-day letter have to be in writing? Where do I send it?”
Matt’s Answer: ”You send the 45-day letter, in writing obviously, to the tenant’s forwarding address. Until the tenant provides the forwarding address, you need not send the letter. However, I think it is a bad idea to await the tenant’s forwarding address. Unless you have the address in writing, I recommend you send the 45-day letter to every address you have on the tenant, including the rental unit the tenant just vacated. More than once, I have been in court when a tenant has lied about giving the landlord the forwarding address verbally, or on the back of an envelope or scrap paper. Do not risk losing your case. Send the letter someplace, so you can prove to the court that you tried to comply with the law. And keep copies of the letter and even the envelopes you mail.”
Question: ”Is this all I need to know about the 45-dy letter?”
Matt’s Answer: ”No. I could write a small book on the topic. It has been the source of much litigation in Indiana over the years. This article is just an introduction to the topic.”
Indiana Attorney General Targets Real Estate Investors
Posted on | March 4, 2010 | 6 Comments
If you are engaging in any of these real estate transactions in Indiana, you should read this blog article-
- Buying on option & then selling (assigning) the option.
- Buying & reselling using a “double close”
- Buying “subject to” an existing mortgage
- Listing properties you do not own on your website, in fliers, in newspapers, etc.
- Using “bandit signs” or using the phrase “We buy homes” in your marketing materials.
In the past six months or so, I’ve had multiple conversations with Deputy Attorneys General, and other business and real estate attorneys about how the Indiana Attorney General is applying certain laws. Some of those conversations have been very long and very frustrating. In short, it is clear to me that the Attorney General has essentially declared war on certain small real estate investors who engage in “subject to” transactions with or with having a real estate license. In particular, there are two key statutes that the Attorney General is using to target small real estate investors-
- Indiana’s home mortgagor protection statute, effective July 1, 2007
- Real estate licensing statute.
The Attorney General views essentially every “subject to” transaction as unlawful. If you take title “subject to” an existing mortgage, you better have a bond, as the Indiana Code now requires. And, you better not be holding a Power of Attorney from the seller-owner. And even then, you better have a rock-solid contract with plenty of notices, warnings and disclaimers. And, if you satisfy these requirements, you might be in trouble if you do these deals often without a real estate license.
All of this is done in the name of protecting homeowners. The Attorney General sees this as consumer protection. I respectfully disagree. There are ethical, responsible real estate investors who save houses from foreclosure. The Attorney General’s approach diffrs from what I would do, in that his office seemingly attacks all investors doing deals “subject to.” I would favor an approach that distinguishes between good deals that help people and bad deals that hurt people.
Several months ago, the Attorney General conducted a statewide sweep. He gathered evidence on anyone with a website or bandit sign that read “We buy homes.” Seriously, that happened. The Attorney General started an investigation and issued document requests on 100′s, and maybe 1,000′s, of investors who used the phrase “we buy homes” in advertising messages. I think such tactics are unfair and uinwise.
I wish the Attorney General and the Indiana General Assembly understood the difference between legitimate “subject to” deals and the “get the deed at all costs” deals. Nor does the law they wrote distinguish between good deals and bad deals.
My advice? STAY AWAY FROM “SUBJECT TO” TRANSACTIONS IN INDIANA. Let the house go into foreclosure, buy it REO, and thank the state government for helping you drive down the price. Yes, that will hurt many homeowners, but let government officials explain the policy to homeowners who could have benefitted from a fair “subject to” deal.
Do you need a license to sell my own property?
One day, I had an hour-long argument with an investigator with the Attorney General’s Office who tried to convince me that you need a license to sell your own properties on your own website, if you sell more than a few at a time. I referred that investigator to the U.S. and Indiana constitutions. See “fundamental property rights.” I got a call back from a Deputy A.G. who apologized and retract the mistatements made by the investigator.
Here’s the deal. . . the Attorney General now takes the position that you cannot find a property, take an option on it, and then assign the option for a fee, without a real estate license. I assume that the Attorney General’s policy would extend to buying properties by contract, if the buyer merely marketed and assigned the land contract to another buyer.
The impact of these new policies, which are not law, are enormous on small investors-
- Bird Dogging is dead in Indiana.
- Even worse, most land speculation is dead in Indiana!
You might be wondering if the law changed recently? Did the Indiana General Assembly pass a law making options or landcontract assignments unlawful? No, there was no change in the law. The Attorney General simply decided that the licensing statute now applies to the assignment of options, and presumably to land contract assignments as well.
I should note that these new policies appear to extend only to residential homes. I doubt that commercial properties will be impacted, as there is no “consumer” to protect in a commercial deal.
Conclusion.
If the Attorney General can simply make a policy decision that has the effect of changing the law, I am not sure that you can safely rely on prior case law decisions and well-intend, well-established business practices. Now more than ever, you need to be very careful in such deal structures.
STOP TAKING LEGAL ADVICE FROM “LEGAL WITCH DOCTORS” AT A SEMINAR OR BOOTCAMP WHO JUST WANT TO SELL YOU A DVD OR FORMS ON CD! Those are things that are going to get you investigated or sued or prosecuted. There are no “get rich quick” real estate deals, and your legal documents and deal structures better be vetted by a knowledge real estate attorney. If not, you’re playing with fire. I hope none of you reading this get burned.
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