Indiana Attorney General Targets Real Estate Investors

Posted on | March 4, 2010 | 10 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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