If you are not aware yet, Governor Crist just signed into law House Bill 643 the Foreclosure Fraud law. You can read the final version of the bill by clicking on "Enrolled" on the legislative website or simply clicking here.
In general, I am against anything regulating free trade and capitalism. The more regulation out there, the more expensive and difficult it is to do business. This in turn reduces competition thus giving members of the general public less choices and higher prices. If you don't believe me, just think of how lack of competition and high taxes and regulation have affected gas prices.
The good - I do believe this new law does more good than bad. It is specifically targeting people who contact someone in foreclosure. It gives a homeowner special protection if they intend to retain any interest in the property after the closing occurs. It also requires that the homeowner receive specific written disclosures notifying them of their rights with a "cooling off" period. It also protects the homeowner from someone who might take money from them and then sort of disappear. People do need to be protected from unscrupulous vultures who would take advantage of a vulnerable situation.
The bad - The law requires a special written addendum with specific deadlines, timelines, and cancellation periods. While this is good for the homeowner it is discouraging for the Realtor, investor, or entrepreneur who may be legitimately trying to help them out while still making a profit. It allows wishy-washy owners to change their mind, shop the contract, etc. It also puts an additional burden of paperwork and disclosures onto everyone's backs. Like we need any more paperwork.
The ugly - As with any law there can be "unintended consequences" as I learned in my little stint of lobbying in Washington a few weeks ago. Here are the unintended consequences that I see:
1. It specifically targets sale and repurchase agreements. By placing restrictions in this area and limiting "unconscionable" profits to only a 17% markup, it basically eliminates repurchases altogether. Any investor who has ever bought and re-sold a property (i.e. Flip This House) knows that 17% will barely cover the closing costs and holding costs during the period. Thus sale and repurchase agreements will most likely become extinct and the homeowner loses one possible option that they used to have. It also eliminates investors buying properties "subject to" the existing financing unless the homeowner moves out and does not retain an interest.
2. Additional paperwork and disclosures will discourage some investors and Realtors from even fooling with the whole process. Short sales and foreclosures are always iffy situations at best. By putting this additional wrinkle with severe penalties attached to it, many people who might otherwise try to intervene in this situation will just stand aside and let the property get repossessed by the foreclosing lender. Why do a short sale if you risk the chance that the homeowner might hire some ambulance chasing attorney to come track you down later on because you didn't fill out the papers correctly?
3. By disallowing upfront fees to be paid from the homeowner, many Realtors, attorneys, and other short sale service providers will lose interest in trying to work with the homeowner. Since we know that somewhere between 50% and say 80% of all short sale or negotiation attempts with lenders fail, there are less and less people willing to work for free on these negotiations. The bottom line is that this new regulation will chase off some of the legitimate business people from the foreclosure arena. That cannot be good in a time when foreclosures are high and buyers are few.
4. AND PROBABLY THE MOST UGLY OF ALL: Unless you do a title search verifying a lis pendens has not been recorded, you could violate this law unintentionally. If you sign a listing agreement or a purchase contract with someone and a lis pendens is recorded, from what I read in the law, you have to get this disclosure signed. Even if the property goes into foreclosure after you listed it, you apparently need to get the disclosure signed prior to a contract. If not you are subject to huge penalties. There is no exemption for licensed real estate associates/brokers (correction 6/1/08: as Cyd pointed out below FS 501.212 may exempt sales associates and appraisers, but I am still not 100% positive about all this) or just average Joe owner occupant buyers. Talk about scary consequences.
So that is the way I see it. I don't have all the answers, but hopefully this analysis has at least helped to enlighten you on the subject. My question is, "Do we really need any more laws on the books?" It doesn't matter, but this one has passed.
Also just because you don't live or work in Florida, do not think this does not affect you. There is a similar federal bill in Washington right now sponsored by Senator Herb Kohl that is in the works. Here is the link.
(Copyright © 2008. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold, ABR, CPL, CRB, GRI, Managing real estate broker, Licensed mortgage broker, Notary Public
Your full service and investor friendly Realtor in Orlando. Learn to invest in Central Florida real estate and Orlando real estate. Investor mentoring and counseling available. I also provide flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Central & South Florida, the Space Coast, and the Treasure Coast including Orlando, Winter Park, Maitland, Ocoee, Winter Garden, Apopka, Altamonte Springs, Casselberry, Longwood, Winter Springs, Oviedo, Lake Mary, Sanford, Deltona, Debary, Deland, Mount Dora, Eustis, Clermont, Kissimmee, Winter Haven, Lakeland, Tampa, Sarasota, Bradenton, Miami-Dade, Fort Lauderdale, West Palm Beach, Port Saint Lucie, Melbourne, Daytona Beach, Ocala, Gainesville, Volusia, Brevard, and more.
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