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Q: My husband is out of work and we
are having trouble making our house payments. We
recently received a Notice of Default, indicating
that our house would soon go into foreclosure. Right
after that, we received a phone call from someone
offering to lend us money to bring our payments
current. He is a private individual, not a broker,
and makes equity loans (second Trust Deeds) to
people in our situation.
Is it safe for us to deal with him? What are
possible problems? Is he “legal?” Would it be better
to deal with a broker, and if so, why?
A: Wow! I don’t know where to start. When an NOD is
filed, you will be inundated with letters, phone
calls and visitors offering to (1) cure all
problems, (2) steal your house from you, (3) make
loans at rates that will make you cry, or (4) assist
you in filing a bankruptcy and ruining the next
several years of your life.
Please don’t take this as a smear on every
individual that will knock on your door – I am sure
that there is one nice buzzard somewhere who preys
on dead meat. The next time I see buzzards in the
zoo, I will see if I can spot a “nice one.”
Please realize that a lender who specifically
targets properties in foreclosure is already looking
to make a loan under almost the worst circumstances.
Certainly that lender would rather make a loan to
somebody with impeccable credit. If they are
soliciting loans in foreclosure, they obviously have
your interest on their mind, and I don’t mean your
personal interest, I mean the interest on your loan.
There is a series of “foreclosure consultants” laws
that were passed in the late 1970s to prevent people
from defrauding you. The problem, however, is that
most of these consultants don’t even realize that
there are laws specifically regulating their
activities. If this person is a private individual,
I assure you that he is intending to lend you money
at a rate substantially higher than the present
usury ceiling of 10 percent. The only legal way a
private lender can do that is to have a real estate
broker arrange the loan. If the lender makes this
loan without a real estate broker, he is not “legal”
according to your question; however, that really is
his problem because he would have to deal with your
usury claim at a later date.
I have several recommendations, and the first would
be to contact a real estate attorney or a real
estate broker well versed with the foreclosure
process. Have them counsel you and perhaps deal with
your lender for you. Certainly you should listen to
whatever anybody has to offer, and when one of these
deals seems good, refer that person to your advisor.
Let your attorney or advisor verify the credentials
of the particular buzzard in question, and perhaps
it will be one of the few “nice” buzzards.
In case you feel that I have a
jaundiced view of foreclosure chasers – You are
right, I do. Good luck. |
