Maryland State Code 7-301

General Real Estate Investing
1

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.

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Are there NO real investors from Maryland here?

dlmcgill

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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.

4

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.”
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.”
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.”
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.
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

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

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.

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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

6

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.

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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

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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?

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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

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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.

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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 :slight_smile: 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

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Hi Danny:

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

dlmcgill

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That’s correct, check yours.

14

Hi Danny:

Great info! Thanks.

dlmcgill

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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

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Hi dlmcgill,

I invest in DC and Virginia and have done about a dozen rehabs in Baltimore. I have not done any pre-foreclosures there, but I wanted to say that I agree with you about the law protecting the financial institutions.

My opinion is that the law was written by people who do not know anything about real estate and the homeowner’s situation or consequences. I think that the code/law will hurt more homeowners and banks, for that matter, than it will help. The lawmakers did not look at what happens to someone if a bankruptcy or foreclosure goes on their record. Since I live in Virginia, and do not do many deals in Maryland, I do not see the point in me writting the Maryland legislators to get my points across. To be sure, if these laws start to be adopted by DC and VA, I will do everything I can to oppose and educate those in power.

I think the intentions of the law, to protect the homeowner, were good. But how they wrote it will hurt those they are trying to protect more than it will help.

I am sure that there are a lot of people on these message boards who have been sincerely thanked from homeowners who did not have a way out of their situation without an RE investor’s help. One of my properties I purchased, the family who inherited their mother’s property had negative equity because of judgements and a son who ran up a 2nd position HELOC, with fees, missed payments, etc would have had to come out of pocket $18000.+ just to get walk away from the house.

I was able to discount the 2nd note and get a credit judgment and a criminal judgement released that were placed on the house, give the family $4500.00 for their mother’s final expenses and purchase the house.

The son in charge of the estate wrote me a letter thanking me for helping the family out of their situation. I’ll bet as probably would you, that their are 100s if not 1000s of stories like this from the people of these posts. Somewhere, I still have the letter. It would be great if the laws could be amended from people sharing those types of letters with the legislators.

Good post, and I learned a lot from it…so thank you. I was curious as to the specifics of the legislation.

Chip

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I found out the Maryland doesn't have a redemption period.Its on a case by case bases when you go to court.
That's the part that scares me. I could deal with a flat 30-90 day redemption period but some undetermined period of time decided by a judge is what I can't handle. You got lucky to make 25k.
18

dlmcgill,

I am looking at the Maryland Code and can’t seem to find where this 82% rule is mentioned.

Could you help me out?

I did find a reference to 82% of sale proceeds in MD House Bill 1288. It is not clear to me that this 82% language ever made it into the final version that was enacted.

Essentially, the 82% rule applies to a “foreclosure reconveyance” wherein the investor gives the seller the right (whether by purchase agreement or by lease option) to repurchase his property from the investor. If the investor sells the property to a third party anytime within the 18 month period after entering into a foreclosure reconveyance agreement, then the original seller is entitled to at least 82% of the net proceeds from the resale.

As I interpret my readings, the 82% rule in MD House Bill 1288 would not apply if the investor never enters into a reconveyance agreement with the seller in the first place. As I said before, I can not find a reference to this in the Maryland Code, so I wonder if this provision of the Bill made it into the Maryland Code.

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Hi Dave:

I’m no attorney and I admit that I struggle with legal terminology :slight_smile: That said: Maryland Code 7-301. Definitions states that ‘Foreclosure reconveyance’ means the transfer of equitable title from the homeowner to another party during the foreclosure process. It goes on but I thought I would shorten it a bit. This really hurts my business of Sub2 investing. By which I target people in the beginning stages of foreclosure.

Maryland Code 7-311.Obligations of foreclosure purchaser states “that the purchaser must make payment to the homeowner withing 90 days of any resale of the property so that the homeowner receives cash payments or consideration in an amount equal to at least 82% of the net proceeds from any resale of the property should a property subject to a foreclosure reconveyance be sold within 18 months after entering into a foreclosure reconveyance.”

Maybe someone here can hopefully explain how this does not relate to a Sub2 deal in which homeowners in foreclosure are the target market. That would help me out greatly. I appreciate all of the feed back.

dlmcgill

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MD Code 7-311 was passed not too long ago in response to the rampant illegal flipping/ loan fraud in Baltimore. Just another thing that keeps foreclosures out of my business model.