"Official" Vigilantism

I came across this story on CNN.com today. In a nutshell, there is a sheriff in Chicago who thinks there are too many foreclosures and will stop evicting "innocent" renters from properties. I can surely empathize with him. It would not be fun to evict people for no fault of their own. But enforcing the law sometimes means doing things that are not pleasant.

I agree that the tenants are not to blame for the foreclosure - in most cases. It's the landlord, after all, who has not paid the mortgage. However, that doesn't mean the tenants are entitled to live there for free. The law is the law and the sheriff should enforce it and kick the tenants out.

From what I can tell, the sheriff's main beef is that tenants are being evicted even if they have paid the rent on time. His justification for refusing to enforce eviction notices is the fact that the banks are not identifying the people living in the property when they issue him the eviction notices, as they should be. OK, maybe the banks should be doing that (although I think it might be rather difficult for them to do so, especially if the bank is located in another state). But by refusing to evict tenants at all, he is also allowing those tenants who do NOT pay their rent to remain in the property for free. He says he is coming across "innocent tenant after innocent tenant" that are being kicked out. Hmm. The last time I checked, it was a judge's or jury's responsibility to determine someone's guilt or innocence, not a sheriff's. And he obviously is taking the tenant at their word. As any landlord can tell you, tenants are known to tell lies now and again when it comes to rent payment matters.

But suppose the banks give the sheriff what he wants and they do start correctly identifying who is living in the building when they give him the eviction notice. This will not change what he has to do. He will still be required to evict the "innocent" tenants. Loan contracts clearly state that if the mortgage is not paid, the bank gets the property, no matter who is living in it. The tenants will still have to be evicted. Sorry, Sheriff. You have to enforce the law, no matter how unpleasant you find it.

As for wanting legislation to protect the tenants, what exactly does he want to see? The property owner go to jail? Well, that's not going to solve anything. The bank still won't get their money if they can't take back the property. First, there is no guarantee that the tenant's rent will even cover the amount of the mortgage in the first place. (If the owner was smart, it would, but in the midst of the real estate bubble, many, many people rented investment properties for less than the mortgage amount, hoping that appreciation would make them money in the long run.) Second, the bank does not want to be in the landlord business, so having the tenants remain in the property and just pay the bank instead is not an option. I'd be interested in knowing exactly what type of legal remedy this sheriff would like to see. I guarantee you it will not be fair to someone.

More Problems For Those Being Foreclosed On

I wrote two weeks ago about what appears to be a burglary ring that targets people who are losing their homes to foreclosure. Now another scam targeting people in foreclosures is hitting the news. Truth be told, this isn't a new scam and I've heard about it before, but this is the first time I've seen some serious media coverage of the issue. This scam involves stealing the equity out of people's homes. The article details how this is done, but in a nutshell, it involves getting the homeowner to sign over their house to someone and then that person or company gets another loan on the property for the amount of equity. This new loan is never repaid. The previous homeowner usually doesn't know what is going on. They are usually allowed to continue living in the property and often think they did not sell their house or that they can buy it back in 1 or 2 years.

This is very similar to what Live Free Investment Group was doing here in the Phoenix area. I met with them last year to find out more about what they do. Although, and I stress this, I have no reason to believe Live Free Investment is doing anything illegal, immoral, or is involved with the above mentioned type of scams, it was something I was worried about back then. Whenever you take title to a property from someone in foreclosure and allow them to continue to live in the property, I see nothing but trouble. When the person has to move out, there is very little doubt that they are selling the property. But when they can stay, things can get murky in their minds. Even given that companies like Live Free may be 100% legit, the scams that are going on will no doubt bring more regulatory actions down on the entire industry and cause the legal costs, both real and potential, for doing these types of transactions to increase.

This is one of the reasons my step by step guide for buying preforeclosures stresses that the sellers must move out of the property.

Possible Trouble For Arizona Landlords

This is an email I received from the ACLU today and it applies directly to all landlords in Arizona.

Currently, the Arizona House of Representatives is considering a bill that, if passed, would restrict housing for Arizonans, and cost the state of Arizona millions to enforce.

HB 2625 would prohibit landlords from renting to undocumented immigrants. Private landlords are not trained in immigration-related document review and verification, yet this bill would compel them to assess whether a tenant has presented proper documentation. Studies show that the elderly and disabled populations are much more likely to lack government-issued photo identification, like drivers' licenses, or ready access to birth certificates or citizenship documentation-so, if passed, HB 2625 would have potentially devastating effects on lawful residents.

In addition to punishing landlords by forcing them to act as federal law enforcement agents, HB 2625 would also violate the property and contract rights of both landlords and tenants, as well as federal fair housing and privacy laws, and disproportionately discriminate against Latino families.

HB 2625 raises serious concerns about procedural due process guaranteed by the Fourteenth Amendment to the U.S. Constitution. To date, not one anti-immigrant housing ordinance has withstood constitutional scrutiny anywhere in the country.

The Arizona House of Representatives will be voting on HB 2625 next week, and we need you to urge your Representative to VOTE NO on HB 2625!

Please contact your local Representative by clicking here

Tell your Representative that HB 2625 is:

• Bad for landlords
• Hurts U.S. citizens & authorized visitors
• Constitutionally suspect
• Imposes major enforcement costs

I know as a landlord, I would not want to get involved in determining the citizenship status of my tenants. At the very least, what if they have fake documents? How am I supposed to detect those?

Nevada Extends Charging Order Protection To S-Corps

This one was brought to my attention by Diane Kennedy's tax Loopholes Updates newsletter. LLCs and Limited Partnerships have enjoyed protection from charging orders in many states for some time. A charging order is a legal instrument that says if a creditor obtains a judgment against you personally, the creditor can attach a claim to your interest in an LLC or LP that you are part of. The protection comes from that fact that the creditor does not get any money until you make distributions from the LLC or LP - which you never have to do. However, they are responsible for any taxes on profits the LLC or LP makes, even if those profits are only on paper and never distributed to shareholders. Thus, if a creditor gets a charging order against your LLC, he is liable to pay the taxes, but may never get any income from it.

Nevada is one of the few states, along with Delaware and Wyoming, that is aggressively trying to attract business interests by passing laws that are very business-friendly. In continuing that trend, Nevada has no extended the same charging order protection enjoyed by LLCs and LPs to S corporations. As Diane points out in her newsletter, this is a new law and we should wait until there are several court decisions supporting it to get all excited, but it is worth keeping an eye on. And, of course, you shouldn't be holding your investment real estate in an S-corp anyway, but one could be the manager of your LLC...