V.I.P. Trust Deed Company
September, 1992
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.
Peter Rosenthal
VIP Trust Deed Company