Yesterday, a complaint was filed by local lawyer N. Paul Friederichs against Minnesota Attorney General Mike Hatch's office. The complaint alleges that Hatch's office has advised several people to stop paying on their contracts-for-deed (CDs). I was given a copy of the Complaint yesterday, as well as the accompanying Memorandum in Support of Plaintiff's Motion for a Temporary Restraining Order, to review for personal interest. I've decided to post both of the documents below (who doesn't love reading 28-page legal documents, huh, huh?!), as well as offer my opinion on the matter.
First of all, Friederichs is a real estate investor. He buys distressed properties from people who can no longer make their mortgage payments for whatever reason. He then sells the house back to them on a CD. Friederichs makes a profit, the property is spared from foreclosure, the homeowners get to keep their homes, and their credit is saved.
For some reason, investors like Friederichs are viewed as the bad guy. Why is that? I can understand feeling sorry for another person when they fall on hard times, but how difficult is it to understand that the investors are doing the homeowners a favor by sparing them from foreclosure? And it's not just irreparable damage to their credit they escape by selling to a real estate investor. Think about it: you have $X in equity on the property. Someone in your household loses their job or divorces you or acquires a massive drug habit, and you can no longer make the mortgage payments. The bank is threatening foreclosure. A real estate investor offers you $X, so you can wash your hands of the mess and start over. Some investors, like Friederichs, even let you stay in your home, in your neighborhood, to keep making payments on the house via CD until it's paid off, at which point it's all yours.
The other choice here is that your credit is shot, you lose your home, you don't see a single penny of the equity you've acquired, and the sheriff comes knocking on your door at the end of the month to evict you, throwing all your belongings on the front lawn while your neighbors wonder what the hell is going on because you were too embarrassed to tell them you couldn't afford to make your mortgage payments anymore, and were too stupid or too proud to explore the alternatives to this unfortunate scene playing out.
I happen to know a lot about this business, so I should also point out for those who don't that another option is to sell your home as soon as you realize you can't make your house payments. This is the smartest course of action, should a foreclosure happen to you. Those "We Buy Ugly Houses" billboards? This is what those guys do. Ever been sitting at a stoplight and seen a "Need to Sell Your House Fast?" sign stapled to a post? Same thing. This is a business.
So why is Mike Hatch's office allegedly calling up CD customers and telling them to stop making payments? The real estate investment community thinks it's a PR move. In case you've forgotten, Mike Hatch is running for governor next year. This is possibly -- probably -- an attempt to gain votes by evoking sympathy for "the little guy". They want voters to think that the little guy is the person who can't make their house payment anymore. But who's really the little guy? Isn't it the real estate investor who's trying to make a living, but is being prevented at every turn?
Hey, if you feel sorry for someone who can't make their house payment anymore, throw them some cash. Who I feel sorry for right now is Friederichs. He's got at least 4 properties about to go into foreclosure right now because Mike Hatch's office has allegedly advised the occupants of Friederichs' houses to stop making CD payments. He can't pay all those mortgages, in addition to his own. And he's not the only one. Off the record, I know of a number of other investors experiencing the same harrassment from Mike Hatch's office since this summer.
So here comes the real little guy. Friederichs is the first one to fight back against the harrassment and, depending on how this complaint and restraining order are considered in court, others will follow. There's nothing illegal or unethical about the way the business operates, despite how sensational some want to make it out to be. Everyone is losing right now. The investors are losing money and their properties. The homeowners are losing all of their equity, not to mention credit. In fact, once the properties go into foreclosure, they will all be permanently evicted, anyway. So what the hell is Mike Hatch's office doing? Anyone? Bueller?