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When you go to school to become a real estate agent, one of the first things you learn about is Fiduciary Duty. It is a keystone of integrity for anyone in the business, and is discussed again and again in your continuing education as an agent. It is also a basic component of the Code of Ethics to which every Realtor is bound.

But what exactly is fiduciary duty? Let’s begin with a simple acronym: CARLOAD. There are seven tenets which define fiduciary Duty:

Confidentiality-any information divulged by the client is kept in utmost confidence, and NOT SHARED with anyone. Think doctors and lawyers.

Advocacy-the agent has client’s best interests at heart, and will go to the greatest lengths to ensure the best possible outcome for them.

Reasonable care-the agent makes sure all processes are completed in a timely manner, follows up and follows through. Think of your agent as a project manager.

Loyalty-the agent acts in the best interest of the client; every decision and discussion is taken as a representative of the client.

Obedience-the agent who enters into an agreement with a client commits to perform according to their agreement. The agent acts (or doesn’t act) upon the instructions of the client (within the law, of course)

Accountability-the agent keeps the client apprised of all developments in the transaction and keeps the lines of communication open. The agent also double checks all the numbers so there are no surprises.

Disclosure-any information within the scope of the transaction is disclosed to the client. ALL offers are presented to the client, even the “lowballs”.

You will notice the term CLIENT is used throughout the preceding discussion. Anyone with an interest in buying or selling a home can be considered a customer, and an agent has a general obligation to be truthful and reasonably forthcoming to them. However, no fiduciary duty exists. A client is a customer who has entered into a representation agreement with the agent, either with a Listing Agreement or a Buyer-Broker Employment Agreement. Once this agreement is in place, the agent is officially on the client’s team, and therefore MUST act as a fiduciary.

One illustration of the value of this is in the situation of dual agency. Suppose Bob and Betty Buyer are driving down the street and see a Realtor’s sign in the yard of a home. They decide to call the number on the sign, belonging to the listing agent, Sammy Salesman. During the call, Sammy asks if they are represented by an agent, and they reply that they are not. This is an opportunity for Sammy to offer his services to Bob and Betty. This can be an issue because Sammy’s Fiduciary Duty remains with the homeowner, and it may be problematic for him to provide the same duty for the buyers without violating most or all tenets of the CARLOAD; for instance, the duty of full disclosure would conflict with the duty of confidentiality. Not illegal, but obviously a conflict of interest. Bob and Betty are certainly free to take him up on it; by so doing they would be agreeing to limited representation. A far better solution for them would have been to work with a buyer’s agent, who would work in their best interest by virtue of the Buyer-Broker Employment Agreement.

The importance of quality representation is difficult to understate, whether you are buying or selling real estate. By having a pro in your corner, you can be assured that your best interests are being served, and the transaction will come to a successful and satisfactory conclusion.

Since, we are currently, experiencing, an historic period, regarding the ever – increasing, prices, many houses, seem to be selling, for, some people, seem to think, this is the way, the real estate market, always is, rather than considering the bigger = picture! In fact, historically, this market, often, fluctuates, sometimes, proceeding, as a sellers – market, while, at other times, as a buyers, or neutral one! Although, over time, the price of houses, has kept up with, and, even, slightly exceeded, inflation, there is no consistent trend, as to how this occurs! How long, the current conditions, will continue, and, what might, occur, next, as well as the timing of, this, is uncertain, and, of course, not guaranteed! After, over 15 years, as a Real Estate Licensed Salesperson, in the State of New York, I have seen, many different market – conditions, and, believe, in the bigger – picture, and over – time, there are, at least, 6 issues, which impact pricing. With, that in mind, this article will attempt to consider, examine, review, and discuss these, and why, they matter.

1. Supply and Demand: In the longer – run, the economic concept, of Supply and Demand, is, probably, the most relevant, single – condition, in what happens to pricing! What this means, simply, is when, the number of sellers, outweighs, the number of potential, qualified buyers, home prices, won’t, generally, move up, but when there is a lack of inventory (homes available for – sale, on market), prices rise! When, things are, in – between, we witness a neutral real estate market! Presently, the reason, we witness, such an extreme, amount of price increases, is, the aftermath of the closing of economies, etc, the lack of inventory, many buyers, etc, and a perception, apparently, indicating it is the time, for them, to act!

2. Overall economy; consumer/ job confidence: Whether, it is the actual, overall economy, and conditions, or, simply, a perception, when buyers are optimistic, prices rise, and the opposite often occurs, when they are pessimistic! In addition, the degree of consumer confidence, as well as belief in job security, etc, makes a huge difference!

3. Perceptions of buyers and sellers: When buyers perceive real estate, as offering, meaningful value and viability, it helps drive them, to offer higher prices, and, even, sometimes, creates bidding wars! However, when sellers, become greedy, and offer their houses, at far – too high, prices, it often, slows this trend!

4. Mortgage rates: When mortgage rates are low, it permits potential buyers, to get, more house, for their bucks, because, their monthly installments/ payments, are lower! The current market, is, sort – of, a Perfect Storm, of low supply, great demand, and historic – low, mortgage rates!

5. Local issues (positive and negative): Many believe, much of real estate, is, local, because local issues, whether positive or negative, often, creates, either, conditions, which make one area, more attractive, or less – so! These include: safety/ crime; conveniences; transportation; education/ schools, etc!

6. How a house compares to similar others: Qualified real estate professionals, create, fully – prepared, relevant, CMA’s or Competitive Market Analysis, which, compares, a specific property, to comparable/ similar ones, on the local market, at that time!

If, you plan to, either, purchase, or sell a home, doesn’t it make sense, to understand, the factors, involved? Will you become a more – educated homeowner, or buyer?

Role of a Real Estate lawyer

First your lawyer will send you a letter outlining what documentation he or she may need from you. Since you will likely be paying at least $1300 plus for legal services, I think it’s important that you know what your lawyer will be doing for you! Below is some detailed information on the role of a real estate lawyer and on what you need to do when working with your lawyer and securing a mortgage. Don’t wait to higher a lawyer just before you taking position of your new purchase, make sure you interview them way before your closing date.

Your Real Estate lawyer should advise you what expenses you’re likely to incur with respect to the closing procedures, including:

Land Transfer Tax

disbursements

legal fees

property tax

If you’ve bought a new home from a builder, the Real Estate lawyer can give you an educated estimate as to how much you should budget for “hidden charges” such as:

Ontario New Home Warranty Enrolment Fee

Hydro and Water meter installation charges

Fencing charges

Grading Deposit charges

many others

If all the conditions in the Agreement have been met and the Offer is firm, the lawyer proceeds to investigate the title to the property. Initials searches include:

utility searches

property tax searches

building, zoning and planning searches

registered title searches

Letters are sent by your lawyer:

to all municipal or regional utility departments to confirm that there are no arrears or outstanding charges

to ensure there are no conditional sales contracts, easements or unregistered agreements, liens

to discover other encumbrances affecting the property or equipment being left by the Seller

Easements are a big issue and cases are always being written up in the newspapers and real estate journals, about buyers who didn’t realize they weren’t allowed to put up fencing or create a parking space because the property survey they were working from didn’t actually show the City’s rights to access the property. Your lawyer’s job is to make sure all this is disclosed to you. Your lawyer will also advise the utility departments of your name and the scheduled closing date, and request that final meter readings be done on the closing date so the final bills can be sent to the Seller.

A Tax Certificate is requested by your solicitor to verify the amount of the current year’s taxes and to ask about any arrears and outstanding charges for taxes. Your lawyer will also write to the Building and Zoning Department to get the full particulars of zoning by-laws and restrictions and permitted uses (so you’ll know if you’re allowed to operate a business from your home or build a huge deck, for example). It’s important that you send your lawyer a copy of the survey for the property as soon as possible – if the Seller has a survey, I’ll get it for you if it’s not already included in the offer documents. If no survey exists, tell your lawyer so he/she can advise how your interests can be protected through Title Insurance.

A Search of Title to the property is begun in the Land Registry Office to make sure the Seller is the true owner of the property, has the right to sell you the property, and that the property is not subject to any encumbrances, encroachments, easements, liens, agreements or mortgages that were not disclosed in the Agreement or Purchase and Sale. You may have heard of fraud cases where people’s homes were sold out from under them by con artists who had no title to the land! This is where your lawyer really earns his fees. This search has to be completed prior to the Requisition Date (title search date) shown on your Agreement of Purchase and Sale.

Other important functions of your lawyer include:

Carry out a search of Executions in the appropriate Sheriff’s Office to ensure that there are no executions against the prior owners of the property that would affect your title.

Prepare and deliver a letter to the Seller’s lawyer requesting that any items revealed in the initial searches be dealt with on or before closing.

Review the contents of the Mortgage Commitment letter your bank will prepare when you arrange your financing, and consult with you about the results of signing it.

Advise you of any closing-day costs related to mortgage financing when your financial institution provides you with a final Mortgage Commitment Letter.

If your lawyer is also acting on behalf of the financial institution (it often happens), he/she will prepare all necessary documentation for the mortgage and submit this package to the financial institution for approval prior to closing:

– Certify title of the property to the financial institution on closing.

– Advise you about any government programs designed to assist home buyers that would apply to you, including Land Transfer Tax Rebate programs, Ontario Home Ownership Savings Plans, RRSP plans, and CMHC 5% Down Payment information.

– Let your insurance broker know the name, address, phone number and fax number of both your lawyer and of the financial institution providing your mortgage. Your lawyer needs a letter confirming that insurance coverage is in place effective on closing – this is super important because the bank will not advance the $ to close your purchase until they know that you have property insurance.

While Ohio real estate law does not require you to have a real estate lawyer, there are certain instances in which having a lawyer may be a good idea. When buying a property that has any common interest developments, it may be difficult for the average consumer to discern between parts of the property that are for one’s exclusive use versus parts that are for community use. Common interest developments, such as condominiums, may have ongoing litigation that may have an adverse effect on the future value of the property. A real estate lawyer can explain what the possible outcomes of ongoing litigation may be, so you can make an informed choice about whether you want to invest in the property. A real estate lawyer can also help ensure that the title to a property is good before a buyer closes on a sale.

Try and find a lawyer who is recommended by someone you trust, such as a friend or family member. Never choose a real estate lawyer simply based on the recommendation of your real estate agent. However, you may be able to find a lawyer who is also a licensed realtor.

You should ensure that the lawyer specializes in real estate law by checking with state and local bar associations and realtors’ associations. The American College of Real Estate Lawyers (ACREL) website provides links to members by state, and has many members from Ohio.

Most lawyers will answer preliminary questions for free. Make a list of your questions and use this list to help you find a lawyer who you think will represent your interests in a competent and ethical manner. Before making a final decision, ask what the lawyer’s charges are. Some real estate lawyers will work on for a fixed fee in more straightforward cases.

Non-Performing Notes (NPN’s) are an excellent way to invest in Real Estate, without getting dirty, or dealing with toilets, termites, or tenants. It involves buying the defaulted mortgage and promissory note from a bank, hedge fund, or its current owner. Now you are the bank, and no one ever calls the bank if the toilet is clogged, so you can have a restful night and weekend.

The promissory note, or note for short, is a secured debt, attached to the mortgage on the house. Depending on the state, the mortgage might sometimes be called Trust Deed, Contract for Deed, or Land Contract, though they are all instruments used to buy a home. Once the note is paid off, the mortgage & note is marked as paid, and the owner has full title to the property.

However, life throws many problems at us, and for whatever reason, someone stops paying the note off. They could lose their job, spouse, or sadly, their limbs and they don’t have the money to make the payments at this time.

When this happens, the banks for the most part really don’t care, and just want their money past due, now! They are not that good at getting them to repay no matter how hard they try, as you can’t squeeze blood out of a rock. Nor do they want the property back. When they can’t get the homeowner to pay, they want to clear this bad debt off their books. They sell them in bulk by the truckload to equity or hedge funds, which then sell them off by the case or the bottle to investors.

These defaulted and secured notes are available for pennies on the dollar. Ideally the goal would be to try to get them to repay. Getting them repaying is goal #1 goal, though it does not always work that way, so here is a list of 12 exit strategies to profit from them as investors.

Since you now own the note, and are now the bank, you can do whatever you want, and if you are creative, you can come up with many ways to exit.

Here Are 12 Ways To Profit From Non-Performing Real Estate Notes:

1. Repay or Modify The Note

The #1 goal is to help the homeowner stay in their house, and since the new owner paid very little for it compared to the value of the property, they can forgive some of the past due amounts, and still make a nice profit, though only If the homeowner wants to stay. You can lower the unpaid balance, payments, interest, or any combination of the three. After 6-12 trial payments to show good faith, we can modify the loan with any term we want.

2. Assumption Of Note By Someone Else

Since we own the note, we can find a family member or friend of the homeowner who would like to move in, and have them start repaying the monthly payments. If they keep paying, there is no need to modify the terms if it’s mutually agreeable to both parties.

3. Resell The Note For A Profit

Many people are looking for NPN’s, and they can be resold quickly for a higher price to another investor. Sometimes this makes sense to get a small amount upfront vs. spending time and money on a note that be a little too hairy, or you need the funds quickly.

4. Short Sale

If the homeowner has equity, a short sale is a good way to let them exit, and get their equity out. It requires our blessing as the mortgage holder, and a Real Estate Agent who will list it on the MLS. It’s a win-win for both parties.

5. Deed-In-Lieu Of Foreclosure

If the person does not want to stay, the next exit would be to ask them to sign the deed over to you in lieu of foreclosing or a DIL. Many times they will do this if they are upside down, and just don’t want the headache any more. It allows them to “save face,” exit with dignity, and we will not go after them for any amounts owed over the sale price, as well as not filing a 1099 with the IRS.

6. Cash For Keys

Sometimes they want to leave and they have equity, or are just being stubborn. This is when we offer them cash to leave, and sign the deed over to us. We typically give them a small amount to show good faith, then, give the rest after they leave the place cleaned out, and not damaged. The amount can vary from $500 to $100,000 or more depending if it’s a shotgun shack in the Ozarks vs. a $3 million Manhattan condo.

We saw a note for such a condo, and the person living in it was a retired schoolteacher with rent control, whose monthly payments were less than the taxes and HOA fees & they had no desire to move. The note was being offered for $1.5MM, so even a $500,000 cash for keys would have been a good deal to have a $1MM profit!

7. Foreclosure

Foreclosure is our last resort when all else fails. On a vacant property, we always start foreclosure right away. If the homeowner is still there, and refuses to work with us, we also foreclose. This takes anywhere from 2 months to 4-5 years, depending on the state. We will also pursue a deficiency judgment for any balance owed us over the price we get for selling the property when we have title, and if they are really jerks, we can submit a 1099 to the IRS for that amount.

The last three exits above are the starting point to obtaining title to the property, and also have multiple exits depending on how creative you want to be.

8. Sell As-Is

You can then just sell the property AS-IS to a rehabber or handyman, on your own, or with a Realtor. Advertising on Craigslist or at a local Meet Up is a great way to sell this.

9. Fix & Flip

In this case, you are like a traditional rehabber; you obtain title, fix it up, and sell it to a homeowner or investor as a move-in ready property for more than As-Is.

10. Fix & Rent

You can perform a low cost rehab, using lower quality paint, carpet, and tiles to rent out if there is a shortage of rentals in the area. Though you are now a landlord, and have to deal with the toilets, tenants, termites, roof, hot water, and all the other issues since you own the house.

11. Fix and Sell

This is a great way to create your own paper. You sell the rehabbed property, either As-Is or fixed up to a homeowner, typically for a higher price than selling. Since you are the owner, you can create a note out of thin air, and a mortgage or Land Contract or Contract for Deed that has terms the homeowner can afford and collect the payments, just like the bank for 20-30 years.

12. Fix, Rent, And Sell To An Investor

You can sell a “loaded” rental to an investor as a turnkey investment, typically for a higher price than a standard fix & flip. One method is 25% to 50% down, and write a seller carryback note that will use the rents to pay the balance off, with a monthly payment that is lower than the rent, so the investor gets some cash flow each month with the difference. This way, the renter pays off much of the cost of the property.

With so many ways to profit from a defaulted real estate note, it’s hard to lose money unless you pay too much for the note. There are no bad notes, just overpaying can get you into trouble.